CFA Level 1 Sample Questions Pdf With Answers 2024

Question #1

Assume you buy a car for $18,000 today and agree to pay $250 a month, beginning next month, for 5 years with a final payment also due 5 years from today to pay off any remaining balance. How large will that final payment be, if interest accrues at 2.9% per year, compounded monthly?

A. 3,000

B. 4,683

C. 4,280

D. 9,690

E. 1,204

View answer

Correct Answer: B

Question #2

Which of the following would increase GDP?

A. uying a 10-year-old house

B. iving $100 to a charity

C. uying a new automobile made in Indiana by a Japanese owned firm

D. uying hamburger buns by McDonald's

View answer

Correct Answer: C

Question #3

Employment is the number of persons employed divided by the number of persons

A. n the civilian population age 16 and over

B. mployed plus the number unemployed

C. nemployed

D. n the labor force

View answer

Correct Answer: A

Question #4

Convertible and other hybrid securities

A. re never included in composites with conventional securities

B. re managed separately and treatment must be disclosed in performance reporting

C. re not assets to which the Standards are applicable

D. ust be treated consistently across and within composites

View answer

Correct Answer: D

Question #5

Which of the following best qualifies as a "cash equivalent?"

A. firm\'s investment in "held to maturity" U

B. ll of these answers

C. firm's equity investment in an unconsolidated subsidiary of a privately held firm

D. firm's investment in U

E. one of these answers

View answer

Correct Answer: D

Question #6

The U.S. Department of Education reported that for the past seven years 4,033, 5,652, 6,407, 7,201, 8,719, 11,154, and 15,121 people received bachelor's degrees in computer and information sciences. What is the mean annual number receiving this degree?

A. one of these answers

B. bout 6,217

C. bout 8,327

D. bout 15,962

E. bout 12,240

View answer

Correct Answer: C

Question #7

How many monthly payments of $50, beginning next month, are needed to pay off a debt of $700, if interest accrues at 8% per year, compounded monthly?

A. 8

B. o solution/Error

C. 1

D. 2

E. 4

View answer

Correct Answer: E

Question #8

If r = .65, what does the coefficient of determination equal?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: A

Question #9

In a statistical regression estimation, the R-square is found to be 39% and the slope coefficient is -0.3. The percentage of variance of the dependent variable not explained equals ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #10

Depreciation expense for fixed assets is recorded:

A. or each period the asset is in use

B. hen the asset is sold

C. s a liability until the asset is sold

D. t the end of each fiscal period during the asset's useful life

View answer

Correct Answer: D

Question #11

Which of the following is/are true under accrual accounting?

A. xpenses are recognized as services are used

B. & III

C. , II, III & IV

D. , II & IV

E. I, III & IV

View answer

Correct Answer: C

Question #12

What is the Net Present Value of this series of annual cash flows using an interest rate of 12% per year: Year0: <$15,000>, Year 1: $8,000, Year 2: $8,000, Year 3: $1,000, Year 4: $4,000? (Note that the <> are used to indicate a negative number).

A. 2,077

B. 1,589

C. 1,774

D. 1,981

E. 1,104

View answer

Correct Answer: C

Question #13

The equity turnover of a firm equals:

A. sset turnover times financial leverage

B. sset turnover times financial leverage and sales to equity ratio

C. et income to equity ratio

D. ales to equity ratio

View answer

Correct Answer: B

Question #14

If the correlation coefficient between two variables equals zero, what can be said of the variables X and Y?

A. ighly correlated

B. ot correlated

C. ependent on each other

D. one of these answers are correct

E. ll of these answers are correct

View answer

Correct Answer: B

Question #15

When prices are rising, which of the following inventory valuation methods produces the lowest income tax liability?

A. one of these answers

B. IFO

C. verage cost

D. IFO

View answer

Correct Answer: B

Question #16

A cumulative frequency distribution on days absent during a calendar year by employees of a manufacturing company is shown below.Days Absent Cumulative Number of Employees0 - 2603 - 5316 - 8149 - 11612 - 142How many employees were never absent?

A. one of these answers

B. 9

C. annot be determined from the given data

D. 1

E. 0

View answer

Correct Answer: C

Question #17

The ______of services from foreigners ________ the supply of dollars to the exchange market.

A. mport; reduces

B. xport; expands

C. one of these answers

D. mport; expands

View answer

Correct Answer: D

Question #18

In reference to AIMR-PPS, which of the following is/are true?

A. he PPS are explicitly incorporated in the AIMR Code of Ethics and Standards of Professional Conduct

B. , II and III

C. II only

D. I and III only

E. only

View answer

Correct Answer: B

Question #19

The National Center for Health Statistics reported that of every 883 deaths in recent years, 24 resulted from an automobile accident, 182 from cancer and 333 from heart disease. Using the relative frequency approach, what is the probability that a particular death is due to an automobile accident?

A. 82/883 or 0

B. one of these answers

C. 4/883 or 0

D. 4/333 or 0

E. 39/883 or 0

View answer

Correct Answer: C

Question #20

How many years will it take money to double at 7.25% per year, compounded annually?

A.

B. 2

C.

D.

E.

View answer

Correct Answer: E

Question #21

In hypotheses testing, what is the level of significance?

A. ymbolized by the Greek letter "alpha"

B. ll of these answers are true

C. elected before a decision rule can be formulated

D. alue between 0 and 1

E. isk of rejecting the null hypothesis when it is true

View answer

Correct Answer: B

Question #22

The Pairagain mutual fund has entered into an equity swap with SingleSol, LLC, with a notional principal of $50 million. Pairagain has agreed to pay the quarterly return on the NASDAQ 100 in exchange for a fixed rate of 7.0%. The initial price of the NASDAQ 100 was 1825, and the value at the end of the first quarter, 91 days later, was 1755. The swap uses a 365-day year convention. What is the net payment to be made at the end of the first quarter?

A. ingleSol pays $2,790,411

B. ingleSol pays $1,917,808

C. ingleSol pays $872,603

View answer

Correct Answer: A

Question #23

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$20,000>, Year 1:$15,000, Year 2: $5,000, Year 3: $7,500? (Note that the <> are used to indicate a negative number).

A. 0

B. 1

C. 3

D. 8

E. 5

View answer

Correct Answer: B

Question #24

Rocky Johnson, CFA, manages a large capitalization equity mutual fund. His superiors have requested that he provide them the appropriate benchmarks to compare future performance against. Johnson makes the following statements:Statement 1:We should use an unweighted index because it would best reflect the large company bias in the portfolio.Statement 2:Stocks in the portfolio frequently split the number of shares outstanding. Therefore, in the long run, the Dow Jones Industrial Average would best reflect the

A. o

B. tatement 1 is correct and Statement 2 is incorrect

C. tatement 1 is incorrect and Statement 2 is correct

View answer

Correct Answer: A

Question #25

Level ________ verification assures that all of the firm's actual, discretionary, fee-paying portfolios are included in at least one composite.

A.

B. I

C. V

D.

E. II

View answer

Correct Answer: D

Question #26

Which of the following items is deducted from net income to arrive at cash flow from operations when using the indirect method?

A. epreciation expense

B. ecrease in accounts receivable

C. ecrease in accounts payable

D. mortization expense

View answer

Correct Answer: C

Question #27

Peter Black is an options trader for High Smith Investments. Black trades options on the U.S. and U.K. stock exchanges. Over the past three weeks, Black has been following the price movements of options on two companies: U.S.-based Pacific Chemicals Inc. (PCI), and U.K.-based Merchant Clothing Co. (MCC). Black has observed that over the past few days, the price of put options on PCI stock have suddenly increased, and the price of call options on MCC stock have suddenly increased. Which of the following prov

A. he U

B. he U

C. he U

View answer

Correct Answer: C

Question #28

John Cochrun is a reputed money manager who is also an AIMR member. John recently discovered that some employees at the firm where he is employed have been engaging in some questionable activity which could very well be construed as insider trading by the SEC. John, however, does not think the activity is egregious enough to be reported to the SEC. In any case, he does not want to be known as "the rat who blew the whistle." By not reporting the criminal activity, John has:

A. as not violated the AIMR code

B. iolated the AIMR code, Standard I (B) - Fundamental Responsibilities

C. iolated the AIMR code, Standard III (C) - Disclosure of Conflicts to the Employer

D. iolated the AIMR code, Standard III (B) - Duty to the Employer

View answer

Correct Answer: A

Question #29

An experiment involves selecting a random sample of 256 middle managers at random for study. One item of interest is their mean annual income. The sample mean is computed to be $35,420 and the sample standard deviation is $2,050. What is the point estimate?

A. 138

B. one of these answers

C. 2,050

D. 34,520

E. 35,420

View answer

Correct Answer: E

Question #30

In periods of rising prices, which inventory costing method results in the smallest income tax expense?

A. verage cost

B. erpetual

C. IFO

D. IFO

View answer

Correct Answer: D

Question #31

Which measure of dispersion disregards the algebraic signs (plus and minus) of each difference between Xand the mean?

A. tandard deviation

B. ariance

C. ean deviation

D. ean

E. one of these answers

View answer

Correct Answer: C

Question #32

What annual interest rate, compounded annually, will cause an original deposit of $400 to grow to $625, after 7 years?

A.

B.

C.

D.

E.

View answer

Correct Answer: B

Question #33

Which of the following would be reported as an extraordinary item?

A. ninsured loss from a flood

B. ain or loss from passing of a new law

C. ll of these answers are correct

D. ain or loss from early retirement of debt

View answer

Correct Answer: C

Question #34

When taking on a new affiliation while working for his present employer, a member should:

A. otify his employer in writing and obtain written consent

B. otify any prospective affiliation of his present employer

C. ot render services to a new client until the client gives consent in writing

D. ll of these answers are correct

View answer

Correct Answer: D

Question #35

Which of the following can be found in Standard III?

A. embers shall not misrepresent investment performance

B. embers shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions

C. embers shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc

D. embers shall deliver a copy of the Code to their employer

E. embers shall not knowingly participate or assist in any violation of laws, rules, or regulations

View answer

Correct Answer: D

Question #36

A firm had retained earnings of $100,000 at the beginning of the year. During the year, the firm had a net income of $55,000 and paid dividends worth $20,000. Then, the change in the firm's retained earnings equals ________.

A. 155,000

B. 35,000

C. 55,000

D. 135,000

View answer

Correct Answer: B

Question #37

Donald McKay, CFA, is analyzing a client's fixed income portfolio. As of the end of the last quarter, the portfolio had a market value of $7,545,000 and a portfolio duration of 6.24. McKay is predicting that the yield for ali of the securities in the portfolio will decline by 25 basis points next quarter. Which of the following statements regarding the portfolio's performance next quarter is most accurate?

A. or the expected change in portfolio yield next quarter, the market value of the portfolio will change by approximately 6

B. f the yield curve has a 50 basis point downward parallel shift next quarter, the portfolio will increase in value by approximately $235,404

C. he portfolio's ending value after the expected decline in yields will be approximately $7,427,298

View answer

Correct Answer: B

Question #38

For which measure of central tendency will the sum of the deviations of each value from that average always be zero?

A. edian

B. eometric mean

C. ean

D. ode

E. one of these answers

View answer

Correct Answer: C

Question #39

The XYZ Company operates a catering service specializing in business luncheons for large businesses. XYZ requires customers to place their orders two weeks in advance of the scheduled events. XYZ bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, XYZ should recognize revenue from its catering services at the date when a ________.

A. illing is mailed

B. ustomer's payment is received

C. ustomer places an order

D. uncheon is served

E. one of these answers

View answer

Correct Answer: D

Question #40

Which of the following are changes in accounting principle?

A. change from LIFO to FIFOII

B. , II, III and IV

C. , II and III

D. , III and IV

E. and III

View answer

Correct Answer: D

Question #41

During periods of rapid growth in output

A. here has been no consistent relationship between output growth and employment or unemployment

B. oth employment and unemployment generally rise

C. mployment generally decreases and unemployment increases

D. mployment generally increases, while unemployment decreases

E. oth employment and unemployment generally fall

View answer

Correct Answer: D

Question #42

Joan, an investment counselor, states in her firm's written promotional material that she is a CFA candidate. She has indeed enrolled in the program, but failed Level I five years ago, has not taken any exams since and is not enrolled in the next exam. Which of the following statements is correct?

A. oan is in compliance with the correct use of the CFA designation because she states she is a candidate

B. oan is not in compliance with the correct use of the CFA designation

C. one of these answers

D. oan is not in compliance with the correct use of the CFA designation

View answer

Correct Answer: D

Question #43

Which of the following is/are differences between depreciation and depletion?

A. epletion can be applied only to natural resources while depreciation can be applied to most production resources

B. I & III

C. & II

D. , II & III

E. one of these answers

View answer

Correct Answer: B

Question #44

In a statistical regression estimation, the R-square is found to be 63% and the slope coefficient is 0.6. The correlation coefficient between the dependent and the independent variables is ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #45

You are examining a group of 4 stock analysts within an industry. The average stock analyst correctly predicts the direction of a given stock 51% of the time. For these analysts, their accuracy has been 40%, 50%, 60%, and 70%. What is the mean absolute deviation of their accuracy from the average?

A. 2%

B. 0%

C. 5%

D. %

View answer

Correct Answer: B

Question #46

What is the purpose of information presented in notes to the financial statements?

A. o provide disclosures required by generally accepted accounting principles

B. o present management's responses to auditor comments

C. o provide recognition of amounts not included in the totals of the financial statements

D. o correct improper presentation in the financial statements

E. one of these answers

View answer

Correct Answer: A

Question #47

Which of the following would be considered an automatic stabilizer?

A. ederal Reserve policyII

B. , III

C. one of these answers is correct

D. I, III

E. , II, III

F. , II

View answer

Correct Answer: B

Question #48

The current account trade balance + the capital account trade balance =

A. he currency balance at the World Bank

B. DP

C. he foreign exchange rate

D. NP

E. he trade deficit/surplus

F. ero

View answer

Correct Answer: F

Question #49

Which of the following is/are TRUE?

A. ccrual accounting follows the matching principle

B. , II & IV

C. , II,

D. II & IV

E. , II & III

View answer

Correct Answer: A

Question #50

An unanticipated decrease in short-run aggregate supply will lead to a

A. igher price level and a lower real interest rate

B. ower price level and a lower real interest rate

C. ower price level and a higher real interest rate

D. igher price level and a higher real interest rate

View answer

Correct Answer: D

Question #51

International trade can benefit domestic firms because:

A. he market contracts and allows economies of scale in production

B. onsumers purchase more from local firms

C. one of these answers

D. ompetition is promoted in domestic markets and consumers can purchase a wide diversity of goods at economic prices

E. pportunity costs for all goods increase

View answer

Correct Answer: D

Question #52

"Prohibited transactions" are discussed in Standard IV (B.4), Priority of Transactions. Which of the following is NOT suggested as a firm policy?

A. one of these answers

B. articipation by investment personnel in equity should be restricted

C. irms must determine specific requirements relating to blackout period

D. ll individuals who are involved in the investment decision-making process should be subject to the same restricted period

View answer

Correct Answer: A

Question #53

In a pension plan, the duty of a fiduciary is to the ________.

A. oard of Directors

B. one of these answers

C. lan sponsor

D. mmediate supervisor

E. lan participants and their beneficiaries

View answer

Correct Answer: E

Question #54

With regard to international portfolios, if net performance is indicated, managers are required to disclose the assumed ________ for the benchmark.

A. ax rate

B. urrency effects

C. edge

D. isclosure

E. ifferentials

View answer

Correct Answer: A

Question #55

One of the discretionary accounts managed by Farnsworth is the Jones Corporation employee profit- sharing plan. Jones, the company president, recently asked Farnsworth to vote the shares in the profit- sharing plan in favor of the company-nominated slate of directors and against the directors sponsored by a dissident stockholder group. Farnsworth does not want to lose this account because he directs all the account's trades toa brokerage firm that provides Farnsworth with useful information about tax-free i

A. id not violate the Standards in voting the share in the manner requested by Jones or in directing the trades to the brokerage firm

B. iolated the Standards in directing the trades to the brokerage firm but not in voting the shares as requested by Jones

C. iolated the Standard in voting the shares in the manner requested by Jones and in directing trades to the brokerage firm

D. iolated the Standards in voting the shares in the manner requested by Jones but not in directing trades to the brokerage firm

View answer

Correct Answer: A

Question #56

A selected group of employees of Unique Buying Services is to be surveyed with respect to a new pension plan. In depth interviews are to be conducted with each employee selected in the sample. The employees are classified as follows.Classification Event Number of EmployeesSupervisors A 120Maintenance B 50Production C 1,460Management D 302Secretarial E 68What is the probability that the first person selected is either in maintenance OR in secretarial?

A.

B.

C.

D. one of these answers

E.

View answer

Correct Answer: E

Question #57

Suppose you need $500 in 9 months. How much must you deposit today, if the deposit will earn interest at 6% per year, compounded monthly?

A. 522

B. 478

C. 381

D. 295

E. 291

View answer

Correct Answer: B

Question #58

A study of the opinion of designers with respect to the primary color most desirable for use in executive officesshowed that:Primary Color Number of OpinionsRed 92Orange 86Yellow 46Green 91Blue 37Indigo 46Violet 2What is the probability that a designer does not prefer yellow?

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: B

Question #59

Ken Willis is the portfolio manager of an aggressive growth fund. Ken is concerned about the future performance of his high-beta portfolio in light of his belief that the stock market is currently overvalued. Willis' firm requires that he maintain at least 80% of the portfolio's value in equities at all times. Willis decided his best course of action is to buy put options to protect the portfolio from the potential loss resulting from a market decline. The profits and losses from an equity portfolio combine

A. ong call option

B. hort put and long call position

C. one

View answer

Correct Answer: A

Question #60

According to the AIMR-PPS when presenting results, annual returns for all years must be presented.Performance for periods of less than one year

A. ust be treated as all of the other performance results

B. ust not be included in the presentation

C. ust not be annualized

D. ust be prorated and appropriate disclosures made

View answer

Correct Answer: C

Question #61

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

A. iquidity needs

B. egulatory and legal circumstances

C. isk tolerance

D. ax considerations

E. xpected cash flows

F. nvestable funds

View answer

Correct Answer: C

Question #62

Under the Performance Presentation Standards, selected firm composites can be designated as being in compliance, only if ________ of the firm's composites are in compliance.

A. ll

B. any

C. ome

D. ne

View answer

Correct Answer: A

Question #63

A firm has a net profit margin of 25%. Its total asset turnover equals 1.3 and equity turnover equals 2.1. The firm's ROE and financial leverage equal ________.

A. 8

B. 3

C. 2

D. 9

View answer

Correct Answer: C

Question #64

The following is true about the price earnings ratio

A. ll of these answers are correct

B. he ratio is calculated based on the expected earnings per share for the next period

C. tocks have low PE ratios if they are less than five to eight and are considered underpriced

D. t is the ratio between the company's current market value and its earnings per share

View answer

Correct Answer: A

Question #65

In a period of falling prices, the inventory method that gives the lowest possible value for ending inventory is

A. IFO

B. IFO

C. ross profit

D. eighted average

View answer

Correct Answer: A

Question #66

An economy which is experiencing substantial inflation and slow economic growth is said to be in:

A. contraction

B. stagflation

C. hyperinflation

D. recession

View answer

Correct Answer: B

Question #67

The following are all true concerning transactional analysis, except,

A. t can be used to convert indirect method cash flow from operations to the direct method

B. t is a technique that can be used to create a cash flow statement for firms that do not prepare such statements in accordance with SFAS 95 and IAS 7

C. t helps to understand the relationship between the accrual of revenues, expenses, assets, and liabilities and their cash flow consequences

D. t is a method that groups changes in the current assets and current liabilities and reconciles them to the relevant income statement items

E. t is a method that classifies cash flows among operating, financing, and investing activities

View answer

Correct Answer: D

Question #68

Which of the following is true?

A. f the geometric return is zero, the arithmetic return must be negative

B. ll of these answers are false

C. f the annual returns have zero volatility, the geometric return is equal to the arithmetic return

D. he geometric return is always less than the arithmetic return

View answer

Correct Answer: C

Question #69

After a sterling year, your boss has decided to reward you. She has offered you three alternatives:Take $28,000 right now.Take $2,500 bonus per month for the next 12 months, starting next month. Take $16,000 at the end of six months and another $15,000 at the end of the year. If your discount rate is 6% per year on a monthly compounded basis, how much is the present value of your bonus?

A. 29,656

B. 29,047

C. 28,000

D. 30,176

View answer

Correct Answer: A

Question #70

Information is ________ until it has been disseminated to the marketplace in general and investors have had an opportunity to react to the information.

A. one of these answers

B. alled

C. aterial

D. nside

E. onpublic

View answer

Correct Answer: E

Question #71

An automatic machine inserts mixed vegetables into a plastic bag. Past experience revealed that some packages were underweight and some were overweight, but most of them had satisfactory weight.Weight % of TotalUnderweight 2.5Satisfactory 90.0Overweight 7.5What is the probability of selecting and finding that all three of them are overweight?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: A

Question #72

Under an inflationary, LIFO environment with stable inventories, which of the following is true compared to FIFO?Working Capital Taxes Current Ratio

A. igher Lower LowerII

B. I

C.

D. V

E. II

View answer

Correct Answer: A

Question #73

Unearned Revenue is classified as

A. liability

B. contra account

C. n operating expense

D. evenue

View answer

Correct Answer: A

Question #74

Susan Jackson, with HRS Investments, is appearing in court as an expert witness. She will have to use research done at HRS, to which she did not contribute directly, during her testimony. Which of the following is true, in relation to Jackson's need to comply with Standard II (C)?

A. ackson is representing herself and may or may not attribute any of HRS's research

B. ackson is representing HRS and must attribute any of HRS's research

C. ackson is representing herself and must attribute any of HRS's research

D. here is not enough information given to answer this question

E. ackson is representing HRS and may or may not attribute any of HRS's research

View answer

Correct Answer: C

Question #75

How much will $3,250 become after 6 years at 8% per year, compounded annually?

A. 5,298

B. 2,039

C. 2,048

D. 5,157

E. 5,180

View answer

Correct Answer: D

Question #76

A tax levied on imported goods is called a(n)

A. xcise tax

B. oreign profits tax

C. ariff

D. uota

View answer

Correct Answer: C

Question #77

Standard III (A) is ________.

A. uty to Employer

B. isclosure of Conflicts to Employer

C. bligation to Inform Employer of Code and Standards

D. isclosure of Additional Compensation Arrangements

E. one of these answers

F. esponsibilities of Supervisors

View answer

Correct Answer: C

Question #78

Mileage tests were conducted on a randomly selected sample of 100 newly developed automobile tires. The average tread wear was found to be 50,000 miles with a standard deviation of 3,500 miles. What is the best estimate of the average tread life in miles for the entire population of these tires?

A. one of these answers

B. 3,500/100)

C. ,500

D. 0,000

E. 50,000/100)

View answer

Correct Answer: D

Question #79

According to the AIMR-PPS, ________ accounting must be used for fixed-income and all other securities that accrue income.

A. ime-weighted

B. IFO

C. ccrual

D. ixed income

View answer

Correct Answer: C

Question #80

Gretchen Miller has been analyzing options on the common stock of Spirit Electronics Group (SEG), which last traded on the NASDAQ for $25.96. Miller has collected the following data on put options for SEG stock that expire in three months:_______________StrikePut_______________22.500.2525.000.6527.502.00______________Miller has been asked by her supervisor to determine the profit on a protective put strategy using a strike price of $25.00 if the stock price is $27.13 on the option expiration date. What figu

A. 0

B. 0

C. 0

View answer

Correct Answer: B

Question #81

A bar owner in Wisconsin has just won the Illinois Big Lotto jackpot that pays $200 million dollars in 25 equal installments paid annually. The bar owner can either accept the annual payments starting today or receive a lump sum today, using a discount rate of 9% per year. If the bar owner chooses to accept the lump sum, how much will he receive today?

A. 85

B. 91

C. 101

D. 105

View answer

Correct Answer: A

Question #82

An investment of $2,300 grows to $2,904 in 4 years. The annually compounded rate of return is:

A.

B.

C.

D.

View answer

Correct Answer: A

Question #83

Since return results must be calculated on a basis that includes the effect of leverage, return results must be restated to a(n) ________ basis.

A. argin

B. otal asset

C. ash flow

D. ll cash

E. ultiple cash

View answer

Correct Answer: D

Question #84

The dollar would have appreciated if

A. he U

B. nder fixed exchange-rates, the number of dollars demanded in the foreign exchange market increased

C. t had been exchanging for one mark but can now be exchanged for two

D. t had been exchanging for three marks but can now be exchanged for two

View answer

Correct Answer: C

Question #85

An experiment may have:

A. wo or more results

B. one of these answers

C. nly two results

D. nly one result

View answer

Correct Answer: A

Question #86

ABC Corporation has just issued $200 million of 6.5% $1,000 par value bonds at face value. Which of the following requirements in the indenture for these bonds would most likely be considered a negative covenant? ABC must:

A. aintain its manufacturing equipment in good condition

B. ake timely semiannual payments of interest and principal when due

C. ave paid all bond coupon payments due before it can pay cash dividends

View answer

Correct Answer: C

Question #87

A study by the National Park Service revealed that 50% of the vacationers going to the Rocky Mountain region visit Yellowstone Park, 40% visit the Tetons and 35% visit both. What is the probability that a vacationer will visit at least one of these magnificent attractions?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: B

Question #88

An economy is currently in equilibrium at full employment. If there is an unanticipated decrease in demand, the employment rate in the short run:

A. ill increase

B. ill remain unaffected but wages will decrease

C. ill rise above the natural rate

D. one of these answers

View answer

Correct Answer: D

Question #89

Sharon Foster owns a portfolio of two bonds. The first bond is a mortgage backed security (MBS) with a coupon rate well above current market rates for securities with similar characteristics. Foster also owns a callable corporate bond with five years to maturity and a coupon rate of 9%. The bond is nonrefundable. Comparable corporate issues brought to market recently were priced to yield 6.5%. The risks that Sharon faces by holding each of these securities could best be described as:

A. nterest rate risk for the MBS, and call risk for the corporate bond

B. rice compression for the MBS, and reinvestment risk for the corporate bond

C. repayment risk for the MBS, and call risk for the corporate bond

View answer

Correct Answer: C

Question #90

Bond X is a nonmailable corporate bond maturing in ten years. Bond Y is also a corporate bond maturing in ten years, and Bond Y is callable at any time beginning three years from now. Both bonds carry a credit rating of AA. Based on this information, identify the most accurate statement:

A. ond Y will have a higher nominal spread over a 10-year U

B. he option adjusted spread (OAS) of Bond Y will be greater than the nominal spread of Bond Y

C. he nominal spread of Bond X will be greater than the option adjusted spread of Bond X

View answer

Correct Answer: A

Question #91

In the 1980s, the government cut back on the tax rates in an effort to spur the economy. This led to a significant decrease in real tax revenues. A breakdown of this decrease indicated that most of the decrease came from the lower tax brackets. Tax revenues from top tax bracket actually increased despite the cut. There was a modest growth in the GDP during this period, though amongst all the industrialized nations, only Japan matched this rate. This empirical evidence indicates that:

A. he supply side effects are not as potent as hypothesized by economists

B. he supply-side response of tax payers can have a strong effect on a nation's growth

C. he Rational Expectations model is a fair description of how people respond to fiscal policy

D. he tax avoidance behavior governing the demand side has a significant impact on the economy

View answer

Correct Answer: B

Question #92

As an analyst for Donavan Financial Advisors, Lou Marvin must estimate the appropriate inputs for the firm's equity valuation models. Donavan's preferred valuation model is the single-stage dividend discount model (DDM). Members of Marvin's valuation team have supplied him with several pieces of data related to TMQ Utilities, including the company's earnings and dividends from the most recent year, the expected real risk-free rale, and the expected nominal growth in net income. To estimate the value of TMQ

A. rice-to-cash flow ratio and the expected cash flow per share

B. xpected rate of inflation and the expected earnings retention rate

C. istorical growth rates in dividends and the required return on the Utility bond index

View answer

Correct Answer: B

Question #93

When creating composites, ________ returns must not be mixed with asset-plus-cash returns.

A. odel

B. ortfolio

C. ash

D. erformance

E. sset-only

View answer

Correct Answer: E

Question #94

Which would not be categorized as an unusual or infrequent item?

A. rovisions for environmental remediation

B. ains or losses from disposal of a portion of a business segment

C. estructuring costs

D. ains or losses on qualifying early retirement of debt

E. mployee separation costs

View answer

Correct Answer: D

Question #95

Ward is scheduled to visit the corporate headquarters of Evans Industries. Ward expects to use the information obtained to complete his research report on Evans stock. Ward learns that Evans plans to pay all of Ward's expenses for the trip, including the cost of meals, hotel room and air transportation. Which of the following actions would be the best course for Ward to take under the Code and Standards?

A. ccept the expense-paid trip and write an objective report

B. rite the report without taking the trip

C. ay for all travel expenses, including costs of meals and incidental items

D. ccept the expense paid trip but disclose the value of the services accepted in the report

View answer

Correct Answer: C

Question #96

According to the AIMR-PPS, performance results of a past firm or affiliation

A. ust always be linked to the historical records of the new firm to show a fair and true representation of results

B. one of these answers

C. ay or may not be linked to the historical records of new firm or affiliation, it is left to the discretion of the investment manager and that information should be disclosed

D. ust not be used to represent the historical record of a new affiliation or a new firm identity

View answer

Correct Answer: D

Question #97

Bungling, Inc., is currently facing a lawsuit as a defendant. Its honest lawyers estimate that there is a 60-40 chance that Bungling will lose the lawsuit. The jury could award the plaintiff punitive damages ranging from $10,000 to $50,000. Bungling should

A. ot recognize any liability but disclose the details in footnotes

B. ot do anything since the lawsuit is still not decided and considerable uncertainty exists

C. ecognize a liability of $50,000 on its balance sheet as a conservative estimate

D. ecognize a liability of $10,000 on its balance sheet

View answer

Correct Answer: A

Question #98

You have just received a sales brochure from a reputable investment firm which describes a financial investment vehicle which pays $300 at the end of year 1, $500 at the end of year 2 and $100 at the end of year3. If you are looking for an annual return of 6%, what's the maximum amount you should be willing to purchase this investment certificate for?

A. 797

B. 827

C. 900

D. 812

View answer

Correct Answer: D

Question #99

Marmella is a corporate associate with an investment banking firm, Corpfins. She recently put together a business proposal which would allow Corpfins to take on White Papers Inc., a producer of premium printing paper, as a business client for all its underwriting needs. In this proposal, Marmella has promised that her team will provide full research coverage for White Papers, with the clause that the team will not be the first on the street to release a "sell" recommendation. Marmella has

A. iolated Standard IV (3) - Independence and Objectivity

B. iolated Standard IV (A

C. ot violated the AIMR code of ethics

D. iolated Standard II (B) - Professional Misconduct

View answer

Correct Answer: A

Question #100

Standard II (C) deals with ________.

A. one of these answers

B. bligation to Inform Employer of Code and Standards

C. isclosure of Conflicts to Employer

D. uty to Employer

E. undamental Responsibilities

F. lagiarism

View answer

Correct Answer: F

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