Prepare Confidently for the CFA Level III Exam with Practice Questions

Question #1

A very small p-value calculated in a sample implies that:

A. he null hypothesis should be rejected

B. he null hypothesis is very likely true

C. he alternate hypothesis is very likely false

D. he null hypothesis should be accepted

View answer

Correct Answer: A

Question #2

Cash received from the sale of fixed assets is an example of:

A. ash flows from investing activities

B. ash flows from operating activities

C. ash flows from financing activities

D. ash flows from noncash investing and financing activities

View answer

Correct Answer: A

Question #3

Your distant uncle's will specifies that you will receive a 20-year annuity of $10,000 a year, the payments starting seven years from now. How much is the annuity worth to you today if your discount rate is 4% per year?

A. 107,406

B. 135,903

C. 122,321

D. 110,911

View answer

Correct Answer: A

Question #4

On Jan. 1, DataCom prepays $3,000 rent for Mar. 1, June 1, and Sept.1. Under accrual basis accounting, what is the impact on the Feb. financial statements?

A. 3,000 expense

B. 1,000 decrease in net income

C. o impact

D. n increase to current assets of $1,000

View answer

Correct Answer: B

Question #5

Fiduciaries are obligated to vote proxies:

A. one of these answers

B. n an "as needed" basis, depending on the issue at hand

C. nly when there is a nonroutine governance issue

D. nly when there is a change in firm capitalization

E. n an informed and responsible manner

View answer

Correct Answer: E

Question #6

ERISA fiduciaries must adhere to the following prudent procedures:- establish a ________ investment policy for the plan- diversify plan assets- make investment decisions with the skill and care of a prudent expert- monitor investment performance- control investment expenses- avoid prohibited transactions

A. upervisory

B. one of these answers

C. ritten

D. iversified

View answer

Correct Answer: C

Question #7

Firm A uses Double Declining and Firm B uses Sum-of-digits method of depreciation. In the first year, which of the following is/are TRUE?

A. shows lower assets than BII

B. I & IV

C. & III

D. , III & IV

E. I, III & IV

View answer

Correct Answer: B

Question #8

Which of the following AIMR Standards pertains to the use of professional designation?

A. I (A)

B.

C. II (A)

D. II (B)

View answer

Correct Answer: A

Question #9

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 #10

Ian Lance, CFA, is discussing short selling with a client and states, "The short seller must pay any dividend of the issuer to the lender of the stock. In addition, the short seller must provide some collateral to the brokerage house." Is Lance correct about the short seller's obligations?

A. es

B. ance is correct about paying the dividend, and incorrect about providing collateral

C. ance is incorrect about paying the dividend, and correct about providing collateral

View answer

Correct Answer: A

Question #11

The current economic environment is one of steady inflation. A firm uses historical cost accounting. Which of the following is/are true?

A. he firm's book value is overstated

B. I & III

C. & IV

D. & III

E. , II & IV

View answer

Correct Answer: A

Question #12

A test statistic is:

A. value calculated from a sample and used to accept or reject the null hypothesis

B. ll of these answers

C. sample value that is used to measure a population parameter

D. parameter characterizing the null hypothesis

View answer

Correct Answer: A

Question #13

Tim Jan, CFA, relies on the earnings multiplier model in performing his fundamental analysis. His model is based on the constant-growth DDM. Jan is evaluating two stocks, A and B, that have the same 10% required rate of return and the same expected growth rate in dividends. Stock A has a higher retention rate than stock B.Which stock should have the higher P/E ratio?

A. tock

B. tock B

C. oth stocks should have the same P/E ratio

View answer

Correct Answer: B

Question #14

An increase in the discount rate makes it more expensive for banking institutions to fall below the ________ ratio.

A. one of these answers

B. iscount

C. eserve

D. ederal funds

E. equired reserve

View answer

Correct Answer: E

Question #15

Standard III includes which of the following?

A. one of these answers

B. se of Professional Designation

C. isclosure of Conflicts to Employer

D. air Dealing

E. rohibition against Plagiarism

View answer

Correct Answer: C

Question #16

Kim Lee is valuing a closely held private shoe retailing company. She compares the company to other shoe retailing competitors that are publicly traded and are highly liquid. Relative to the private company, the shares of the publicly traded competitors most likely include a:

A. arketability discount

B. inority interest discount

C. ontrol premium

View answer

Correct Answer: B

Question #17

A firm has a cash conversion cycle of 31.6 days. It turns over its inventory on average in 43.1 days and pays off its payables in an average of 23.2 days. Its receivables turnover ratio equals ________.

A. 1

B. 2

C. 4

D. 5

View answer

Correct Answer: A

Question #18

What does a regression equation do?

A. redicts the value of the independent variable based on the dependent variable

B. ll of these answers

C. one of these answers

D. easures the association between two variables

E. redicts the value of the dependent variable based on the independent variable

View answer

Correct Answer: E

Question #19

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 #20

Level I verification requires independent attestation that the requirements of the AIMR-PPS have been met on a (n) ________ basis.

A. nternational

B. ttainable

C. ationwide

D. irmwide

View answer

Correct Answer: D

Question #21

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 #22

Which of the following relationships is/are correct:

A. hange in assets + change in liabilities = change in equity

B. , II & III

C. II only

D. , II, III & IV

E. I & III

View answer

Correct Answer: B

Question #23

If you are about to go to Brazil and would like to obtain Brazilian currency, this acquisition would be accomplished in the

A. nternal affairs office

B. ffice of the U

C. ederal Reserve market

D. xport/import market

E. oreign exchange market

View answer

Correct Answer: E

Question #24

Which of the following relationships is true?

A. ross profit margin < Net profit margin < Operating profit margin

B. ross profit margin < Operating profit margin < Net profit margin

C. ross profit margin > Operating profit margin > Net profit margin

D. et profit margin > Gross profit margin > Operating profit margin

View answer

Correct Answer: C

Question #25

A commodity market is in contango if:

A. he spot price is higher than the futures price

B. he spot price is equal to the futures price

C. he spot price is lower than the futures price

View answer

Correct Answer: C

Question #26

Employers' income tax expense consists of the following obligations except:

A. edicare tax

B. ocial Security tax

C. ederal income tax

D. tate unemployment tax

View answer

Correct Answer: C

Question #27

The unemployment rate equals the number of persons

A. nemployed divided by the population age 16 and over

B. nemployed divided by the number in the labor force

C. ot working divided by the population age 16 and over

D. nemployed divided by the number employed

View answer

Correct Answer: B

Question #28

Realized gains and losses from sales of assets are measured as

A. air value of asset less net book value of asset

B. ales price of asset less net book value of asset

C. et book value less fair value of asset

D. ales price of asset less fair value of asset

View answer

Correct Answer: B

Question #29

In a period of rising prices, the inventory method that gives the highest possible value for ending inventory is:

A. eighted average

B. IFO

C. IFO

D. ross profit

View answer

Correct Answer: B

Question #30

Firm A uses Sum-of-digits and Firm B uses straight-line method of depreciation. In the first year, which of the following is/are TRUE?

A. shows higher equity than B

B. II only

C. & III

D. I, III & IV

E. & IV

View answer

Correct Answer: C

Question #31

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 #32

Under GAAP, when interest rates rise, the carrying value of a long-term bond ________.

A. emains unchanged

B. ncreases

C. epends on the characteristics of the bond

D. ecreases

View answer

Correct Answer: A

Question #33

George Judas, CFA, manages a small capitalization mutual fund. Judas only invests in companies with low price to earnings ratios. Judas states that research suggests that returns on both small capitalization and low P/ E companies are anomalous, in that they will provide investors with superior risk-adjusted long-term returns. Judas' supervisor counters with the following two observations. Observation 1:The research does not adequately account for the level of risk of small capitalization and low price to e

A. es

B. nly Observation 1 is correct

C. nly Observation 2 is correct

View answer

Correct Answer: B

Question #34

You are evaluating 5 portfolio managers (A, B, C, D, and E) whose Sharpe ratios are 0.25, 0.41, 0.92, 0.78, and 0.51, respectively. Which manager would most risk-averse investors prefer?

A.

B.

C.

D. one of these answers is correct

View answer

Correct Answer: A

Question #35

Victor Lazquez is an analyst with Amro Investments and follows the optical instrument manufacturers. In this capacity, he has learnt a few trade secrets pertaining to a leading edge firm, Fibroptica. Recently, he was approached by Fibroptica's competitor, Lensmakers Inc., who offered him a 3 month project on the optical industry practices. Victor realizes that such a project could reveal Fibroptica's trade secrets indirectly. However, he decides he will be very careful and accepts Lensmakers' offer. If he d

A. ot have violated any AIMR code since the project does not give rise to a conflict of interest with Amro's business

B. ave violated Standard III (C) - Disclosure of Conflicts to the Employer

C. ave violated Standard III (B) - Duty to the Employer

D. ave violated Standard III (D) - Disclosure of Additional Compensation Arrangements

View answer

Correct Answer: D

Question #36

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 #37

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 #38

Stock splits have the following effects on the financial statements:

A. ontributed capital and retained earnings are unchanged

B. ll of these answers are correct

C. he account title for common stock changes to reflect the change in the par value of stock

D. isclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share

View answer

Correct Answer: B

Question #39

The following financial data on CashCow, Inc. have been taken from its financial statements for 1996:

A. ividends paid $25,000

B. ale of land $64,000

C. nventory purchases $29,000

D. urchase of a warehouse $208,000

E. onds issued $90,000F Dividends received from investments $17,000

View answer

Correct Answer: C

Question #40

What monthly payment, beginning next month, would repay a $25,000 car loan over 60 months, assuming your loan has an interest rate of 6.9% per year, compounded monthly?

A. 1,757

B. 493

C. 843

D. 1,789

E. 650

View answer

Correct Answer: B

Question #41

Stock splits have the following effects on the financial statements except:

A. he account title for common stock changes to reflect the change in the par value of stock

B. ontributed capital and retained earnings are unchanged

C. isclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share

D. he shareholder's percentage interest in the corporation is changed by the percentage change in the market value of the stock

View answer

Correct Answer: D

Question #42

The following information is from the financial statements of Complex Capitalists for 1997 and 1998:Dec. 31, 1997 - 1 million common shares outstanding, capital structure all-equity March 31, 1998 - issued 200,000 common shares.May 31, 1998 - issued 800,000 warrants exercisable at a strike of 35.The stock price on Dec. 31, 1998 was 37. The average price during 1998 was 34 and the maximum price was39. How many shares will the basic EPS computation for 1998 use?

A.

B.

C.

D.

View answer

Correct Answer: B

Question #43

The phrase, "GDP equals what you eat plus what you invest plus what you export" characterizes which of the following methods?

A. xpenditure approach

B. ncome-cost approach

C. onsumption-investment approach

D. esource cost-income approach

View answer

Correct Answer: A

Question #44

Which of the following correctly defines an element directly related to measuring the performance and status of a business entity?

A. ains are increases in equity from transactions and other events and circumstances that result from revenues or investments by owners

B. quity is a residual interest

C. nvestments by owners are limited to receipts of assets and satisfaction or conversion of liabilities

D. evenues are inflows from peripheral or incidental transactions as well as the entity's ongoing major operations

E. one of these answers

View answer

Correct Answer: B

Question #45

Four of your firm's analysts have been chosen as finalists for the Wealth Magazine All-Star Analysts team. They will get different bonuses depending on the order in which they finish among themselves. How many different ways could they finish?

A. 0

B. 4

C. 6

D. 6

View answer

Correct Answer: B

Question #46

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 #47

Willier is the research analyst responsible for following Company X. All the information he has accumulated and documented suggest that the outlook for the firm's new products is poor, so the stock should be rated a weak hold. During lunch, however, Willier overhears a financial analyst from another firm offer opinions that conflict with Willier's forecasts and expectations. Upon returning to his office, Willier releases a strong buy recommendation to the public. Willier:

A. iolated the Standards by failing to distinguish between facts and opinions in his recommendation

B. as in full compliance with the Standards

C. iolated the Standards because he did not have a reasonable and adequate basis for his recommendation

D. iolated the Standards because he did not seek approval of the change from his firm's compliance department

View answer

Correct Answer: C

Question #48

How much interest would an original $500 deposit earn at 5% per year simple interest after 14 months?

A. 29

B. 28

C. 583

D. 350

E. 30

View answer

Correct Answer: A

Question #49

You are given a portfolio mean return of 15%, and a standard deviation of portfolio return is 20%, and a Sharpe ratio of 0.51. What is the risk-free rate?

A. one of these answers is correct

B.

C.

D.

View answer

Correct Answer: A

Question #50

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 percentage of variance in the dependent variable not explained by the regression equals ________.

A. 6

B. 9%

C. 8%

D. 1%

View answer

Correct Answer: D

Question #51

Suppose the Fed sells $25 million worth of Treasury bonds in the open market. This action will serve to________ the consumption of interest-rate sensitive goods like home mortgages. The U.S. dollar will ________ against the other currencies.

A. ncrease; appreciate

B. ncrease; depreciate

C. ecrease; appreciate

D. ecrease; depreciate

View answer

Correct Answer: C

Question #52

A Consolidated Statement of Stockholders' Equity could have all of the following, except

A. umber of shares of cumulative, callable preferred shares

B. nrealized gains and losses on securities

C. he cumulative effect of exchange rate changes

D. he book value of redeemable preferred stock

E. he change in reinvested earnings

View answer

Correct Answer: D

Question #53

Standard II (B) is known as ________.

A. rofessional Misconduct

B. air Dealing

C. nteractions with Clients and Prospects

D. reservation of Confidentiality

E. one of these answers

View answer

Correct Answer: A

Question #54

Sal Nunn, CFA, is a portfolio manager at Walker Investments. Nunn sold 300,000 shares of a NASDAQ listed stock on an electronic crossing network in after hours trading because the company announced a significant negative earnings surprise. Indicate whether the third or fourth market best describes the Nunn trade and state whether the NASDAQ market is a call or continuous market.

A. unn's trade is in the third market and NASDAQ is a call market

B. unn's trade is in the fourth market and NASDAQ is a call market

C. unn's trade is in the fourth market and NASDAQ is a continuous market

View answer

Correct Answer: C

Question #55

The ultimate responsibility to ensure compliance with code rests with:

A. very member of the firm

B. he CEO of the firm

C. ll of these answers

D. he highest ranking AIMR member of the firm

View answer

Correct Answer: D

Question #56

When an investment manager's client instructs the manager to use the client's brokerage to purchase goods or services for the client, this is known as:

A. orizontal brokerage and does not violate any fiduciary duty

B. orizontal brokerage and violates the manager's fiduciary duty

C. irected brokerage and does not violate any fiduciary duty

D. traight brokerage and does not violate any fiduciary duty

E. traight brokerage and violates the manager's fiduciary duty

View answer

Correct Answer: C

Question #57

A firm's ROE equals 47%. Its financial leverage equals 1.8 and its asset turnover is 0.8. If the firm's total net sales equal $1.35 million, its net income equals ________.

A. ,427,625

B. 40,625

C. 52,500

D. 82,000

View answer

Correct Answer: B

Question #58

In futures markets, the role of the clearing house is to:

A. revent arbitrage and enforce federal regulations

B. ct as guarantor to both sides of a futures trade

C. educe transaction costs by making contract prices public

View answer

Correct Answer: B

Question #59

Which of the following lend support to supply-side economics?

A. igh marginal tax rates discourage additional work effort and reduce productivity

B. , III & IV

C. & III

D. & IV

E. , II, III & IV

View answer

Correct Answer: C

Question #60

If you deposit $100 a month, beginning next month, for 20 years into an account paying 8% per year, compounded monthly, how much is in your account after that last deposit?

A. 2,131

B. 58,902

C. 4,576

D. 61,549

E. 24,000

View answer

Correct Answer: B

Question #61

Samson Corp. needs to raise $100 million. Delilah Jones, CFA, the Treasurer of Samson, is considering two alternative sources of financing:Alternative 1:Selling a large portion of the company's accounts receivable to a separate entity established solely for this purpose. This entity would then seek to obtain a higher credit rating than Samson's own BB rating, to reduce the required coupon rate on the bond issue.Alternative 2:Issuing bonds, but simultaneously entering into an equity swap so that coupon payme

A. oth alternatives are structured notes

B. lternative I is a structured note, and alternative 2 is a special purpose vehicle

C. lternative 1 is a special purpose vehicle, and alternative 2 is a structured note

View answer

Correct Answer: C

Question #62

The balance sheet of Firm A shows the following:Cash & Cash equivalents 432Receivables 98Inventories 143Marketable securities 329Short-term loans 732Current portion of long-term debt 210The quick ratio of the firm equals ________.

A.

B.

C.

D.

View answer

Correct Answer: A

Question #63

The mean, as a measure of central tendency would be inappropriate for which one of the following?

A. ncomes of lawyers

B. umber of pages in textbooks on statistics

C. ges of adults at a senior citizen center

D. arital status of college students at a particular university

E. one of these answers

View answer

Correct Answer: D

Question #64

Which of the following is/are required by AIMR-PPS with regards to creation and maintenance of composites?

A. ll actual fee-paying discretionary portfolios must be segregated into one or more composites based on similar investment strategies

B. I only

C. , II and III

D. and II only

E. I and III only

View answer

Correct Answer: D

Question #65

When dealing with a trust, according to the Prudent Man Rule, trustees must:

A. pply "all reasonable efforts" to the remaindermen

B. e impartial between income beneficiaries and remaindermen

C. ake into account income beneficiaries first, then the remaindermen

D. ake into account the remaindermen first, then the income beneficiaries

E. pply "all reasonable efforts" to the income beneficiaries

View answer

Correct Answer: B

Question #66

Which of the following is a definition of inflation:

A. pervasive increase in pricesII

B. I, IV

C. , II, III, IV

D. , II, III

E. I only

View answer

Correct Answer: C

Question #67

Which of the following is/are revenue recognition methods?

A. ompleted Contract MethodII

B. , II, III & IV

C. only

D. & III

E. , II & IV

View answer

Correct Answer: B

Question #68

Acquire Corp. has a business model based on making accretive acquisitions each year. The company has historically been successful in implementing its strategy. Earnings per share have grown each of the last five years at a 15% compounded rate. During the past year, Acquire Corp. acquired a services company with large net operating losses, representing a third leg to its business model. The other two business segments are engineering construction and mining. The purchase price was one-half the company's curr

A. rice-to-book value ratio

B. orward price-to-earnings ratio

C. railing price-to-sales ratio

View answer

Correct Answer: B

Question #69

Which of the following can be found in Standard III?

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

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

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

D. embers shall not participate in plagiarism

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

View answer

Correct Answer: E

Question #70

An unanticipated shift to a more expansionary monetary policy will most likely cause

A. epreciation in the exchange rate of the nation's currency, higher real interest rates and an inflow of capital

B. ppreciation in the exchange rate of the nation's currency, higher real interest rates and an inflow of capital

C. ppreciation in the exchange rate of the nation's currency, lower real interest rates and an outflow of capital

D. epreciation in the exchange rate of the nation's currency, lower real interest rates and an outflow of capital

View answer

Correct Answer: D

Question #71

If you owe a debt of $1,000 today and also owe $500 in 24 months, what single payment could you make 12 months from today that would pay off both of these debts, if interest is assessed at 8% per year, compounded monthly?

A. 751

B. 1,426

C. 1,500

D. 1,544

E. 2,041

View answer

Correct Answer: D

Question #72

Capital stock (common stock)

A. s a higher risk investment vehicle for the buyer than would be the purchase of bonds or preferred stock

B. epresents the residual ownership of a firm

C. one of these answers

D. s typically the only type of stock that maintains voting privileges

View answer

Correct Answer: B

Question #73

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

A. edge

B. isclosure

C. ax rate

D. ifferentials

E. urrency effects

View answer

Correct Answer: C

Question #74

Trust Fund is a reasonably successful investment management firm that has as its clients a few pension plans. Trust Fund executes all of its trades with Prime Brokerage, an average brokerage firm. Prime Brokerage charges higher commissions than comparable players in the market but in return, provides investment research on the stocks which are part of the pension plan assets under Trust Fund's management. Portfolio managers at Trust Fund know about the close relationship on the golf links between Prime Brok

A. rust Fund's managers are violating Standard IV (B

B. rust Fund's managers are violating Standard IV (1) - Fiduciary Duties by not executing the trades at the lowest price available

C. isko is not applying the AIMR code correctly

D. rust Fund's managers are violating Standard IV (B

View answer

Correct Answer: C

Question #75

If alpha equals 0.05 for a two-tailed hypothesis test, how large is the area of rejection in the upper or right tail?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: B

Question #76

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 #77

Steve Brown is questioned by his superior about the commonly cited criticisms and benefits of the derivatives market. Which of Brown's statements regarding the criticisms and benefits of derivative markets is most likely correct?

A. erivatives markets are often criticized for being too risky and illiquid for all but the most knowledgeable investors

B. erivatives benefit financial markets due to the price discovery and risk management functions they provide

C. erivatives benefit financial markets by generating high fees for dealers wilting to make a market in these securities

View answer

Correct Answer: B

Question #78

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 #79

A researcher has a sample of 400 observations from a population whose standard deviation is known to be 136. The mean of the sample is calculated to be 17.2. The null hypothesis is stated as Ho: mean = 4. The p- value under the alternative hypothesis H1: mean > 4 equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #80

A firm's tax rate is 30%. If the beginning inventory was overstated by 50, the purchases understated by 30 and the ending inventory overstated by 10, the income is ________.

A. verstated by 12

B. nderstated by 10

C. verstated by 21

D. nderstated by 7

View answer

Correct Answer: D

Question #81

A defined benefit pension plan:

A. ays defined benefits for a certain period after retirement

B. isburses benefits based on the returns on the fund's investments

C. romises to pay retirees a specific income stream

D. one of these answers

View answer

Correct Answer: C

Question #82

Affirmative action commitments by industrial organizations have led to an increase in the number of women in executive positions. Satellite Office Systems has vacancies for two executives, which it will fill from among four women and six men. What is the probability that no woman is selected?

A. one of these answers

B. /15

C. /3

D. /15

E. /5

View answer

Correct Answer: C

Question #83

Which of the following is/are true?

A. t is harder to reject the null under a two-tailed test than under a one-tailed test

B. , II, III & IV

C. one of these answers

D. , II & III

E. , II & IV

View answer

Correct Answer: D

Question #84

Firms X and Y, similar in all respects, recently bought identical securities. However, X has classified the securities as "held-to-maturity" securities while Y has categorized them as "available-for-sale" securities. Which of the following statements is/are true as a result of this difference?

A. and Y will show same assets on their balance sheets over time

B. & II

C. & III

D. , II & III

E. II only

View answer

Correct Answer: D

Question #85

________ policy may be used by government officials to deliberately generate a budget deficit.

A. iscretionary fiscal

B. ctive fiscal

C. iscretionary monetary

D. ctive monetary

View answer

Correct Answer: A

Question #86

With regard to calculation of returns for international portfolios, a consistent source of ________ should be used.

A. xchange rates

B. rades

C. ettlements

D. isclosures

E. axes

View answer

Correct Answer: A

Question #87

A normal distribution has a mean of -10.8 and a variance of 723.6. The probability that a value from this distribution will be between -25 and + 25 equals ________.

A.

B.

C.

D.

View answer

Correct Answer: C

Question #88

A mining firm has purchased a derivative security to partially hedge itself against the losses caused by fluctuations in a base metal price. The security pays a million dollars if the metal price falls below $2 per pound. Otherwise, it pays $100,000. If the expected rate of return on the security is 21% and the security costs $400,000, what is the probability that the metal price will remain above $2 per pound?

A. 2

B. 1

C. 7

D. 6

View answer

Correct Answer: C

Question #89

When an investment manager uses client brokerage to purchase research services that benefit the investment manager; this is known as ________.

A. nder-the-table agreements

B. oft dollars

C. hrough-research agreements

D. artering arrangements

E. hifting agreements

View answer

Correct Answer: B

Question #90

One method management can "manipulate" earnings is by

A. eporting a gain on the sale of subsidiary when the operating income of the firm is showing a loss

B. hanging from LIFO to any other inventory valuation method

C. eporting the full amount of anticipated restructuring costs

D. hanging from the percentage-of-completion method

E. eporting additional losses in bad years, assuming future reported profits will increase

View answer

Correct Answer: E

Question #91

The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.Net Income $50,000Provision for bad debts $2,000Increase in Inventory $1,000Increase in accounts payable $2,000Purchase of new equipment $15,000Sale of equipment for $10,000 gain $20,000Depreciation expense $5,000Repurchase of common stock $10,000Payment of dividend $4,000Interest payment $3,000What is net cash flow from investing?

A. 10,000

B. $15,000)

C. $5,000)

D. 5,000

View answer

Correct Answer: D

Question #92

Gerald Snow is a bond manager for Long Vision Investments. Snow is evaluating potential arbitrage opportunities. He has the following list of bonds:Bond X is a I-year zero coupon bond selling at 950.All three bonds have a par value of SI,000. if no arbitrage opportunity exists, the price of bond Z is closest to:

A. 975

B. 995

C. 1,015

View answer

Correct Answer: B

Question #93

Which of the following is NOT a revenue recognition method when there is uncertainty surrounding the realizability of income?

A. ompleted Contract Method

B. ost Recovery Method

C. nstallment Sales Method

D. eal Estate Method

View answer

Correct Answer: A

Question #94

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

A. eighted average

B. IFO

C. IFO

D. ross profit

View answer

Correct Answer: B

Question #95

The employees of Cartwright Manufacturing are awarded efficiency ratings. The distribution of the ratings approximates a normal distribution. The mean is 400, the standard deviation 50. What is the area under the normal curve between 400 and 482?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: D

Question #96

The ________ assumption must be disclosed if results are presented after taxes.

A. ax rate

B. rade

C. omposite

D. election

E. ettlement-date

View answer

Correct Answer: A

Question #97

What is the remaining balance on a $100,000 loan after making monthly payments of $733.76 for 10 years, if the interest rate is 8% per year, compounded monthly?

A. 86,204

B. 11,948

C. 0

D. 87,725

E. 91,343

View answer

Correct Answer: D

Question #98

The cash conversion cycle equals:

A. eceivables days - inventory processing days + payables payment period

B. eceivables days - inventory processing days - payables payment period

C. eceivables days + inventory processing days + payables payment period

D. eceivables days - payables payment period + inventory processing days

View answer

Correct Answer: D

Question #99

A random variable, X, has a mean of 12 and a standard deviation of 14. If another variable, Y, is defined by Y = 2X - 3, the coefficient of variation of Y is ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #100

Four years ago, the relative yield spread between ten-year A-rated corporate securities with no embedded options, and ten-year on-1he-run U.S. Treasuries, was 27.5%. Currently, the nominal yield on ten-year A-rated corporate securities is 5.45%, and the yield on ten-year on-the-run U.S. Treasuries is 4.10%. Calculate the current relative yield spread, and, assuming that any change in the yield spread is due to changes in the credit spread, identify whether the economy has most likely weakened or strengthene

A. he current yield spread is 32

B. he current yield spread is 32,9%, indicating that the economy has strengthened

C. he current yield spread is 24

View answer

Correct Answer: A

Question #101

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 #102

You are faced with a counting problem in which you must choose k objects from n total objects. The order of choosing matters. The counting method you should use is:

A. he binomial formula

B. he multinomial formula

C. one of these answers is correct

D. he permutation rule

View answer

Correct Answer: D

Question #103

Structural unemployment is a result of

A. ot enough employees to fill available jobs

B. naccurate and/or costly information about job opportunities

C. nsufficient employment in the building trades

D. n inadequate matching of qualified workers and available jobs

View answer

Correct Answer: D

Question #104

Suppose you need $800 in 20 months. How much must you deposit today, if the deposit will earn interest at 8% per year, compounded monthly?

A. 607

B. 700

C. 1,330

D. 949

E. 571

View answer

Correct Answer: B

Question #105

You are given a risk-free rate of 5% per year, a portfolio return of 15% per year, and a standard deviation of portfolio return of 16% per year. What is the Sharpe measure of risk-adjusted performance?

A.

B.

C.

D.

View answer

Correct Answer: A

Question #106

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 #107

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

View answer

Correct Answer: C

Question #108

An auditor will express an adverse opinion if

A. he firm' s ability to continue as a going concern is subject to substantial doubt

B. one of these answers

C. qualified opinion cannot be expressed because the auditor lacks independence

D. violation of GAAP is sufficiently material that a qualified opinion is not justified

E. severe scope limitation has been imposed by the client

View answer

Correct Answer: D

Question #109

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

View answer

Correct Answer: A

Question #110

A Japanese investor purchasing a U.S. government bond

A. auses the yen to appreciate

B. reates a demand for yen and a supply of dollars in the foreign exchange market

C. auses the dollar to depreciate

D. reates a demand for dollars and a supply of yen in the foreign exchange market

View answer

Correct Answer: D

Question #111

Your investment rate of return is 6% per year and you invest according to the following schedule:Beginning of year 1: $100Beginning of year 2: $200Beginning of year 3: $300Beginning of year 4: $400The amount you will have at the end of year 4 is:

A. 1,125

B. 640

C. 808

D. 845

View answer

Correct Answer: A

Question #112

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

View answer

Correct Answer: C

Question #113

What degree of relationship do values of the correlation coefficient (r) with magnitudes close to 1.00 indicate?

A. eak

B. trong

C. oderate

D. one

View answer

Correct Answer: B

Question #114

In the regression equation, what does the letter "b" represent?

A. lope of the line

B. alue of Y when X=0

C. ny value of the independent variable that is selected

D. concept

E. one of these answers

View answer

Correct Answer: A

Question #115

Arbaaz, an AIMR member, works for an investment advisory firm, Leon Investments. His friend, Shahzad, recently asked him for some investment recommendations. Arbaaz analyzed Shahzad's portfolio over a weekend and suggested some changes. While he did not accept any remuneration, Shahzad promised him some gifts if his portfolio "performed well." Arbaaz did not inform his employer since he thought he was helpinga friend and in any case, the Shahzad's account was extremely small and there were no financial paym

A. iolated Standard III (B), Duty to Employer

B. as not violated Standard III (B), Duty to Employer, because there was no financial remuneration

C. as not violated Standard III (B), Duty to Employer, because Shahzad's account was too small to be deemed lost business for Leon Investments

D. as not violated Standard III (B), Duty to Employer, because Arbaaz is free to do what he wants on his time as long as it doesn't affect Leon Investments

View answer

Correct Answer: A

Question #116

Xuanchi Zuan is a successful portfolio manager with Up & Away, a money management fund that operates strongly bullish funds. One of Zuan's clients, Margo Margolis, is about to retire in a couple of years. Margo has been phasing out her risky investments over the past five years, moving them into longterm treasury bonds. However, she recently read in a financial magazine the attractiveness of investing in emerging markets. She was especially enticed by the 30% and 40% annual returns observed in these markets

A. one of these answers

B. valuate the emerging market investments and move the funds only if he considers them suitable for investment for Margo

C. efuse to do so, pointing out the high risks involved in such investments

D. ove the funds into emerging market securities per Margo's request

View answer

Correct Answer: A

Question #117

Full employment means that which of the following is zero?

A. rictional unemployment

B. ggregate unemployment

C. yclical unemployment

D. tructural unemployment

E. otal unemployment

View answer

Correct Answer: C

Question #118

When the number of discouraged workers increases during a severe recession,

A. he measured unemployment tends to overstate the severity of the unemployment problem

B. he measured unemployment tends to understate the severity of the unemployment problem

C. rictional unemployment will rise

D. he natural unemployment will decline

View answer

Correct Answer: B

Question #119

An insurance agent has appointments with four prospective clients tomorrow. From past experience the agent knows that the probability of making a sale on any appointment is 1 out of 5. Using the rules of probability, what is the likelihood that the agent will sell a policy to 3 of the 4 prospective clients?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: D

Question #120

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 #121

Deposits denominated in U.S. dollars at banks and other financial institutions outside the U.S. are known as ________.

A. ederal reserves

B. oney market deposit accounts

C. oreign bank reserves

D. iat money

E. urodollar deposits

View answer

Correct Answer: E

Question #122

Which of the following is/are true?

A. here are as many values above the mode as below it

B. only

C. I, III & IV

D. I only

E. , III & IV

View answer

Correct Answer: E

Question #123

A survey of 144 retail stores revealed that a particular brand and model of a VCR retails for $375 with a standard deviation of $20. What is the 95% confidence interval to estimate the true cost of the VCR?

A. 328

B. 323

C. 335

D. 335

E. one of these answers

View answer

Correct Answer: C

Question #124

Which of the following best describes a statement of cash flows?

A. statement of cash flows details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time

B. statement of cash flows summarizes the financial position of a company at a given point in time

C. statement of cash flows measures a company's financial performance over a specified period of time

D. statement of cash flows reports changes over a period of time in component accounts that comprise the ownership of a firm

E. one of these answers

View answer

Correct Answer: A

Question #125

Which inventory costing method is most useful in estimating the amount of inventory lost or destroyed by theft, fire, or other hazards?

A. verage cost method

B. IFO

C. one of these answers is correct

D. IFO

E. ross profit method

View answer

Correct Answer: E

Question #126

Most components of the balance sheet are reported at

A. istorical cost plus allowance for inflation

B. air market value

C. istorical cost

D. eplacement value

View answer

Correct Answer: C

Question #127

Chris Renburg owns the following portfolio of option-free bonds:Calculate the duration of Renburg's bond portfolio.

A.

B.

C.

View answer

Correct Answer: B

Question #128

The formula for calculating profit margin is:

A. et sales minus total expenses divided by net income

B. one of these answers

C. et income divided by net sales

D. otal sales divided by total expenses

View answer

Correct Answer: C

Question #129

The weighted average method is based on the assumption that the cost of merchandise sold should be calculated using the:

A. verage price of beginning inventory plus purchases during the period

B. verage price per unit of ending inventory

C. verage price of ending inventory plus purchases during the period

D. verage price per unit of beginning inventory

View answer

Correct Answer: A

Question #130

Performance Presentation Standards require the disclosure of whether composite returns on international investments are ________ of foreign withholding taxes.

A. et

B. ross

C. one of these answers

D. et or gross

View answer

Correct Answer: D

Question #131

The completed contract method

A. ay understate gross profit

B. enerally must be used when no contract exists

C. annot be used for short-term contracts

D. ay be used for long-term contracts at the option of the company

E. ecognizes revenues and costs in proportion to the work completed

View answer

Correct Answer: B

Question #132

Which of the following can be found in Standard IV?

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

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

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

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

E. embers shall not misrepresent investment performance

View answer

Correct Answer: B

Question #133

Assume a student received the following grades for the semester: History, B; Statistics, A; Spanish, C; and English, C. History and English are 5 credit hour courses, Statistics a 4 credit hour course and Spanish a 3 credit hour course. If 4 grade points are assigned for an A, 3 for a B and 2 for a C, what is the weighted mean for the semester grade?

A.

B.

C.

D.

E.

View answer

Correct Answer: D

Question #134

Jane Higgins, CFA, is analyzing a corporate bond that she believes is a suitable addition for a client's portfolio. The 10-year security has a 7.50% annual coupon and is non-callable by the issuer. The bond is currently priced at 104.5 to yield 7.177%. According to Higgins* analysis, for a 25 basis point decrease in yield, the bond's price will increase to 107.4166 and for a 25 basis point increase in yield, the bond's price will decrease to 101.3834. Higgins' estimation of the bond's effective duration is

A.

B. 0

C. 1

View answer

Correct Answer: C

Question #135

A systematic sampling method should not be used when:

A. he data are commingled

B. he data are systematically biased

C. he data are already arranged in the form of a predetermined pattern

D. he data are divided into open-ended classes

View answer

Correct Answer: C

Question #136

What is the present value today of these annual cash flows: $1,000, $2,000, $3,000? Assume the first cash flow occurs 1 year from today and an interest rate of 10% per year, compounded annually.

A. 2,304

B. 2,754

C. 4,815

D. 4,000

E. 4,104

View answer

Correct Answer: C

Question #137

ERISA fiduciaries must adhere to the following prudent procedures:- establish a written investment policy for the plan- ________ plan assets - make investment decisions with the skill and care of aprudent expert- monitor investment performance- control investment expenses - avoid prohibited transactions

A. istribute

B. ualify

C. ccount for

D. one of these answers

E. iversify

View answer

Correct Answer: E

Question #138

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 #139

Beginning inventory of 50 units, purchased at $550 units purchased at $1035 units purchased at $925 units sold at $1570 units sold at $12Tax rate = 40%Beginning LIFO reserve = $300Given the above, the LIFO reserve at the end of the period is ________.

A. 225

B. 185

C. 135

D. 165

View answer

Correct Answer: D

Question #140

The stated purposes of Standard IV (B) (8), Disclosure of Referral Fees, are to:

A. elp the customer or client evaluate the full cost of the services

B. only

C. I only

D. II only

E. and II only

View answer

Correct Answer: D

Question #141

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

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: B

Question #142

If an investor who has a required rate of return of 7% per year pays $1,000 for a five-year ordinary annuity, the annuity pays ________ per year.

A. 244

B. 256

C. 271

D. 263

View answer

Correct Answer: A

Question #143

Within the Keynesian model, when planned aggregate demand equals total output,

A. he employment rate will equal the labor force participation rate

B. overnment expenditures will equal revenues

C. he output level will tend to persist into the future

D. ncome in the future will tend to rise

View answer

Correct Answer: C

Question #144

Standard I includes rules on which of the following?

A. rofessional Misconduct

B. ll of these answers

C. se of Professional Designation

D. one of these answers

E. rohibition against Plagiarism

View answer

Correct Answer: D

Question #145

Which of the following is not subject to depreciation?

A. utomobiles

B. and

C. achinery

D. and improvements

View answer

Correct Answer: B

Question #146

The formula for conditional probability is given by:

A. (A | B) = P(AB) / P(B)

B. (A | B) = P(AB) / P(A)

C. (A | B) = P(AB) * P(A)

D. (A | B) = P(AB) * P(B)

View answer

Correct Answer: A

Question #147

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

View answer

Correct Answer: D

Question #148

If the money velocity is 5, the amount of money in circulation $200 million and real GDP $10 million, then prices are ________.

A.

B. 00

C. 2

D. 00

View answer

Correct Answer: D

Question #149

Permanent earnings refers to

A. he net cash flow plus the change in market value of the firm's net assets

B. he amount of earnings that can be paid out as dividends without changing the value of the firm

C. he level of earnings that can be maintained in the future given the firm's capital investment

D. he amount that can be normally earned and equals the market value of the firm's assets times the firm's required rate of return

E. he average earnings the firm generates over a specified period

View answer

Correct Answer: D

Question #150

The probability that a mutual fund will generate a positive return in the next 12 months is called:

A. conditional probability

B. n unconditional probability

C. joint probability

D. fantasy

View answer

Correct Answer: B

Question #151

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 are 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. one of these answers

C.

D.

E.

View answer

Correct Answer: C

Question #152

An asset with a 10-year life has an acquisition cost of 5,000. The firm, using double declining method of depreciation has an accumulated depreciation of 2,440 at the end of year 3 (verify this!). The depreciation expense in year 4 is equal to ________.

A. 67

B. 30

C. 12

D. 31

View answer

Correct Answer: C

Question #153

Which of the following is/are true about straight-line depreciation?

A. ith constant pre-depreciation income, it leads to an increasing rate of return over time

B. , II & III

C. & III

D. I & III

E. & II

View answer

Correct Answer: D

Question #154

A capital lease is recorded as ________.

A. n asset and a liability

B. temporary asset

C. n off-balance-sheet item

D. liability

View answer

Correct Answer: A

Question #155

An individual who is employed part time but who is looking for a full-time job is classified as

A. rictionally unemployed

B. mployed

C. tructurally unemployed

D. yclically unemployed

View answer

Correct Answer: B

Question #156

Charlotte Villa, CFA, is a portfolio manager analyzing two securities. The 10-year bonds of Zehmer Corp. are callable beginning in two years. The 10-year bonds of Cavalier Inc. are not callable, but have a floating coupon that adjusts annually based on a margin above comparable maturity U.S. Treasury issues with no limits on the rate adjustment. Both bond issues are rated A

A. Villa uses a computer model to value individual bonds based on their zero-volatility spread and/or option-adjusted spread (OAS)

A. he OAS for both bonds will increase

B. he OAS for both bonds will decrease

C. he OAS for the Zehmer bond will decrease, but the OAS for the Cavalier bond will be unchanged

View answer

Correct Answer: C

Question #157

Brown works for an investment counseling firm. Green, a new client of the firm, is meeting with Brown for the first time. Green used another counseling firm for financial advice for years, but she has switched her account to Brown's firm. After a few minutes of get-acquainted talk, Brown explained to Green that she has discovered a highly undervalued stock that offers large potential gains. She recommends that Green purchase the stock. Brown has committed a violation of the Standards. What should she have d

A. rown should have determined Green's needs, objectives and tolerance for risk before making a recommendation for any type of security

B. rown should have explained her qualifications, including her education, training, experience and the meaning of the CFA designation

C. rown should have asked Green her reasons for changing counseling firms

D. rown should have thoroughly explained the characteristics of the company to Green, including the characteristics of the industry in which the company operates

View answer

Correct Answer: A

Question #158

Investments in available-for-sale securities should be valued on the balance sheet at ________.

A. mortized cost

B. ower of cost or market for the portfolio

C. ower of cost or market for individual securities

D. air value

E. cquisition cost

View answer

Correct Answer: D

Question #159

Party A enters into a plain vanilla 1-year interest rate swap agreement with Bank B in which he will make fixed- rate payments in exchange for receiving floating-rate payments based on LIBOR plus 100 basis points. Assume that payments are made quarterly in arrears based on a 360-day year. The fixed rate on the swap is 6.5%. The current interest rates on 90, 180, 270, and 360-day LIBOR are 5.2%, 5.5%, 5.8%, and 6.0%, respectively. If the notional principal is SI00 million, what will Party A's net cash flow a

A. $675,000

B. $75,000

C. $75,000

View answer

Correct Answer: B

Question #160

According to the AIMR-PPS, total firm assets are defined to include

A. ll discretionary and nondiscretionary assets, as well as assets underlying overlay investment strategies

B. ll discretionary and nondiscretionary assets

C. ny asset deemed eligible by the firm

D. nly assets underlying overlay investments strategies

View answer

Correct Answer: B

Question #161

Standard II (A) deals with ________.

A. bligation to Inform Employer of Code and Standards

B. one of these answers

C. rofessional Misconduct

D. lagiarism

E. se of Professional Designation

View answer

Correct Answer: E

Question #162

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 #163

Cyclical unemployment is a result of

A. naccurate and/or costly information about job opportunities

B. n inadequate matching of qualified workers and available jobs

C. ot enough employees to fill available jobs

D. nsufficient employment in the building trades

E. downturn in economic activity

View answer

Correct Answer: E

Question #164

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 #165

When an economy operates well below its full-employment capacity and the marginal propensity to consume is 3/4, a $20 billion increase in autonomous investment will cause the equilibrium income to rise

A. 80 billion

B. 40 billion

C. 20 billion

D. 15 billion

View answer

Correct Answer: A

Question #166

Standard III includes which of the following?

A. easonable Basis and Representations

B. reservation of Confidentiality

C. ll of these answers

D. erformance Presentation

E. se of Professional Designation

View answer

Correct Answer: F

Question #167

A firm has a constant pre-depreciation income using assets that last 5 years. The straight-line method results in a rate of return that ________ over the life of the assets. The accelerated methods result in a rate of return that ________ over the life of the assets.

A. ncreases, increases

B. ecreases, increases

C. ecreases, decreases

D. ncreases, decreases

View answer

Correct Answer: A

Question #168

To test whether small-cap stocks perform worse than large stocks under the Fama-French three-factor model, you set up the following hypothesis:Ho: Expected excess returns of small stocks = 0H1: Expected excess returns of small stocks < 0The excess returns are returns adjusted for risk using the Fama-French three-factor model. In this setup, which of the following is/are true?

A. ou must employ a right-tailed test

B. I only

C. & III

D. I & III

E. one of these answers

View answer

Correct Answer: A

Question #169

AIMR Standard ________ prohibits plagiarism.

A. (D)

B. V (A)

C. one of these answers

D. I (C)

E. II (B)

View answer

Correct Answer: D

Question #170

Martina Profis runs a fixed-income portfolio for the pension fund of Whether by Whittaker, Ltd. The portfolio contains a $12 million position in the corporate bonds of Dewey Treadmills. Profis is concerned that interest rates are likely to rise and has calculated that a 50-basis point increase in rates would cause a 4% decline in the Dewey bonds. The dollar duration of the position in Dewey Treadmills is closest to:

A. 96,000

B. 480,000

C. 960,000

View answer

Correct Answer: C

Question #171

Which of the following disclosures must a firm make in order to be in compliance with AIMR-PPS?

A. he effective date of firm compliance

B. , II and III

C. and III only

D. only

E. and II only

View answer

Correct Answer: A

Question #172

With respect to depreciation methods, which of the following is true?

A. ccelerated depreciation methods lead to higher depreciation expense over time

B. II only

C. I & III

D. & III

E. I only

View answer

Correct Answer: A

Question #173

Which of the following is/are FALSE under GAAP?

A. he change in cash balances in consecutive Balance sheets equals the operating cash flow of the firm over that period

B. , II & III

C. I & IV

D. , II & IV

E. , II, III & IV

View answer

Correct Answer: A

Question #174

At the end of the fiscal period, the account debited to show the estimated amount of uncollectible accounts is:

A. ad Debt Expense

B. ccounts Receivable

C. one of these answers

D. nearned Revenue

E. llowance for Uncollectible Accounts

View answer

Correct Answer: A

Question #175

Standard III (A) deals with ________.

A. one of these answers

B. bligation to Inform Employer of Code and Standards

C. rofessional Misconduct

D. se of Professional Designation

E. lagiarism

View answer

Correct Answer: B

Question #176

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 #177

All of the following are financing cash flows EXCEPT?

A. ash payments on preferred dividends

B. ash received from new debt

C. ash changes in contributed capital from equity issue

D. ash changes in retained earnings

View answer

Correct Answer: D

Question #178

Patterson Company has the following information of one of its vehicles purchased on January 1, 1992:Vehicle cost $50,000Useful life, years, estimated 5Useful life, miles, estimated 100,000Salvage value, estimated $10,000Actual miles driven:1992 30,0001993 10,0001994 15,0001995 25,0001996 12,000No estimates were changed during the life of the asset. The 1994 depreciation expense using the sum-of-years'-digits (SYD) method was ________.

A. 13,333

B. 8,000

C. 10,667

D. 10,000

E. 6,000

View answer

Correct Answer: B

Question #179

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 #180

The median and the mode of the sample: 3, 2, 4, 5, 6, 99, 99, 100 equal:

A. 9, 6

B. , 99

C. , 99

D.

View answer

Correct Answer: D

Question #181

A firm wants to decrease its debt-to-asset ratio without affecting its current ratio. Which of the following actions can it undertake?

A. etire some of its outstanding bonds by using proceeds from the sale of old assets

B. , II & III

C. & IV

D. V only

E. I & III

View answer

Correct Answer: C

Question #182

If the underlying theory suggests that the value of an estimated variable is less than a particular number, it is appropriate to use:

A. right-tailed test

B. left-tailed test

C. two-tailed test

D. ither a right-tailed or left-tailed test

View answer

Correct Answer: B

Question #183

The weights of cans of fruit are normally distributed with a mean of 1,000 grams and a standard deviation of 50 grams. What portion of the cans weigh 860 grams or less?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: E

Question #184

Which of the following is not a violation of Standard II (C)?

A. se a small part of an analysts work who also is employed in a completely different (non-competitive) industry, without acknowledgment

B. se a small part of an analysts work who also is employed in the same industry, without acknowledgment

C. ll of these answers are violations

D. sing one chart in a presentation that was prepared by another analyst, without acknowledgment

E. iving an oral report and citing specific quotations, attributable to "leading analysts," without specific reference

View answer

Correct Answer: C

Question #185

In an investment environment, an initial outlay of $1 grows to $1.23 in 3 years. If you are expecting a cash inflow of $500 in 3 years, what's the present value of the cash flow to you?

A. 431

B. 452

C. 406

D. 615

View answer

Correct Answer: C

Question #186

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

A. ncrease in unemployment

B. ncrease in prices

C. ncrease in interest rates and money income, but employment and real income will remain constant

D. ncrease in employment, output and real income

View answer

Correct Answer: D

Question #187

Mary Hames has bought a long FRAwith a notional principal of $10 million. The agreement expires in 30 days, and is based on 90-day LIBOR. The FRA is based upon an initial rate of 4.75%. Assume that at expiration, 90- day LIBOR is 5.5%, and 60-day LIBOR is 5.25%. Calculate the payoff at expiration.

A. 12,338 paid to Hames

B. 18,496 paid to Hames

C. 19,008 paid to Hames

View answer

Correct Answer: B

Question #188

Which of the following is /are true?

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

B. I only

C. only

D. only

E. & III

View answer

Correct Answer: G

Question #189

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 #190

James Volley, CFA, is evaluating a number of municipal bonds. One of the revenue bonds on his list is marked as "prercfunded." When Volley asks his assistant about the bonds, the assistant tells him that the collateral behind the bonds is a portfolio of U.S. government securities, and that, therefore, these bonds have "less credit risk than insured municipal bonds." Which of the following statements regarding these bonds is most accurate"?

A. he bonds do indeed have less credit risk than insured municipal bonds

B. nly general obligation bonds can be prerefunded, not revenue bonds

C. rerefunded bonds are secured by a cash escrow account, not by US government securities

View answer

Correct Answer: A

Question #191

Which of the following would affect the comparability of accounting information for a given company from one accounting period to the next?

A. hange in accounting principlesII

B. , III and IV

C. and III

D. , II and III

E. and II

View answer

Correct Answer: C

Question #192

The quarterly compounded rate is 8% quoted on an annualized basis. The equivalent annually compounded rate is:

A.

B.

C.

D.

View answer

Correct Answer: B

Question #193

Sharleef Nettleton, a quantitative analyst with Churn Brothers Brokerage, is examining a data sample and has amassed the following information:Standard deviation of the sample: 2.90Number of observations: 68Degrees of freedom: 2Sample mean: 114Assume that Ms. Nettleton formulates a null hypothesis that states that the value of the population mean is zero. Additionally, assume that the population standard deviation is unknown. Given this information, what is the standard error of the estimate? Further, what

A.

B.

C.

D.

E. one of these answers is correct

View answer

Correct Answer: D

Question #194

When a manager is responsible for the portfolios of pension plans or trusts, the duty of loyalty is owed to the ________.

A. eneficiaries

B. one of these answers

C. tockholders of the firm

D. nvesting public

E. ntity who hires the manager

View answer

Correct Answer: A

Question #195

A firm's operating cash flow is overstated by 90. Its non-cash expenses were correctly stated, noncash revenues were overstated by 55 and a total of 35 went into reducing outstanding current debt. The firm's tax rate is 40%. Then, the firm's net income is ________.

A. verstated by 55

B. verstated by 20

C. nderstated by 55

D. orrectly stated

View answer

Correct Answer: D

Question #196

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 #197

Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund's financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the t

A. end Murdock the information because it is not material nonpublic information

B. ot send Murdock the information to preserve confidentiality

C. end Murdock the information, provided Bronson promptly notifies the trustees

D. end Murdock the information because disclosure would benefit the client

View answer

Correct Answer: B

Question #198

If a firm's net income after dividends is greater than zero, then

A. ts equity increases

B. , II & IV

C. & IV

D. & II

E. I only

View answer

Correct Answer: C

Question #199

Three defective electric toothbrushes were accidentally shipped to a drugstore by the manufacturer along with 17 nondefective ones. What is the probability that the first two electric toothbrushes sold will be returned to the drugstore because they are defective?

A. /4 or 0

B. /20 or 0

C. one of these answers

D. /17 or 0

E. /190 or 0

View answer

Correct Answer: E

Question #200

What is the probability of making a Type II error if the null hypothesis is actually true?

A.

B. lpha

C.

D.

E. one of these answers

View answer

Correct Answer: D

Question #201

How many quarters will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 6% per year, compounded quarterly?

A. 2

B. 1

C. 1

D. 1

E. 6

View answer

Correct Answer: E

Question #202

If you were asked to study the economy over the past five years, you would use the real GDP series rather than the nominal GDP series because

A. he nominal GDP series reflects changes in both output and prices, whereas the real GDP series, roughly speaking, merely reflects changes in output

B. he nominal GDP series fails to account for transfer payments, whereas the real GDP series includes these payments

C. he real GDP series accounts for imports, making it more precise than the nominal GDP series

D. xports are excluded from the real GDP series, making it less complicated than the nominal GDP series

View answer

Correct Answer: C

Question #203

Dilutive warrants are ________ included in the calculation of Diluted EPS.

A. ever

B. ften

C. lways

D. ometimes

View answer

Correct Answer: C

Question #204

Which of the following describes a change in reporting entity?

A. company acquires a subsidiary that is to be accounted for as a purchase

B. one of these answers

C. business combination is made using the pooling-of-interests method

D. manufacturing company expands its market from regional to nationwide

E. company acquires additional shares of an investee and changes from the equity method of accounting to consolidation of the subsidiary

View answer

Correct Answer: C

Question #205

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 #206

Given the following distribution regarding the cost of textbooks:Cost of Textbooks Number$25 - $342$35 - $445$45 - $547$55 - $6420$65 - $7416What is the relative class frequency for the $25 - $34 class?

A. 0%

B. %

C. %

D. one of these answers

E. %

View answer

Correct Answer: E

Question #207

The following financial statement depicts only one point in time:

A. ncome Statement

B. tatement of Cash Flows

C. tatement of Retained Earnings

D. alance Sheet

View answer

Correct Answer: D

Question #208

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

A.

B.

C. %

D.

E.

View answer

Correct Answer: B

Question #209

Anabella Marconi is a junior industry analyst with Trackstar Blue, an investment advisory service firm. She has been assigned to follow 3 different firms in the telecommunication industry and reports directly to the senior manager, Constantine Naples. Constantine manages 9 other analysts and has to frequently visit Trackstar's other offices around the country. Recently, Anabella received a "friendly tip" from her friend, Socorro Shue, who works for Quicktel Com, one of the firms that Anabella is following.

A. nabella has not violated any AIMR code but Constantine has violated Standard III (E) - Responsibilities of Supervisors

B. II and IV only

C. I and IV only

D. V only

E. only

View answer

Correct Answer: C

Question #210

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)

View answer

Correct Answer: A

Question #211

Carlson Jewelers permits the return of their diamond wedding rings, provided the return occurs within two weeks of the purchase date. Their records reveal that 10 percent of the diamond wedding rinds are returned. Five rings are bought by five different customers. What is the probability that none will be returned?

A.

B.

C.

D.

E.

View answer

Correct Answer: B

Question #212

There are 2,000 eligible voters in a precinct. Despite protests from knowledgeable persons that a sample size of 500 was too large in relation to the total, the 500 selected at random were asked to indicate whether they planned to vote for the Democratic incumbent or the Republican challenger. Of the 500 surveyed, 350 said they were going to vote for the Democratic incumbent. Using the 0.99 confidence coefficient, what is the confidence limits for the proportion who plan to vote for the Democratic incumbent

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: C

Question #213

The probability of the occurrence of an airplane crash and a successful resolution to a labor strike is called:

A. conditional probability

B. n unrelated probability

C. joint probability

D. n unconditional probability

View answer

Correct Answer: C

Question #214

What is a listing of all possible outcomes of an experiment and their corresponding probability of occurrence called?

A. andom variable

B. requency distribution

C. ubjective probability

D. one of these answers

E. robability distribution

View answer

Correct Answer: E

Question #215

Brikland Strickowski learned a month ago that one of his clients, Stratmann, had been regularly using inside information provided by numerous "contacts" in various firms to generate his trading activity with Brikland. Brikland was surprised at Stratmann's recklessness but did not want to get him into trouble so he did not inform anyone about this. AIMR has been tipped about Stratmann's activity and one of the investigators from AIMR's Professional Conduct Program (PCP) recently got in touch with Brikland ab

A. rikland violated Standard IV (B

B. , II, III and IV

C. I only

D. I and IV

E. , II and IV only

View answer

Correct Answer: C

Question #216

"Fractional Reserve Banking" refers to:

A. he Federal Reserve System

B. ll of these answers

C. he banking system where part of the reserves are derived in the form of loans from the Central Bank

D. he banking system where banks hold less than 100% reserves against deposits

View answer

Correct Answer: D

Question #217

If all the data points in a regression lie exactly on a straight line, which of the following is/are true?

A. he observed values of the dependent variable will equal the predicted values

B. & II

C. II only

D. I only

E. V only

View answer

Correct Answer: A

Question #218

Monserrat Troy is a portfolio analyst at Merryl Flynch Inc., a leading investment bank. Merryl's corporate policy prohibits its employees from trading in IPOs even if they are not being underwritten by Merryl. Recently, a fast- growing internet firm, Netblaze, announced that it was going public. Monserrat's friend, Victor, told her that he could get her bid in for a few shares of the IPO. The size of the deal was very small, amounting to less than a couple of thousand dollars. Monserrat went ahead and bough

A. iolated Standard II (B) - Professional Misconduct - by violating company policy

B. id not violate the AIMR code of conduct even though she violated the company policy since the size of her transaction was extremely small

C. iolated Standard III (B) - Duty to Employer - by violating company policy

D. iolated Standard III (C) - Disclosure of Conflicts to Employer - by violating company policy

View answer

Correct Answer: D

Question #219

Goodwill should:

A. e expensed in the period in which it is purchased from another company or organization

B. ot be amortized as it will be a benefit to the company over its entire life

C. ritten off over a 40 year period even if the superior earning power justifying its existence disappears

D. e amortized to income over a period not exceeding 40 years

View answer

Correct Answer: D

Question #220

Misrepresentation of performance is prohibited by section ________ of the Standards of Professional Conduct.

A. II (A)

B. I (E)

C. II (F)

D. V (E)

E. (B)

View answer

Correct Answer: E

Question #221

The accumulated depreciation account should show

A. otal depreciation for fixed assets since the business was formed

B. urrent depreciation expense plus estimated depreciation for next year

C. otal depreciation for fixed assets still in use

D. nly the depreciation expense recognized during the current year

View answer

Correct Answer: C

Question #222

According to Standard IV (

A. ), members should consider including the following information in research reports, except:

A. he methodology that drove the investment decisions

B. ield-to-maturity

C. nnual amount of income expected

D. egree of uncertainty associated with the cash flows

E. usiness, financial, political, sovereign and market risks

View answer

Correct Answer: A

Question #223

Which of the following is/are true under GAAP?

A. nventories can only be "written down" but not "written up

B. I only

C. , II & III

D. II only

E. & III

View answer

Correct Answer: C

Question #224

What is the effective date for compliance with the AIMR-Performance Presentation Standards for discretionary fee-paying portfolios meeting the definition of a wrap-fee account?

A. anuary 1, 1997

B. uly 1, 1994

C. uly 1, 1995

D. anuary 1, 1995

View answer

Correct Answer: C

Question #225

Which of the following transactions belong to the Current account?

A. alance of services

B. , II, III & IV

C. , II & III

D. only

E. , II & IV

View answer

Correct Answer: D

Question #226

The cumulative effect of changing to a new accounting principle on the amount of retained earnings at the beginning of the period in which the change is made should be included in net income of ________.

A. he period of change and future periods

B. he period of change

C. uture periods

D. one of these answers

E. either future periods nor the period of change

View answer

Correct Answer: B

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