CFA Level 1 Practice Exam PDF, Chartered Financial Analyst

Question #1

The z-value of a selected observation, X, from a normal distribution, also known as the normal deviate or the z- score of X, represents:

A. he probability that another observation from the distribution will be less than or equal to X

B. he probability that another observation from the distribution will be more than or equal to X

C. he distance of X from the mean, in terms of standard deviation

D. he distance of X from zero

View answer

Correct Answer: C

Question #2

Liz Hurley is an investment advisor who has recently started advising a client, Zeta, regarding investment decisions. Zeta lives in Imphal, where investment laws are quite lax, almost non-existent. Hurley is domiciled in Britania, where investment laws clearly specify that the laws governing finance professionals in any given case are the laws that govern their clients. Britania laws, in general, are far stricter than the AIMR code of ethics. In her dealings with Zeta, Hurley must follow

A. mphal's laws

B. ritania's laws

C. IMR's code of ethics

D. combination of Britania's laws and AIMR code which results in a stricter set of laws

View answer

Correct Answer: C

Question #3

Standard III (C) deals with conflicts of interest of a member with ________.

A. ther investment professionals

B. one of these answers

C. he client

D. olleagues at the same firm

E. he investing public

View answer

Correct Answer: B

Question #4

A fixed-income portfolio manager at Franken Investments is considering adding a security to his existing portfolio. The bond, issued by KDJ Company, has an option adjusted spread (OAS) equal to 0.23% and a Z- spread equal to 0.15%. The manager is concerned that his portfolio is dominated by callable bonds and will only accept new securities if they contain no call options. Should the portfolio manager add the KDJ bond to his portfolio?

A. es, the negative option cost implies the bond is putable

B. o, the positive option cost implies the bond is callable

C. o, the negative option cost implies the bond is callable

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Correct Answer: A

Question #5

Jumbotron's accountant has mistakenly understated depreciation by 125 and understated accounts payables by 65. Jumbotron's tax rate is 40%. Which of the following is/are true?

A. ssets are overstated by 125II

B. II only

C. & III

D. one of them

E. I, III & IV

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Correct Answer: B

Question #6

In the Keynesian model, if the marginal propensity to consume were 0.75, an independent decline in investment of $10 billion would cause equilibrium income to decline ________.

A. 40 billion

B. 75 billion

C. 10 billion

D. 50 billion

View answer

Correct Answer: C

Question #7

Under the indirect method, when reporting the cash flow from operations the starting point is

A. he net changes of the operating asset and liability accounts

B. ost of goods sold

C. et income

D. ll noncash expenses

E. ash collections

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Correct Answer: C

Question #8

What is the proportion of the total area under the normal curve within plus and minus two standard deviation?

A. 8%

B. 5%

C. 9

D. one of these answers are correct

E. 4%

View answer

Correct Answer: B

Question #9

The average age of a firm's depreciable assets is 9 years. The firm, subject to a tax rate of 40%, saves 20,000 each year due to depreciation expense. The total depreciation that the firm has accumulated is _______.

A. 00,000

B. 80,000

C. 50,000

D. 2,000

View answer

Correct Answer: C

Question #10

Hercules Poirot has just received the AIMR letter, informing him that he has passed the Level III exam in the CFA program. He changes his resume to reflect this information. The header now says, "Hercules Poirot, CFA," the "CFA" written in a smaller font. With respect to Standard II (A) - Use of Professional Designation - if Hercules circulates this resume, he will:

A. ave violated Standard II (A)

B. ave violated Standard II (A)

C. ave violated Standard II (A)

D. ot have violated Standard II (A)

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Correct Answer: A

Question #11

Bay Co. purchased a 3-month U.S. Treasury bill. In preparing Bay's statement of cash flows, this purchase would

A. ave no effect

B. e treated as an outflow from lending activities

C. e treated as an outflow from financing activities

D. e treated as an outflow from operating activities

E. e treated as an outflow from investing activities

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Correct Answer: A

Question #12

Which of the following is true with respect to extraordinary items?

A. xtraordinary items are recorded net of tax in income statement

B. and IV

C. , III and IV

D. I and IV

E. , II and III

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Correct Answer: A

Question #13

Ball-Bearing, Inc. produces ball bearings automatically on a Kronar BBX machine. For one of the ball bearings, the mean diameter is set at 20mm. the standard deviation of the production over a long period of time was computer to be 0.150 mm. What percent of the ball bearings will have a diameter of 20.27 mm or more?

A. 1

B. 5

C. 2

D. one of these answers

E.

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Correct Answer: E

Question #14

What should an analyst look for when evaluating a firm's cash and cash equivalent position that would cause the firm's cash position to be less liquid?

A. he amount of stock dividends required during the coming year

B. one of these answers

C. ll of these answers

D. otential limitations on the use of cash such as restricted balances

E. he amount of deposit collection float

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Correct Answer: D

Question #15

There are two stocks in an index:Nothing has changed except now the price of Company A's stock is selling for $4 per share. What is the price- weighted index and what is the value-weighted index?

A. rice-weighted = 8; Value-weighted =2

B. rice-weighted = 10; Value-weighted = 1

C. rice-weighted = 7; Value-weighted = 1

D. rice-weighted = 6; Value-weighted = 0

View answer

Correct Answer: C

Question #16

Data Droid manages several investment accounts and directs most of the client transactions through Lore's brokerage firm. Lore provides him with excellent, reliable research, though his commissions are higher than industry standards. The research is used to manage all the client accounts. Data has just been approached by the Troy brokerage firm, which is a newcomer in the business. While this firm does not provide any research, it charges commissions that are significantly lower than those charged by Lore.

A. as not violated the code since he has a long-standing relationship with Lore

B. e has violated the code of ethics, which requires him to keep the expenses to a minimum

C. as not violated the code if Lore's research justifies the additional expenses

D. as violated the code by violating the Prudent Man Rule

View answer

Correct Answer: C

Question #17

Given the following points: (-2, 0), (-1,0), (1, 1) and (2, 3) If the regression equation is Y' = 2 - .4X, what is the value of Y when X = -3?

A. one of these answers

B.

C. 10

D.

E. 4

View answer

Correct Answer: B

Question #18

Howard Keane is a strategist for Dove Investments. His models indicate that the expected inflation rate will be 3.0%. The real rate of return on the S&P 500 index is expected to be 8.7%, while the real rate of return on U.S. Treasury notes is expected to be 1.0%. Howard is interested in the current equity risk premium. Based on the information above, the equity risk premium is closest to:

A. %

B. %

C. %

View answer

Correct Answer: C

Question #19

A derivative security pays $100 if the Dow Jones Industrial Average shows a 15% return over the next year and does not pay anything of the return is lower. If the security costs $45 and its expected return is 30%, what's the probability that the Dow Jones return will exceed 15%?

A. 9

B. 8

C. 1

D. 1

View answer

Correct Answer: B

Question #20

The sampling distribution of the sampling mean is:

A. he distribution of the means of all possible samples of a given size from a given population

B. he distribution of all possible samples of a given population

C. he distribution of all possible means of a given population

D. he distribution of the means of all possible samples of a given population

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Correct Answer: A

Question #21

"Horizontal analysis" refers to:

A. omparison of various quantities in a common-sized financial statement

B. omparison of a firm's financial statements with those of a similar firm

C. omparative analysis of financial statements as they evolve over time

D. omparative study of a firm's dependencies on businesses in the different industries in which it is active

View answer

Correct Answer: C

Question #22

According to the AIMR-Performance Presentation Standards, ________ must be used when calculating investment performance.

A. enchmark

B. sset-weighted return

C. ggregate return

D. otal return

View answer

Correct Answer: D

Question #23

When reporting contingencies

A. isclosure of a loss contingency is to be made if there is a remote possibility that the loss has been incurred

B. uarantees of others' indebtedness are reported as a loss contingency only if the loss is considered imminent or highly probable

C. isclosure of a loss contingency must include a dollar estimate of the loss

D. one of these answers

E. loss that is probable but not estimable must be disclosed with a notation that the amount of the loss cannot be estimated

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Correct Answer: E

Question #24

Firm A capitalized an expense and an otherwise identical Firm B expensed it. Then,

A. shows higher operating cash flow and investing cash flow

B. shows higher operating cash flow and lower investing cash flow

C. shows lower operating cash flow and investing cash flow

D. shows lower operating cash flow and higher investing cash flow

View answer

Correct Answer: B

Question #25

In a systematic random sampling method,

A. sample selected such that every member of the population has the same chance of being selected

B. sample is selected by randomly from within the first N members of the population and then selecting every Nth member of the population

C. sample is selected by drawing numbers from a normal probability distribution

D. sample is selected by first dividing the population into groups and then selecting members from each group

View answer

Correct Answer: B

Question #26

What annual interest rate, compounded annually, would cause a series of 20 deposits of $1,000 to accumulate to $40,000, if the first deposit is made one year from today?

A.

B.

C.

D.

E. 4

View answer

Correct Answer: A

Question #27

Bert wants to retire a millionaire. If he is 40 years old today and already has $40,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

A. 703

B. 739

C. 738

D. 770

E. 742

View answer

Correct Answer: E

Question #28

According to supply-side theory, an increase in marginal tax rates will

A. ll of these answers

B. ncourage individuals to substitute less-desired, tax-deductible goods for more-desired, nondeductible goods

C. ecrease the supply of capital and reduce its productive efficiency

D. ecrease the supply of labor and reduce its productive efficiency

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Correct Answer: A

Question #29

Which of the following determine(s) the demand curve for a good?

A. isposable income

B. & III

C. , III & IV

D. , II & III

E. I only

View answer

Correct Answer: B

Question #30

"Counter-cyclical macroeconomic policy will be ineffective as a stabilization tool because people will undermine the policy by adjusting their choices once they expect a systematic policy response to recessions and booms." This statement most clearly reflects the

A. eynesian view

B. ational expectations view

C. upply-side view

D. 960 view of the Phillips curve

View answer

Correct Answer: B

Question #31

Each salesperson in a large department store chain is rated either below average, average, or above average with respect to sales ability. Each salesperson is also rated with respect to his or her potential for advancement either fair, good, or excellent. These traits for the 500 salespeople were cross classified into the following table.Sales Ability Potential for AdvancementFair Good ExcellentBelow Average 161222Average 456045Above Average 9372135What is the probability that a salesperson selected at rand

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: E

Question #32

Peterson Investments has three bond portfolio managers. Manager X invests only in U.S. Treasury STRIPS. Manager Y invests only in putable corporate bonds. Manager Z invests only in mortgage-backed securities guaranteed by GNMA. Which of the following statements is most likely to be TRUE regarding the risks of each manager's portfolio?

A. anager X has more reinvestment risk than Manager Z

B. anager Z has more volatility risk than Manager X

C. anager Y has more interest rate risk than Manager X

View answer

Correct Answer: B

Question #33

Minority interest on the consolidated balance sheet is listed ________.

A. one of these answers

B. s a liability

C. etween liabilities and shareholders' equity

D. s a component of shareholders' equity

E. s an asset

View answer

Correct Answer: C

Question #34

Mike Bowers has observed that during 2004 the S&P 500 index officially reported a return of 20%. After recalculating the returns on an equally weighted basis, Bowers estimates that the index returned 15%. The difference in the two calculations of return is best explained by:

A. arge capitalization stocks outperforming small capitalization stocks

B. mall capitalization stocks outperforming large capitalization stocks

C. he interest expenses on margin accounts

View answer

Correct Answer: A

Question #35

You are examining the return on equity ratios of the nation's publicly owned companies. You wish to calculate a typical deviation from the average ROE, but you do not have time to gather data on all the firms. What measure should you use?

A. opulation variance

B. ample variance

C. opulation standard deviation

D. ample standard deviation

View answer

Correct Answer: D

Question #36

Mike Jordan recently met his old friend, Charlie Barklee, who's an accomplished statistician. Charlie showed him his new model for predicting stock prices and after considerable discussion, Mike was convinced the model was a viable alternative to his current methodology for picking stocks. To test it, he downloaded historical data from a well-known statistical data provider's web site. The tests indicated that some parts of the model needed fine tuning, which Mike implemented himself, without Charlie's help

A. annot circulate the model since it is not publicly available

B. an show his clients the model, without any special disclosures, because all of the tests were done by him with publicly available data

C. one of these answers

D. ust acknowledge Charlie's contribution

View answer

Correct Answer: D

Question #37

The probability that SUV sales will decline by over 10% by June 1 if gasoline prices increase by 50% by May 1, is called:

A. lagged likelihood

B. n unconditional probability

C. joint probability

D. conditional probability

View answer

Correct Answer: D

Question #38

If you deposit $202.50 today into an account paying 6% per year simple interest, how much interest will you have earned in 2 years?

A. 2

B. 20

C. 24

D. 24

E. 26

View answer

Correct Answer: C

Question #39

Kruskal Meriwether is a senior research analyst with Bellwether Advisors. He has been following Crystals &Candles a publicly traded firm which makes high-quality diamond jewelry. Kruskal, after extensive interviews with senior management at Crystals, has inferred that the firm is about to take over a diamond- mining firm in South Africa at a rock-bottom price. The Crystal management has refused to explicitly confirm or deny this but Kruskal firmly believes that such a deal is in the works. He has not used a

A. iolated Standard IV (1) - Reasonable Basis & Representation

B. ot violated any AIMR code in this incident

C. iolated Standard IV (B

D. iolated Standard IV (B

View answer

Correct Answer: B

Question #40

If we reject the null hypothesis what can we conclude subject to the alpha risk?

A. lternative hypothesis is false

B. ull hypothesis is false

C. ull hypothesis is true

D. oth the null hypothesis and the alternative hypothesis are false

E. oth the null hypothesis and the alternative hypothesis are true

View answer

Correct Answer: B

Question #41

Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except

A. he manager's soft-dollar practice must be disclosed

B. he compensation received for engaging in the paying up must be reported in writing to the manager's employer

C. he commission paid must be reasonable in relation to the research and execution services received

D. he goods or services purchased must be for "research service

E. t all times, the manager must seek best price and execution

View answer

Correct Answer: B

Question #42

Within the simple Keynesian model, when an economy operates below its long-run, full-employment outputconstraint, an increase in aggregate demand will lead to an increase in

A. eal income

B. nemployment

C. rices

D. mployment, output and prices, but real income will remain constant

E. nterest rates and money income, but employment and real income will remain constant

View answer

Correct Answer: A

Question #43

How much would you have in a savings account 12 months from now if you start with a balance of $3,000 today, make a deposit of $1,000 in 6 months and make another deposit 6 months after that of $500? Assume that interest accrues at 6% per year, compounded monthly.

A. 4,684

B. 4,777

C. 4,715

D. 4,500

E. 2,500

View answer

Correct Answer: C

Question #44

Another name for "access" person is ________.

A. one of these answers

B. upervisor

C. mbudsman

D. uardian

E. iduciary

F. overed person

View answer

Correct Answer: F

Question #45

Eileen Hart, CFA, is a fixed income portfolio manager for MTY Investment Management. Hart's portfolio includes US agency mortgage-backed securities. Which of the following statements about U.S. agency mortgage-backed securities is least accurate?

A. ash flows from mortgage loans include prepayments, which could affect the future performance of Hart's portfolio

B. ass-through securities issued by Ginnie Mae guarantee the timely payment of interest and principal

C. ollateralized mortgage obligations (CMO) redirect cash flows from the underlying mortgage pool to eliminate prepayment risk

View answer

Correct Answer: C

Question #46

A common size balance sheet shows all quantities as a percentage of ________ while an income statement uses ___________ as the base amount.

A. ales, assets

B. ssets, sales

C. quity, sales

D. ssets, equity

View answer

Correct Answer: B

Question #47

Morgan Inc. was organized on January 2, 1997 with the following capital structure: 10% cumulative preferred stock, par value $100 and liquidation value $105; authorized, issued and outstanding 1,000shares, $100,000 Common stock, par value $25; authorized 100,000 shares; Issued and outstanding 10,000 shares, $250,000 Morgan had net income of $450,000 for its first year, but no dividends were declared. How much was Morgan's book value per preferred share at December 31, 1997?

A. 100

B. 145

C. 110

D. 115

E. 105

View answer

Correct Answer: D

Question #48

If the estimated life of a long-term asset is increased, which of the following is true?

A. he depreciation expense increasesII

B. & II

C. II & IV

D. & III

E. , III & IV

View answer

Correct Answer: B

Question #49

The bonds of Joslin Corp. are currently callable at par value. The bonds mature in eight years and have a coupon of 8%. The yield on the Joslin bonds is 175 basis points over 8-year U.S. Treasury securities, and the Treasury spot yield curve has a normal, rising shape. As yields on bonds comparable to the Joslin bonds decrease, the Joslin bonds will most likely exhibit:

A. egative convexity

B. ncreasing modified duration

C. ncreasing effective duration

View answer

Correct Answer: A

Question #50

Which of the following is NOT involved in calculating the operating cash flow from net income from operations?

A. ncrease in current assets in the form of receivables

B. ncrease in current liabilities in the form of payables

C. ain from retirement of debt

D. one of these answers

View answer

Correct Answer: C

Question #51

The following data pertain to Cosmotron Company's financial state as of Dec 31, 1994:Net Income $400Increase in inventory $120Decrease in accounts receivable $45Increase in payables $165Depreciatio n$100Dividends paid$85Tax rate 30%What was Cosmotron's operating cash flow in 1994?

A. 590

B. 490

C. 675

D. 505

View answer

Correct Answer: A

Question #52

Which of the following statements regarding the coefficient of correlation is true?

A. t ranges from -1

B. value of 0

C. one of these answers

D. ll of these answers

E. t measures the strength of the relationship between two variables

View answer

Correct Answer: D

Question #53

In an open economy, the market demand for domestic products is

A. verstated by the horizontal sum of the domestic and foreign demand

B. he horizontal sum of domestic and foreign demand

C. nderstated by the horizontal sum of the domestic and foreign demand

D. he vertical sum of domestic and foreign demand

View answer

Correct Answer: B

Question #54

The monthly compounded rate is 15% quoted on an annualized basis. The equivalent quarterly compounded rate is:

A. 5

B. 5

C. 5

D. 4

View answer

Correct Answer: A

Question #55

Suppose the least squares regression equation is Y' = 1202 + 1,133X. When X=3, what does Y' equal?

A. one of these answers

B. ,734

C. ,601

D. ,000

E. ,050

View answer

Correct Answer: C

Question #56

Two portfolio managers at an investment management firm are discussing option strategies for their clients' portfolios. The first manager is considering a covered call strategy on Consolidated Steel Inc. (CSI). The manager states that the strategy is attractive since it will increase the expected returns from the anticipated appreciation in CSI, while reducing the downside risk. The second manager is considering a protective put strategy on Millwood Lumber Company (MLC). The manager states that the protecti

A. nly the first manager is incorrect

B. nly the second manager is incorrect

C. oth the first manager and the second manager are incorrect

View answer

Correct Answer: C

Question #57

Which of the following is/ are true?

A. oubling every single value in a sample doubles the sample mean

B. only

C. & III

D. , II & III

E. I only

F. II only

View answer

Correct Answer: A

Question #58

According to SFAC 5, the condition(s) that must be met for revenue recognition to take place is

A. he ability to measure the revenue amount

B. here must be no remaining significant contingent obligation that pertains to the sale

C. he verbal or written agreement of the sale

D. he ability to recognized when the revenue actually takes place

E. he completion of the earnings process and assurance of payment

View answer

Correct Answer: E

Question #59

Which of the following are mandatory disclosure requirements under AIMR-PPS?

A. he number of portfolios and assets in each composite

B. only

C. and II only

D. , II and III only

E. II and IV only

View answer

Correct Answer: B

Question #60

The financial statements of Multiverse for 1997 showed the following:

A. ividends paid 60

B. rovision for bad debt 15

C. epreciation 90

D. nterest paid 35

E. roceeds from new bonds issued 225

F. onds retired 400

View answer

Correct Answer: D

Question #61

Which of the following is/are true about the Performance Presentation Standards?

A. he PPS are voluntary standards and are not required by AIMR to be adopted by a member or a firm

B. I and III only

C. and III only

D. , II and III

E. II only

View answer

Correct Answer: C

Question #62

According to the AIMR-PPS for venture and private placements, ________ internal rate of return must be presented since inception of the fund and be net of fees, expenses and carry to the limited partner.

A. imited

B. xtended

C. umulative

D. eneral

View answer

Correct Answer: C

Question #63

If business decision makers suddenly become more optimistic about future sales and profits, which of the following will most likely occur?

A. he interest rate will fall, causing both investment and GDP to rise

B. ncome will increase and actual saving will remain constant

C. ctual investment will increase but consumption will decrease, leaving GDP unchanged

D. nvestment will increase, causing both aggregate demand and GDP to increase

View answer

Correct Answer: D

Question #64

If you buy a television for $650 and agree to pay for it with 24 payments of $30 (with the first payment occurring next month), what is the size of the final payment needed at month 24 to completely pay off the television? Assume the interest rate you are being charged is 16% per year, compounded monthly.

A. 47

B. 0

C. 203

D. 30

E. 51

View answer

Correct Answer: E

Question #65

The coefficient of variation of X is three times that of Y. If X and Y have the same means, the variance of Y is:

A. one of these answers

B. ame as that of X

C. hree times that of X

D. ne-third that of X

View answer

Correct Answer: A

Question #66

The following is a distribution of monthly commissions:Monthly Commissions Class Frequencies$600 - $7993$800 - $9997$1,000 - $1,19911$1,200 - $1,39922$1,400 - $1,59940$1,600 - $1,79924$1,800 - $1,9999$2,000 - $2,1994Referring to the table above, what is the relative frequency of those salespersons that earn more than $1,599?

A. 5

B. one of these answers

C. 9

D. 7

E. 0

View answer

Correct Answer: E

Question #67

William Henry, a quantitative analyst with Smith, Kleen & Beetchnutty Brokerage, is examining a data sample and has amassed the following information:Standard deviation of the sample: 0.97Number of observations: 109Degrees of freedom: 2Sample mean: 11.03Assume that Mr. Henry formulates a null hypothesis that states that the value of the population mean is equal to zero. Additionally, assume that the population standard deviation is unknown. Given this information, what is the standard error of the estimate?

A.

B.

C.

D. one of these answers is correct

E.

F.

View answer

Correct Answer: B

Question #68

You are examining a portfolio composed of 10% money-market investments, 30% bonds, and 60% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 6%, and the return on stocks was 7%. What is the portfolio weighted average return?

A.

B.

C.

D. one of these answers is correct

View answer

Correct Answer: C

Question #69

A critical part of Standard IV (A.2) is to distinguish between:

A. esearch reports and investment memoranda

B. nsider trading and appropriate trading

C. FA charterholders and non-CFA charterholders

D. one of these answers

E. mployees and independent contractors

F. ndustry and company analysis

View answer

Correct Answer: A

Question #70

For the normal distribution, the mean plus and minus 1.96 standard deviations will include about what percent of the observations?

A. one of these answers

B. 0%

C. 8%

D. 5%

E. 9

View answer

Correct Answer: D

Question #71

A statistician has framed his hypothesis testing problem as:Ho: mean >= 1 H1: mean < 1For the given sample, he calculates the z-statistic. Then, the region of rejection at the 95% level is given by:

A. -statistic > +1

B. -statistic < -1

C. 1

D. -statistic < -1

View answer

Correct Answer: B

Question #72

Carl Pagan lives in Meesopotamia, where insider trading is not considered a crime. His friend, Ann Dreen, lives in Gondwana, where an investment professional must report any knowledge of criminal activity to the appropriate authorities. The AIMR code of ethics bars insider trading but does not require one to report criminal activity to authorities. With regard to insider trading, Carl must follow ________ and with respect to reporting of criminal activity, Ann must follow ________.

A. eesapotamian law; AIMR code

B. IMR code; Gondwana law

C. eesapotamian law; Gondwana law

D. IMR code; AIMR code

View answer

Correct Answer: B

Question #73

A survey of passengers on domestic flights revealed these miles:Miles Flown Number of Passengers100 - 49916500 - 89941900 - 1299811300 - 1699111700 - 209992100 - 24996What is the range (in miles)?

A. ,100

B. ,999

C. ,499

D. ,399

E. one of these answers

View answer

Correct Answer: D

Question #74

What is a disadvantage of the range as a measure of dispersion?

A. t is not in the same units as the original data

B. t can be distorted by a large mean

C. t is based on only two observations

D. one of these answers

E. t has no disadvantage

View answer

Correct Answer: C

Question #75

An economic researcher publishes evidence that the consensus inflation estimation for the following year has no correlation with the actual inflation level the year before. The estimation error is often very large, but does not display a pattern. Which of the following theories would this evidence support?

A. ational ignorance

B. ean reversion

C. eteroskedasticity

D. onetarist theory

E. ational expectations hypothesis

F. daptive expectations hypothesis

View answer

Correct Answer: E

Question #76

If a firm's asset turnover were to increase by 10% and the tax rate were to increase from 35% to 40%, leaving all else constant, the resultant change in the firm's ROE equals ________.

A. 2

B. 1

C. 1

D. 1

View answer

Correct Answer: C

Question #77

According to the AIMR-PPS, systems incompatibilities

A. auses distortion of performance presentation and needs to be disclosed

B. re one reason for which a firm may not claim compliance for all assets

C. annot be used as a reason for not claiming compliance for all assets

D. ender a firm unable to claim compliance with the PPS, thus the firm should ensure compatibility

View answer

Correct Answer: C

Question #78

A study of 200 stamping firms revealed these incomes after taxes:Income After Taxes Number of FirmsUnder $1 million 102$1 million up to $20 million 61$20 million and more 37What is the probability that a particular firm selected has $1 million or more in income after taxes?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: B

Question #79

Two otherwise identical firms, A and B, have one difference. A has a higher interest expense than B, arising from its higher reliance on debt financing. All other accounting statistics, including net sales and expenses are equal for the two firms. The return on total capital for firm A will be __________ that for firm B.

A. ame as

B. nsufficient information to answer the question

C. ower than

D. igher than

View answer

Correct Answer: D

Question #80

Dayon Grimley has been working as a Tech Sector analyst with an advisory firm for the past 3 years. Recently, he read an analytical report by Sam Swetson about the trends and research developments in the computer chips industry. The report was an in-depth analysis of how the industry had developed, where it seemed to be headed and what impact the developments could have on the growth of the entire industry. In a footnote, Sam had speculated about a secret, ultra-fast chip rumored to be under development by

A. iolated Standard II (C) - Prohibition against Plagiarism

B. I and IV only

C. I and IV only

D. and IV only

E. and III only

View answer

Correct Answer: C

Question #81

Carlos Johanson, a quantitative analyst with Eastern Rhodium Institutional Brokerage, has been instructed to perform a regression analysis to test whether the proliferation of neural networks is positively related to the growth of domestic research grants. Mr. Johanson begins the process by formulating and stating a hypothesis. Now that the hypothesis has been explicitly stated, Mr. Johanson should proceed to which of the following steps? Choose the best answer.

A. pecifying the significance level

B. tating the decision rule

C. ollecting the data and performing the calculations

D. dentifying the appropriate test statistic and probability distribution

E. erforming an autocorrelation test

View answer

Correct Answer: D

Question #82

As a general rule, revenue is normally recognized when it is ________.

A. ealizable

B. easurable and received

C. easurable and earned

D. ealizable and earned

View answer

Correct Answer: D

Question #83

The AIMR Performance Presentation Standards require that firms report, at a minimum, ________ years of performance to claim compliance with the standards.

A. ne

B. ifteen

C. ive

D. en

E. even

F. wo

View answer

Correct Answer: D

Question #84

Which of the following statements is correct regarding Standard II (A) - Use of Professional Designation?

A. oe Martin passed Level I and Level II of the CFA exams and is scheduled for the next Level III exam

B. oe Martin passed Level I and Level II of the CFA exams and is scheduled for the next Level III exam

C. oe Martin passed Level I and Level II of the CFA exams, but is not scheduled for the next Level III exam

D. one of these statements are correct

View answer

Correct Answer: D

Question #85

The first card selected from a standard 52 card deck was a king. If it is returned to the deck, what is the probability that a king will be drawn on the second selection?

A. /4 or 0

B. /13, or 0

C. one of these answers

D. /3 or 0

E. 2/13, or 0

View answer

Correct Answer: B

Question #86

Which of the following can be found in Standard IV?

A. embers shall maintain knowledge of and comply with all applicable laws

B. embers shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty

C. embers shall maintain appropriate records to support the reasonableness of recommendations

D. embers shall not undertake any independent practice in competition with employer without written consent

E. embers shall not participate in plagiarism

View answer

Correct Answer: C

Question #87

Simon Steel Inc. had the following unusual financial events occur this year: Bonds payable were retired 5 years before their scheduled maturity, resulting in a $260,000 gain, Simon has frequently retired bonds early when interest rates declined significantly. A steel forming segment suffered $255,000 in losses from hurricane damage. This was the fourth similar loss sustained in a 5-year period at that location. A segment of Simon's operations, steel transportation, was sold at a net loss of $350,000. This w

A. 260,000

B. (345,000)

C. 5,000

D. (90,000)

E. (350,000)

View answer

Correct Answer: A

Question #88

The method used by the U.S. Treasury to issue debt is best described as a(n):

A. egular cycle auction--multiple price

B. egular cycle auction--single price

C. d hoc auction system

View answer

Correct Answer: B

Question #89

Standard V (B) deals with ________.

A. one of these answers

B. riority of Transactions

C. reservation of Confidentiality

D. erformance Presentation

E. rohibition against Use of Material Nonpublic Information

F. isclosure of Conflicts to Clients and Prospects

View answer

Correct Answer: D

Question #90

An operating cycle is:

A. he time frame from when a company purchases goods and or services to the point at which the company generates a receivable

B. he amount of time that a company allots to any individual product line

C. lways one full fiscal year

D. he circle of time from the commitment of cash for purchases until the collection of receivables resulting from the sale of goods or services

View answer

Correct Answer: D

Question #91

________ exchange-rates are determined by the market forces of supply and demand.

A. one of these answers

B. ixed

C. ixed

D. lexible

View answer

Correct Answer: D

Question #92

John buys a house that costs $175,000 and agrees to pay for it with a 15 year mortgage at 7% per year, compounded monthly. What is John's monthly payment on the loan?

A. 972

B. 552

C. 12,218

D. 12,250

E. 1,572

View answer

Correct Answer: E

Question #93

If you buy an item for $1,500 and agree to pay for it with 36 monthly payments of $55.50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

A. 4

B. 6

C. 8

D. 1

E. 9

View answer

Correct Answer: E

Question #94

The results of the regressions using 200 observation on a variable Y against X are as follows:Coefficient Standard errorintercept 3.62.1slope-8.11.3R square = 49%The correlation coefficient between X and Y is ________.

A. 0

B. 0

C. 0

D. 8

View answer

Correct Answer: B

Question #95

The formula for calculating profit margin is

A. otal sales divided by total expenses

B. et sales minus total expenses divided by net income

C. et income divided by net sales

D. one of these answers is correct

View answer

Correct Answer: C

Question #96

According to the AIMR-PPS, subsectors or carve-outs of larger international composites

A. ay be used to create stand-alone composites only if the subsectors are actually managed as separate entities, they need not have their own cash allocations or currency management

B. ay be used to create stand-alone composites only if the subsectors are actually managed as separate entities with their own cash allocations and currency management

C. ay never be included in the composite with the parent company

D. ay never be used to create stand-alone composites under any circumstances

View answer

Correct Answer: B

Question #97

Melinda May, a quantitative analyst with Smith, Kleen, & Beetchnutty Brokerage, has been instructed to perform a statistical analysis to test whether the earnings of biotechnology companies are negatively related to the growth of generic drug consumption. Ms. May begins her analysis by formulating and stating a hypothesis. Next, Melinda proceeds with an identification of the appropriate test statistic and its probability distribution. Now that the first two steps in the hypothesis testing process have been

A. valuating the goodness of fit

B. one of these answers is correct

C. pecifying the significance level

D. tating the decision rule

E. ollecting the data and performing the calculations

F. etermining the p-value

View answer

Correct Answer: C

Question #98

Which of the following expenses can be capitalized?

A. esearch costs incurred in developing a new medicine

B. I only

C. & II

D. II only

E. one of them

View answer

Correct Answer: A

Question #99

An end-of-period adjustment for depreciation of fixed assets involves an entry to an expense and

A. he increase of a contra account

B. he decrease of a contra account

C. he reduction of a liability

D. he increase of a liability

View answer

Correct Answer: A

Question #100

Two analysts have been asked to submit brief summaries to their supervisor on various risks related to bond investing. Included in these summaries were the following statements from each analyst:Analyst A:In a decreasing interest rate environment, both callable and amortizing securities will experience the negative effects of price compression.Analyst B:The reinvestment risk of a portfolio can be reduced by replacing zero coupon securities with shorter maturity, amortizing securities such as early tranches

A. nly Analyst A is correct

B. nly Analyst B is correct

C. oth analysts are correct

View answer

Correct Answer: A

Question #101

Complete the following: According to The Code of Ethics, members of AIMR shall: "Act with ________, competence, dignity and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."

A. irtue

B. one of these answers

C. onorability

D. ntegrity

E. orality

View answer

Correct Answer: D

Question #102

After the initial feasibility studies, all software development costs can be capitalized under US GAAP. Ultrasoft and Littlesoft are rival firms which are similar in size and scope of operations. Ultrasoft has decided not to capitalize but expense software development costs in Year1. Littlesoft, on the other hand, has decided to capitalize a similar amount of development costs, to be amortized over 5 years. Which of the following is/are true over the next 5 years?

A. ittlesoft will show higher equity than UltrasoftII

B. II only

C. I & III

D. & II

E. , II & III

View answer

Correct Answer: D

Question #103

Calculating COGS under a periodic inventory system relies on which of the following?

A. physical count of the ending inventory

B. n analysis of the inventory value of each sale

C. oth of these answers are correct

D. either of these answers is correct

View answer

Correct Answer: A

Question #104

Which of the following factors would reduce aggregate demand in the goods and services market?

A. decrease in the real interest rate

B. n increase in the expected inflation rate

C. ncreased pessimism concerning the expected strength of future business conditions

D. n increase in stock prices

View answer

Correct Answer: C

Question #105

Martha Maris is a qualified investment advisor who has been handling investment accounts of a few wealthy friends for a fee. She recently interviewed with Capital Management, Inc. and accepted a position as a money manager with them. She:

A. eeds to inform only Capital Management about her old clients

B. ust inform Capital Management as well as all her old clients in writing about the arrangement

C. oes not have to inform her client friends about her employment with Capital Management

D. oes not have to inform Capital Management about her old clients since they were not retained through Capital Management

View answer

Correct Answer: B

Question #106

Which of the following will most affect the valuation of a firm's receivables?

A. he rate of sales growth

B. one of these answers

C. he type of business that a firm is engaged in

D. he allowance for uncollectible accounts

E. he seasonality of a company's products

View answer

Correct Answer: D

Question #107

A firm has total assets of 5,320, net sales of 8,395, average receivables of 894, current assets of 2,393 and a current ratio of 1.2. Its average receivables collection period equals ________.

A. 1

B. 9

C. 3

D. 8

E. eceivables turnover ratio = Net annual sales/average receivables

View answer

Correct Answer: D

Question #108

Hupta Corporation reports cost of goods sold for the year ended December 31, 1998 of $3,500. Other information as of December 31 is as follows:1997 1998Accounts Receivable $500 $550Inventory $400 $380Accounts Payable $250 $290Cash paid to suppliers for year ended December 31, 1998 is ________.

A. 3,520

B. 3,480

C. 3,440

D. 3,560

View answer

Correct Answer: C

Question #109

Which of the following does not affect a firm's cash flows:

A. arranty expenses

B. ale of an "impaired" asset

C. urchase of a trademark financed by stock issuance

D. hange of depreciation method

View answer

Correct Answer: C

Question #110

Which of the following is/are not extraordinary items?

A. rite-downs of inventoryII

B. & III

C. & IV

D. I, III & IV

E. & II

View answer

Correct Answer: B

Question #111

Investments in debt securities classified as held-to-maturity securities should be valued at

A. air value

B. ower of cost or market

C. resent value

D. mortized cost

E. cquisition cost

View answer

Correct Answer: D

Question #112

What are half of the observations always greater than?

A. edian

B. eometric mean

C. one of these answers

D. ode

E. ean

View answer

Correct Answer: A

Question #113

You are examining a portfolio composed of 1/3 money-market investments, 1/3 bonds, and 1/3 stocks. Last year, the return on the money-market investments was 5%; the return on bonds was 15%, and the return on stocks was -2%. What is the portfolio's weighted-average return?

A.

B.

C.

D.

View answer

Correct Answer: D

Question #114

A firm has purchased heavy machinery with a useful life of 7 years. It cost $28,000 and its salvage value is estimated at $4,000. If the firm uses double declining method, what's the depreciation expense recognized in Year 1?

A. 3,429

B. 8,000

C. 6,857

D. 4,000

View answer

Correct Answer: B

Question #115

Mark King, CFA, is valuing Nacho Inc., a food distributor. Nacho is currently selling for $28 per share and has a 3.0% dividend yield. The risk-free rate is 4%, and the expected return on the market is 8%. King has calculated Nacho's beta to be 1.25. Based on King's analysis, Nacho stock's intrinsic value is $30 per share. King should:

A. nvest in Nacho shares

B. ot invest in Nacho shares because the required rate of return is less than the expected rate of return

C. ot invest in Nacho shares because the required rate of return is greater than the expected rate of return

View answer

Correct Answer: A

Question #116

If 68% of the observations of a bell-shaped, symmetrical frequency distribution fall between -20 and + 60, the mean and the standard deviation of the distribution are:

A. 0, 20

B. 0, 40

C. 0, 20

D. 0, 40

View answer

Correct Answer: D

Question #117

The lowest significance level at which the null hypothesis can be rejected is called the:

A. -statistic of the test

B. -value of the test

C. -value of the test

D. ritical value of the test

E. one of these answers

View answer

Correct Answer: C

Question #118

Both a fixed exchange rate and ________ can be maintained if a country is willing to use its monetary policy to maintain the fixed exchange rate.

A. urrent account deficit

B. urrency convertibility

C. apital account surplus

D. apital account deficit

E. urrent account surplus

View answer

Correct Answer: B

Question #119

Anne Quincy took the short side of a forward contract on the S&P 500 Index three months ago in an attempt to hedge short-term changes in her index portfolio. The contract had a term of six months at the purchase date, a contract price of $ 1,221 and Mason Inc. as the counterparty. Quincy is now considering unwinding her short position using either a three-month Mason Inc. contract with a price of $1,220, a three-month JonesCo contract with a price of S1,219, or a three-month Redding Company contract with a

A. onesCo

B. ason Inc

C. edding Company

View answer

Correct Answer: B

Question #120

Miller heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subject to the Code and Standards. If Miller delegates some supervisory duties, which statement best describes her responsibilities under the Code and Standards?

A. iller's supervisory responsibilities do not apply to those subordinates who are not subject to the Codes and Standards

B. iller no longer has supervisory responsibility for those duties delegated to her subordinates

C. iller retains supervisory responsibility for those duties despite her delegation of some duties

D. IMR's Standards prevent Miller from delegating supervisory duties to subordinates

View answer

Correct Answer: C

Question #121

Which of the following is NOT true about Standard IV (A.2) - Research Reports?

A. one of these answers

B. he analyst must separate fact from statistical conjecture to be in compliance with the standard

C. s long as the analyst has carried out adequate investigation, she can omit from the report certain aspects of the investigations that she deems unimportant

D. he report must contain a basic description of the characteristics of the investment under consideration

View answer

Correct Answer: A

Question #122

You are examining the return on equity ratios of the nation's commercial airlines. You have calculated the mean ROE to be 8%, and the sum of the squared ROEs is 0.27. Assuming there are 30 commercial airlines, what is the population standard deviation of ROEs in this industry?

A.

B.

C.

D.

View answer

Correct Answer: A

Question #123

Firms report payments for capital leases in the cash flow statement

A. nly as financing cash flows

B. artly as operating cash flows and partly as investing cash flows

C. nly as investing cash flows

D. artly as operating cash flows and partly as financing cash flows

View answer

Correct Answer: D

Question #124

When formulating an investment policy for a client, which of the following falls under the category "client identification?"

A. isk tolerance

B. ime horizon

C. xpected cash flows

D. he existence of separate beneficiaries

E. one of these answers

View answer

Correct Answer: D

Question #125

How much would an original deposit of $2,500 grow to be after 6 and a half years, if the deposit earns interest at 8.5% per year, compounded monthly?

A. 4,335

B. 5,541

C. 3,601

D. 10,183

E. 3,570

View answer

Correct Answer: A

Question #126

The relationship of the total debt to the total equity of a firm is a measure of ________.

A. iquidity

B. reditor risk

C. one of these answers

D. rofitability

E. olvency

View answer

Correct Answer: B

Question #127

According to monetarists, ________ is a primary source of economic instability:

A. luctuations in aggregate demand for money

B. rratic monetary policy

C. luctuations in aggregate demand for money and fluctuations in aggregate consumption demands

D. luctuations in aggregate consumption demands

View answer

Correct Answer: B

Question #128

Since World War II the labor force participation rate (LPR)

A. f women has steadily decreased while the LPR for men has increased

B. f women has steadily increased while the LPR for men has declined

C. f both women and men has increased

D. f both women and men has decreased

View answer

Correct Answer: B

Question #129

A call option on Hartco stock with an exercise price of S50 and an expiration date one year from now is worth $4.00 today. A put option on Hartco stock with an exercise price of $50 and an expiration date one year from now is worth $2.25 today. U.S. Treasury notes maturing in one year are yielding 2.0%. Hartco does not pay a dividend. The value of Hartco*s stock is closest to:

A. 43 per share

B. 47 per share

C. 51 per share

View answer

Correct Answer: C

Question #130

To carry out a comparative analysis of a firm's financial statements over a period of more than 3-4 years, one should use ________.

A. ear-to-year change analysis

B. orizon analysis

C. atio analysis

D. ndex-number trend analysis

View answer

Correct Answer: D

Question #131

State the formula for approximating interest rate parity.

A. h - rf = f1 - e0 * e0

B. h + rf = f1 - e0/e0

C. h + rf = f1 + e0/e0

D. h - rf = f1 + e0/e0

E. h - rf = f1 - e0/e0

View answer

Correct Answer: E

Question #132

Which of the following is not a characteristic of the normal probability distribution?

A. ell shaped

B. ymmetrical

C. ll of these answers

D. ositively skewed

E. symptotic

View answer

Correct Answer: D

Question #133

Which of the following is not a current asset?

A. ccumulated Depreciation

B. llowance for Uncollectible Accounts

C. otes Receivable

D. repaid Insurance

View answer

Correct Answer: A

Question #134

Standard IV (B.5) is known as ________.

A. one of these answers

B. reservation of Confidentiality

C. air Dealing

D. nvestment Process

E. uty to Employer

F. nteractions with Clients and Prospects

View answer

Correct Answer: B

Question #135

"An erratic monetary policy is the primary sources of business instability and inflation." This view is held by

A. onetarists

B. eynesians

C. lassical economists

D. eoclassical economists

View answer

Correct Answer: A

Question #136

Which of the following is / are true?

A. sample is a subset of the population

B. , II, III & IV

C. , III & IV

D. V only

E. only

F. & III

View answer

Correct Answer: F

Question #137

A normally distributed variable has a mean of 45. If 95% of the observations on the variable fall between 30 and 60, the standard deviation of the variable is approximately ________.

A.

B. 0

C. nsufficient information

D. 5

View answer

Correct Answer: A

Question #138

What is the measure that indicates how precise a prediction of Y is based on X or, conversely, how inaccurate the prediction might be?

A. east squares principle

B. lope of the line

C. one of these answers

D. intercept

E. egression equation

View answer

Correct Answer: C

Question #139

Denver Savin, CFA, is an analyst for an investment boutique. Savin is considering investing in one of the following two companies. Savin's evaluation is based on his estimation of price to cash flow. Bell United is a producer of aluminum. The company earned record profits in the latest year. Delmar is a major supplier to the worldwide auto industry. U.S. auto industry problems have reduced Delmar's earnings in the latest year.Based on the price to cash flow multiple, state whether Delmar or Bell United is m

A. elmar is more attractive

B. ell United is more attractive

C. elmar and Bell United are equally attractive

View answer

Correct Answer: A

Question #140

________ establishes the fiduciary principles for U.S. corporate pension plans.

A. IMR

B. SPC

C. RISA

D. TO

E. MIFA

F. one of these answers

View answer

Correct Answer: C

Question #141

Which of the following would increase GDP?

A. ercedes-Benz begins to produce and sell cars in Alabama

B. n American investor buys 100 shares of Ford stock

C. ord Motor Company begins to produce and sell cars in Japan

D. n American investor purchases 100 shares of Mercedes-Benz stock

View answer

Correct Answer: A

Question #142

Under AIMR Rules of Procedure for the Proceeding Related to Professional Conduct, membership in AIMR and/or the right to hold and to use the CFA designation may be summarily suspended by AIMR's Designated Officer for the following misconduct:

A. onviction for a crime that is defined as a felony or its equivalent

B. only

C. and II only

D. V only

E. I only

F. II only

View answer

Correct Answer: A

Question #143

The Prudent Man Rule states that the trustee must achieve an equitable balance between current income and the ________ of principal in ________.

A. rudent management; in money markets

B. reservation; real terms

C. teady growth; nominal terms

D. reservation; nominal terms

E. rudent management; in fixed-income securities

F. teady growth; real terms

View answer

Correct Answer: B

Question #144

When formulating an investment policy for a client, all of the following fall under the category of "investor constraints," except:

A. isk tolerance

B. iquidity needs

C. xpected cash flows

D. egulatory and legal circumstances

E. ime horizon

F. ax considerations

View answer

Correct Answer: A

Question #145

Which of the following is/are FALSE?

A. epreciation does not affect cash flows since it is a non-cash expense

B. II only

C. & II

D. I & III

E. , II & III

View answer

Correct Answer: B

Question #146

What annual interest rate, compounded annually, is equivalent to 7% per year, compounded semiannually?

A.

B.

C.

D.

E. %

View answer

Correct Answer: C

Question #147

Materiality is one of the pervasive concepts in financial accounting. Which of the following statements is true with regard to materiality?

A. elevant items are very material

B. ateriality judgments generally may be made without consideration of the magnitude of the item involved

C. one of these answers

D. he nature and magnitude of an item as well as the circumstances in which the judgment has to be made are integral aspects of a materiality judgment

E. ateriality judgments generally may be based solely on the magnitude of the item

View answer

Correct Answer: D

Question #148

Which of the following statements is least likely to be a unique risk associated with a hedge fund?

A. ash needs arising from marking positions to market

B. nexpected absence of normal liquidity under extreme market conditions

C. igher volatility of returns as compared to traditional equity funds

View answer

Correct Answer: C

Question #149

Which one of the following actions will not help to ensure the fair treatment of brokerage firm clients when a new investment recommendation is made?

A. inimize elapsed time between the decision and the dissemination of a recommendation

B. imit the number of people in the firm who are aware in advance that a recommendation is to be disseminated

C. istribute recommendations to institutional clients prior to individual accounts

D. onitor the trading activities of firm personnel

View answer

Correct Answer: C

Question #150

Two stocks have identical risk, but one of them offers a higher expected return than the other. This apparent inefficiency in the market:

A. ndicates that arbitrageurs must be unaware of the mispricing

B. ay persist and even grow larger before any correction occurs

C. an only arise when arbitrageurs lack the capital to exploit the situation

View answer

Correct Answer: B

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