CFA Practice Exam Questions and Answers 2024, Chartered Financial Analyst

Question #1

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 #2

An investor purchased 100 shares of a stock two years ago for $50 per share after deciding the stock would be a good value investment. Since the initial purchase, the stock price has fallen to $35 per share after several of the company's major customers canceled contracts. The investor has decided to purchase another 50 shares at the lower price. Which of the following behavioral biases best characterizes the investor's actions?

A. scalation bias

B. omentum bias

C. verconfidence bias

View answer

Correct Answer: A

Question #3

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$15,000>, Year 1:$5,000, Year 2: $8,000, Year 3: $11,000? (Note that the <> are used to indicate a negative number).

A. 7

B. 3

C. 5

D. 6

E. 4

View answer

Correct Answer: E

Question #4

An economy is currently in equilibrium at full employment. If there is an anticipated decrease in demand, whichof the following effects can be seen in the short run?

A. eal GDP decreases

B. V only

C. , II, III & IV

D. II & IV

E. I, III & IV

View answer

Correct Answer: D

Question #5

A 95% confidence interval for a population parameter signifies which of the following?

A. 5% of similarly constructed intervals will contain the population parameter

B. II only

C. , II & III

D. only

E. I only

F. & II

View answer

Correct Answer: E

Question #6

On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because

A. epreciation is a direct source of cash

B. epreciation is an outflow of cash to a reserve account for the replacement of assets

C. epreciation reduces net income but does not involve an outflow of cash

D. epreciation reduces net income and involves an outflow of cash

View answer

Correct Answer: C

Question #7

Which of the following represents an investing activity in the statement of cash flows ________.

A. tock dividend

B. urchase of inventory

C. epreciation of plant assets

D. ale of plant assets at a loss

View answer

Correct Answer: D

Question #8

Suppose you were given $4,000 today and deposited it into an account paying 8% per year, compounded monthly. If you know that you will need $5,000 in the account 10 years from now, what monthly withdrawal can you make from the account, beginning one month from now, that will leave the account with exactly $5,000 in it in 10 years?

A. 24

B. 21

C. 23

D. an't be done

E. 11

View answer

Correct Answer: B

Question #9

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

A. evenues are recognized when goods are delivered

B. I & IV

C. , III & IV

D. I & III

E. & IV

View answer

Correct Answer: D

Question #10

Suppose you have two assets, A and B. A has returns of 10%, 2%, and 15%, with probabilities 40%, 50%, and 10% respectively. B has returns of 5%, 10%, and -20%, with probabilities 40%, 50%, and 10% respectively.What is the return covariance between assets A and B?

A. 50

B. 60

C. 10

D. 32

View answer

Correct Answer: D

Question #11

What is the variable used to predict the value of another called?

A. orrelation

B. etermination

C. ependent

D. one of these answers

E. ndependent

View answer

Correct Answer: E

Question #12

Arditti manages the pension plan for a publicly traded firm, Eros Computers and in this capacity, has the right to vote 0.5% of the common shares outstanding. Recently, Eros wanted to expand its production operations into Latin America and the board had decided to put the matter for open vote from shareholders. Arditti was on vacation in Fiji at the time and when she was informed about the vote, instructed that the portfolio proxy votes be voted along the same lines as that favored by the senior management.

A. iolated Standard IV (B

B. and II

C. , II and III

D. only

E. I and III only

View answer

Correct Answer: A

Question #13

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

A. ederal Income Tax

B. ocial Security Tax

C. tate Unemployment Tax

D. edicare Tax

View answer

Correct Answer: A

Question #14

A boad matures in ten years, pays a 7% semiannual coupon, and is currently priced to yield 6.25%. The bond is callable at par beginning five years from now. Debbie Scott is planning to purchase this bond. Scott can currently reinvest coupon income from the bond at 5.50%. Which of the following statements is least accurate?

A. f the bond is called in six years, Scott's return will be less than 6

B. f Scott's reinvestment rate was 6

C. f the bond was priced to yield 5

View answer

Correct Answer: C

Question #15

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$10,000>, Year 1:$5,000, Year 2: $5,000, Year 3: $7,500? (Note that the <> are used to indicate a negative number).

A. 1

B. 1

C. 4

D. 0

E. 8

View answer

Correct Answer: A

Question #16

Which of the following is true in a normal distribution?

A. one of the answers

B. ll of these answers are correct

C. ean divides the distribution into two equal parts

D. ean equals the mode and the median

E. ode equals the median

View answer

Correct Answer: B

Question #17

The "extra" money you take on a trip in case your car breaks down is an example of the

A. ransactions demand for money

B. nflationary demand for money

C. estrictive demand for money

D. peculative demand for money

E. recautionary demand for money

View answer

Correct Answer: E

Question #18

When financing a budget deficit, the government might borrow money from ________.

A. central bank

B. ndividuals

C. ll of these answers

D. usinesses

E. oreigners

View answer

Correct Answer: C

Question #19

Which of the following is/are true about the definition of "total firm assets" where PPS are concerned?

A. otal assets include non-discretionary as well as discretionary assets

B. , II and III

C. and III only

D. I and III only

E. and II only

View answer

Correct Answer: A

Question #20

SIMULATIONBob Kramer, CFA, manages money for high net worth clients. Kramer creates an investment portfolio tailored to his clients' specific needs using mutual funds. Kramer is considering the following Emerging Market Fund and uses a live year time frame. Exhibit 1 details the Emerging Market Fund's fees and expenses.Exhibit 1 - Fees and expenses for Emerging Market FundKramer expects the Emerging Market Fund to earn 12% per year.Select the class of Emerging Market Fund shares that are most appropriate fo

A. lass A

B. lass B

C. lass C

View answer

Correct Answer: C

Question #21

According to the AIMR-PPS, all actual fee-paying discretionary portfolios must be included in at least one composite defined according to

A. anagerial style of investment portfolio

B. imilar strategy or investment objective

C. ize of investment portfolio

D. ate of portfolio inception

View answer

Correct Answer: B

Question #22

The probability that a technology stock will fall in price over the next 12 months, given a decline in consumer confidence over the same period, is called:

A. n unconditional probability

B. conditional probability

C. joint probability

D. likelihood

View answer

Correct Answer: B

Question #23

Which of the following is an operating cash flow?

A. ividends paid out to shareholders

B. ividends received on investments in stocks

C. ll of these answers

D. ash used to replace the machine tool used in operational activities

View answer

Correct Answer: B

Question #24

Which of the following can be found in Standard V?

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

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

C. embers shall not misrepresent investment performance

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

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

View answer

Correct Answer: C

Question #25

The purpose of the Management Report is to:

A. nalyze favorable and unfavorable trends affecting the firm

B. , II & III

C. I & III

D. I, III & IV

E. I & IV

View answer

Correct Answer: D

Question #26

In its 1996 income statement, Coopers Co. reported income before income taxes of $300,000. Coopers estimated that, because of permanent differences, taxable income for 1996 would be $280,000. During 1996, Coopers made estimated tax payments of $50,000, which were charged to income tax expense. Coopers is subject to a 30% tax rate. What amount should Coopers report as income tax expense?

A. 84,000

B. 40,000

C. 34,000

D. 90,000

E. 50,000

View answer

Correct Answer: A

Question #27

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

A. evenues are recognized when goods are delivered

B. , III & IV

C. II only

D. & III

E. & IV

View answer

Correct Answer: C

Question #28

Real estate must be valued through an independent appraisal at least ________ unless client agreements state otherwise.

A. nce every five years

B. nce every year

C. nce every three years

D. nce every two years

View answer

Correct Answer: C

Question #29

Which of the following qualifies as a disposal of a segment of a business?

A. errier Inc

B. uperpharm Drugs, operator of chain of discount drug stores, reaches an agreement to sell its Boston location to a competitor

C. rving Inc

D. one of these answers

E. readrite, a shoe manufacturer, has decided to discontinue its line of work boots

View answer

Correct Answer: A

Question #30

The crowding-out model implies that a

A. udget surplus will be highly effective against inflation

B. udget deficit is likely to stimulate aggregate demand and trigger a multiplier effect that will lead to inflation

C. udget deficit will increase the real interest rate and thereby retard private spending

D. udget surplus will retard aggregate demand and throw the economy into a downward spiral

View answer

Correct Answer: C

Question #31

Carlos recently attended a seminar on a new technique in identifying possible relative mispricings amongst stocks. Impressed by the presentation, he used the technique to suggest that two of his biggest clients rebalance their portfolios with a heavier emphasis on the stocks the technique identified as being mispriced. While presenting this suggestion to his clients, Carlos did not mention anything about the source of the ideas used. Before recommending the changes, he did not personally check the results n

A. iolated Standard II (B) - Professional Misconduct

B. , II and III

C. and III only

D. , II, III and IV

E. I and III only

View answer

Correct Answer: D

Question #32

How many monthly payments of $30, beginning next month, are needed to pay off a debt of $1,000, if interest accrues at 10% per year, compounded monthly?

A. o solution/Error

B. 2

C. 1

D. 9

E. 7

View answer

Correct Answer: D

Question #33

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 #34

How long will it take for an initial deposit of $1,500 to grow to be $4,000, if the interest rate is 5% per year, compounded annually?

A. 6

B. 0

C. 7

D. 4

E. 4

View answer

Correct Answer: B

Question #35

If the government moves the entire tax schedule upward by 5%, the primary effect on the economy will be through:

A. ll of these answers

B. he demand side, wherein disposable income and private demand goes down

C. decrease in the budget deficit due to increase in tax revenues

D. he supply side, wherein the relative attractiveness of productive activity goes down in relation to leisure and tax avoidance activities

View answer

Correct Answer: B

Question #36

In the Keynesian model, if the multiplier is 3, then ________.

A. PS must be approximately

B. PC must be approximately 2/3

C. PC must be approximately

D. PC must be approximately 1/3

E. PS must be approximately 2/3

View answer

Correct Answer: D

Question #37

Which of the following methods does a company use to determine what the balance of the allowance for uncollectible accounts should be?

A. ercent of accounts receivable

B. either of these answers are correct

C. oth of these answers are correct

D. ging

View answer

Correct Answer: C

Question #38

How should the effect of a change in accounting estimate be accounted for?

A. one of these answers

B. y reporting pro forma amounts for prior periods

C. n the period of change and future periods if the change affects both

D. y restating amounts reported in financial statements of prior periods

E. s prior-period adjustments to beginning retained earnings

View answer

Correct Answer: C

Question #39

An employee had the following percentage increases in salary over the last 5 years: 4%, 7%, 10%, 15%, 12%.The geometric mean of his salary increases equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #40

NL is a country with no securities laws. LS is a country that has securities laws that are less strict than the AIMR code of ethics while MS has securities laws that are stricter than the code of ethics. Which of the following is/are true?

A. member who lives in NL must always follow the AIMR code

B. I and IV only

C. and IV only

D. , II, III and IV

E. I and III only

View answer

Correct Answer: B

Question #41

If the economy is producing less than the full-employment output level, which of the following would most likely direct the economy back to long-run equilibrium?

A. decrease in resource prices

B. n increase in the real rate of interest

C. n increase in resource prices

D. n increase in technology

View answer

Correct Answer: A

Question #42

The supply curve for American dollars in the foreign exchange market:

A. one of these answers

B. s dependent on the purchases of American goods by foreigners

C. s independent on the purchases of American goods by foreigners

D. s dependent on the purchases of foreign goods by Americans

View answer

Correct Answer: D

Question #43

Firm A uses the completed contract method and an otherwise identical Firm B uses percentage-of- completion method for revenue recognition in a project. Then, during the project,

A. irm A shows lower assets than B

B. irm B shows higher inventory than A

C. irm A shows higher equity than B

D. irm A shows higher inventory than B

View answer

Correct Answer: D

Question #44

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 20,0001994 15,0001995 25,0001996 12,000No estimates were changed during the life of the asset. The 1996 depreciation expense using the units-of- production method was ________.

A. 4,800

B. 4,000

C. 6,000

D. 10,000

E. 5,000

View answer

Correct Answer: B

Question #45

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

A. ower of cost or market (LCM)

B. IFO

C. IFO

D. eighted average cost

View answer

Correct Answer: D

Question #46

Antun Blasevic manages a fixed-income mutual fund which holds a variety of high-yield corporate bonds. His largest position is in Garjun Technologies, which currently trades to yield 8.75%, while the equivalent maturity

A.

B. he yield ratio is 1

C. he absolute yield spread is 67%

D. he relative yield spread is 350 basis points

View answer

Correct Answer: A

Question #47

When compared to a traditional mutual fund, an ETF will most likely offer:

A. etter risk management

B. ess portfolio transparency

C. igher exposure to capital gains distribution taxes

View answer

Correct Answer: A

Question #48

To claim compliance with the AIMR Performance Presentation Standards,

A. t least 1/2 of the investment managers in the firm must comply with the Standards

B. he entire firm must comply with the Standards

C. one of these answers

D. t least 3/4 of the investment managers in the firm must comply with the Standards

View answer

Correct Answer: B

Question #49

If you buy an item for $500 and agree to pay for it with 24 monthly payments of $24.50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

A.

B. 6

C. 6

D. 1

E. 4

View answer

Correct Answer: C

Question #50

The Performance Presentation Standards are designed for

A. nvestment consultants

B. urrent clients

C. rospective clients

D. ll of these are beneficiaries of the AIMR Performance Presentation Standards

View answer

Correct Answer: D

Question #51

Which of the following is not a financing activity in the statement of cash flows?

A. epurchase of common stock

B. ssuance of new debt

C. ayment of interest on debt

D. ash dividend

View answer

Correct Answer: C

Question #52

Standard III (E) - Responsibilities of Supervisors points out that when violations do occur, ________ procedures may be inadequate.

A. ompliance

B. one of these answers

C. egal

D. iduciary duty

View answer

Correct Answer: A

Question #53

One of the functions of secondary markets is that they:

A. rovide liquidity, and a financial futures contract is an example of a security trading on such a market

B. rovide liquidity, and a private placement is an example of a security trading on such a market

C. rovide fees, and a financial futures contract is an example of a security trading on such a market

View answer

Correct Answer: A

Question #54

Young, a portfolio manager with Northside Bank, has just been given investment authority for a newly acquired pension account. Client objectives have not yet been established. On the day the account is received, $2 million in bonds, representing 4 percent of the portfolio, mature. Which of the following is Young's best course of action on that day?

A. nvest the proceeds in cash equivalents until a meeting can be arranged to establish fund objectives

B. ontact the client's former investment advisor and take investment action based on previously used guidelines

C. nvest the proceeds in accordance with the bank's current asset allocation strategy

D. ake no decision until client objectives have been established

View answer

Correct Answer: A

Question #55

Which of the following AIMR Standards states that the financial analyst must use reasonable judgment as to the inclusion of relevant factors in research reports?

A. II (C

B. II A

C. II D

D. V (A

View answer

Correct Answer: D

Question #56

Which of the following is NOT a violation of Standard III (B) - Duty to Employer?

A. sing the current employer's client list for personal independent practice

B. endering services to independent clients without informing them about your current employment status but after obtaining written permission from the current employer

C. rovide free tax assistance to "low-income" people on a volunteer basis, without expecting or accepting any compensation when some of these people can be potential clients of your current employer

D. one of these answers

View answer

Correct Answer: C

Question #57

When individuals are unemployed because they lack the qualifications to fill available jobs, we call this a form of

A. atural unemployment

B. rictional unemployment

C. tructural unemployment

D. yclical unemployment

View answer

Correct Answer: C

Question #58

What is the median of 26, 30, 24, 32, 32, 31, 27 and 29?

A. 2

B. 0

C. one of these answers

D. 9

E. 9

View answer

Correct Answer: E

Question #59

What annual interest rate, compounded annually, is equivalent to 5% per year, compounded quarterly?

A.

B.

C.

D. %

E.

View answer

Correct Answer: A

Question #60

Identify the most accurate statement regarding collateralized borrowing transactions.

A. epurchase agreements usually offer the lowest interest cost

B. argin buying usually allows for borrowing a higher percentage of the collateral value

C. argin buying is usually the preferred transaction structure for institutional bond investors

View answer

Correct Answer: A

Question #61

New Gestalt, Inc., a software firm had a net income of 1.7 million last year. It has 200,000 common shares and 300,000 convertible bonds with face value of 100 outstanding. The convertible bonds carry a coupon of 4% and can be converted one-for-one. The average stock price last year was 39 and the maximum price was 57. The effective interest rate on the convertible debt is 8%. New Gestalt issued 100,000 preferred shares with face value 100 and a coupon of 5% on March 31st of last year. Assume the convertibl

A. 75,000

B. 00,000

C. 00,000

D. 00,000

View answer

Correct Answer: B

Question #62

Assuming that an expansionary fiscal policy package could be enacted and implemented immediately, approximately how far in advance would be problem of a lagging economy need to be recognized?

A. -2 years

B. months to 1 year

C. mpossible to determine

D. f policy could be enacted immediately, timing would not be a problem

E. year

View answer

Correct Answer: C

Question #63

Which of the following is not an example of an inflationary change in prices?

A. car dealer decides to charge more for a new model year of cars because of new features II

B. , II

C. , III

D. only

E. I, III

F. I only

View answer

Correct Answer: F

Question #64

Which one of the following will most likely cause a future increase in a country's sustainable level of real output?

A. n increase in income redistribution payments from high- to low-income recipients

B. decline in the nation's oil reserves

C. igher marginal tax rates

D. n increase in the national debt

E. n increase in the economy's net investment rate

View answer

Correct Answer: E

Question #65

What quarterly payment is required beginning one period from today to pay off a $3,000 debt, if interest accrues at 6% per year, compounded quarterly, and the debt is to be retired in 10 years?

A. 107

B. 88

C. 114

D. 87

E. 100

View answer

Correct Answer: E

Question #66

The average cost of tuition, room and board at a small private liberal arts college is reported to be $8,500 per term, but a financial administrator at Moravian College believes that the average cost is much higher. A study was conducted using 150 small liberal arts colleges and findings showed that the average cost per term is $9,000 with a standard deviation of $1,200. Let alpha = 0.05. The Ho: Mu less than or equal to $8,500. H1: Mu is bigger than $8,500.What is the critical z-value for this test?

A. 1

B. one of these answers

C. 1

D. 1

E. 1

View answer

Correct Answer: C

Question #67

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 #68

Complete the following: According to The Code of Ethics, members of AIMR shall: "Practice and encourage others to practice in a professional and ethical manner that will ________ members and their profession."

A. mprove the qualifications of

B. eflect credit on

C. one of these answers

D. mprove the compensation of

E. mprove the access of

View answer

Correct Answer: B

Question #69

Assume you deposit $300 now into an account that had nothing in it previously, make an additional deposit of $400 in 1 year, and a final deposit of $200 in 4 years. How much is in your account in 6 years, if the account earns interest at 7% per year, compounded annually?

A. 418

B. 1,431

C. 1,120

D. 925

E. 1,240

View answer

Correct Answer: E

Question #70

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 #71

What is the general form of the regression equation?

A. ' = a x bX

B. ' = a - bX

C. ' = a + bX

D. ' = ab

E. one of these answers

View answer

Correct Answer: C

Question #72

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 operations?

A. 55,000

B. 48,000

C. 54,000

D. 58,000

View answer

Correct Answer: B

Question #73

A firm has net total sales of 16,000 and administrative cash expense of 4,500. It paid taxes in the amount of 2,300 and had an increase in accounts payable of 400. The depreciation expense was estimated at 1,200.Then, the firm's operating cash flow was ________.

A. ,600

B. ,000

C. ,200

D. one of these answers

View answer

Correct Answer: A

Question #74

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 #75

Which of the following will most likely increase aggregate supply in the long run?

A. dvances in technology

B. low rate of capital formation

C. igher real interest rates due to the federal government's large budget deficits

D. nfavorable weather conditions in agricultural areas

E. n increase in the expected inflation rate

View answer

Correct Answer: A

Question #76

How long will it take for an initial deposit of $2,500 to grow to be $4,000, if the interest rate is 5% per year, compounded annually?

A. 2 years

B.

C.

D.

E. 4

View answer

Correct Answer: B

Question #77

A researcher has decided to create a frequency distribution using the following classes:30-45, 45-60, 60-75, 76 & over.The selection of this set involves which of the following?

A. on-overlapping classes

B. II only

C. only

D. & III only

E. I & III only

F. I only

View answer

Correct Answer: E

Question #78

If you deposit $5,000 today and make an additional deposit of $3,000 in 3 years, how much is in the account 6 years from today, if the money earns interest at 8% per year, compounded annually?

A. 10,077

B. 13,775

C. 17,335

D. 11,713

E. 12,695

View answer

Correct Answer: D

Question #79

If you deposit $1,500 into an account paying 6% per year, compounded quarterly, how much is in the account after 60 months?

A. 2,224

B. 2,117

C. 2,020

D. 1,702

E. 1,751

View answer

Correct Answer: C

Question #80

Augusta Sevilla has made the statements about company analysis and stock valuation:Statement 1:A growth company is a growth stock. A growth company has opportunities to make investments that yield returns above the firm's required rate of return. A growth company also offers higher rates of return on investments in its shares they are undervalued and generate high returns when complete information about the company arrives in the marketplace.Statement 2:A defensive stock has a low, but not negative, beta. A

A. oth statements are incorrect

B. nly Statement 1 is correct

C. nly Statement 2 is correct

View answer

Correct Answer: A

Question #81

The following data have been extracted from the financial statements of a firm for two years, 1993 and 1994:1993 1994Assets 10,895 12,444Sales 8,465 9,275Inventory 3,126 3,549COGS 7,120 7,387Receivables 2,154 1,768The receivables turnover ratio and the average receivables collection period for 1994 equal ________.

A.

B.

C. one of these answers

D.

View answer

Correct Answer: D

Question #82

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 #83

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

A. f the valuation of an investment asset is not based on current market value, it should not be included in total assets to which PPS are being applied

B. , II and III

C. and III only

D. I and III only

E. I only

View answer

Correct Answer: A

Question #84

Two junior portfolio managers at ContraFunds, a hedge fund manager, have been asked to summarize the mechanics of utilizing futures contracts for the firm's training manual. The first manager, Tina Kent, submits a paragraph explaining that administering a futures position will require bringing the margin account balance back to the initial margin level by posting maintenance margin any time the balance falls below the variation margin level. The second manger, Martin Ramsey, submits a paragraph explaining m

A. nly Kent is correct

B. nly Ramsey is correct

C. either is correct

View answer

Correct Answer: B

Question #85

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 #86

Under a system of fixed exchange rates, which of the following will most likely increase a balance of payments deficit?

A. n increase in foreign-aid grants

B. n increase in foreign-aid grants and expansionary monetary policy, which will drive prices up and interest rates down

C. xpansionary monetary policy, which will drive prices up and interest rates down

D. reduction in income from investments abroad

E. estrictive monetary policy, which will keep prices down and interest rates up

View answer

Correct Answer: C

Question #87

The 8% McClintock bonds maturing in 10 years are currently trading at 97.55. These bonds are option-free and pay coupons semiannually. Which of the following statements is most likely to be TRUE?

A. he yield to maturity is greater than 8

B. he current yield is less than 8

C. he nominal yield is greater than 8

View answer

Correct Answer: A

Question #88

When both exports and imports are considered, the major advantage of international trade is that it allows us to

A. hare our technology and efficiency with less-developed countries that would otherwise never have the opportunity to observe modern goods and services

B. ample foreign products that many of us would otherwise never see

C. onsume a larger, more diverse quantity of goods and services at lower prices than would otherwise prevail

D. aintain jobs for workers who would otherwise have little to do

View answer

Correct Answer: C

Question #89

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

F. one of these answers

View answer

Correct Answer: D

Question #90

You are examining a portfolio composed of 33% money-market investments, 9.5% bonds, and 57.5% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 9%, and the return on stocks was -11%. What is the contribution of stocks toward the portfolio weighted average return?

A. 57

B. 11

C. 4

D. 6

View answer

Correct Answer: D

Question #91

While comparing a firm that expenses costs with one that capitalizes them:

A. he capitalizing firm always shows higher cash flow from operations

B. I & III

C. , II & IV

D. I, III & IV

E. & IV

View answer

Correct Answer: B

Question #92

An analyst valuing the non-controlling shares of a closely held company is using a similar firm quoted on the NASDAQ with relatively high trading volume as his base for a comparable company analysis. He is most likely to use the shares of the publicly traded comparable company and apply:

A. nly a marketability discount

B. nly a minority interest discount

C. oth a marketability and minority interest discount

View answer

Correct Answer: A

Question #93

What gives the home currency price of a certain quantity of the foreign currency quoted?

A. id-ask spread

B. pot rate

C. ross rate

D. irect quotation

E. ndirect quotation

View answer

Correct Answer: D

Question #94

Valuation of PP&E and natural resources emphasizes all of the following accounting objectives except ________.

A. ccounting for monies invested in assets

B. istorical cost

C. onservatism principle

D. eality

View answer

Correct Answer: D

Question #95

Which of the following would not be considered an intangible asset?

A. ustomer lists

B. ll of these answers represent intangible assets

C. ineral rights

D. atents, copyrights, and trademarks

E. oodwill

View answer

Correct Answer: C

Question #96

Suppose a tire manufacturer wants to set a mileage guarantee on its new XB 70 tire. Life test revealed that the mean mileage is 47,900 and the standard deviation of the normally distributed distribution of mileage is 2,050 miles. The manufacturer wants to set the guaranteed mileage so that no more than 5 percent of the tires will have to be replaced. What guaranteed mileage should the manufacturer announce?

A. 2,960

B. 4,528

C. 9,621

D. 0,922

E. one of these answers

View answer

Correct Answer: B

Question #97

The accrual basis of accounting

A. oes not pertain to revenue recognition-only expense recognition

B. ecognizes the development of assets and liabilities externally

C. s used only for taxes reporting purposes

D. egins with the cash basis of accounting and proceeds to make the necessary adjustments

E. llocates many transactions that produce cash flows to time periods other than those in which the cash flows occur

View answer

Correct Answer: E

Question #98

Connery, a smart professional, passed his Level II CFA exam 2 years ago. He could not take the Level III exam due to professional time commitments elsewhere. He is thinking of taking Level III a couple of years from now, once things settle down on his personal front. His resume, which he has sent to a few prestigious firms, states that he is a candidate in the CFA program and has successfully completed Level II exam. He makes no exaggerated claims about his abilities on his resume. Connery has:

A. iolated Standard II (A) - Use of Professional Designation

B. ot violated any standards

C. iolated Standard II (A) - Use of Professional Designation

D. iolated Standard II (A) - Use of Professional Designation

View answer

Correct Answer: C

Question #99

American textile manufacturers and union members have often lobbied successfully for restrictive quotas limiting the importation of textile products. The major impact of these quotas is

A. ower prices for American consumers and an improvement in the quality of textile products available

B. permanent reduction in unemployment in the U

C. igher prices for American consumers, a narrower selection of products and less competition in the U

D. ong-run profits in the U

View answer

Correct Answer: C

Question #100

Which of the following measures of dispersion are based on deviations from the mean?

A. one of these answers

B. tandard deviation

C. ean deviation

D. ll of these answers

E. ariance

View answer

Correct Answer: D

Question #101

The weights of a sample of crates ready for shipment to Laos are (in kilograms): 103, 97, 101, 106 and 103.What is the mean deviation?

A.

B. 02

C. kg

D. one of these answers

E.

View answer

Correct Answer: A

Question #102

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$25,000>, Year 1:$5,000, Year 2: $0, Year 3: $30,000? (Note that the <> are used to indicate a negative number).

A.

B. 5

C. 4

D. 3

E. 2

View answer

Correct Answer: D

Question #103

Cricketers, Inc. recently purchased Baseball Corp. for $3 million using debt financing. Analysts are in agreement that the fair value for Baseball's assets was around $2.7 million and that the overpayment was for strategic reasons. When Cricketers' accountants record the transaction, they must record:

A. n asset of $2

B. n asset of $3

C. n asset of $2

D. n asset of $2

View answer

Correct Answer: C

Question #104

Which of the following statements reflects the basic purposes of financial reporting?

A. he best indication of a firm's ability to generate favorable cash flow is information based on previous cash receipts and payments

B. inancial accounting is expressly designed to measure directly the value of a business enterprise

C. one of these answers

D. he primary focus of financial reporting is information about an enterprise's resources

E. nvestments and credit decisions often are based, at least in part, on evaluations of the past performance of an enterprise

View answer

Correct Answer: E

Question #105

If you deposit $1,400 today into a savings account paying 8% per year, compounded semiannually, how much is in your account in 5 years?

A. 2,072

B. 1,587

C. 2,487

D. 1,330

E. 1,857

View answer

Correct Answer: A

Question #106

The allowance for uncollectible accounts is

A. reduction in revenue

B. liability

C. ong-term asset

D. contra account

View answer

Correct Answer: D

Question #107

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 #108

What is the future value of $450 per year for 10 years, with the first cash flow occurring today, rather than 1 year from now? Assume interest is 7% per year, compounded annually.

A. 6,652

B. 6,217

C. 3,381

D. 3,160

E. 4,951

View answer

Correct Answer: A

Question #109

A random variable with a mean equal to 2.5 and a standard deviation of 2.0 has a coefficient of variation equal to ________.

A. ero

B. 2

C.

D. one of these answers

E.

View answer

Correct Answer: E

Question #110

Deferred taxes would be classified as

A. long-term borrowing

B. current liability

C. current asset

D. prepaid expense

E. tockholders' equity

View answer

Correct Answer: C

Question #111

Which of the following AIMR standards states that a member shall not knowingly participate, or assist, in any violation of applicable laws, regulations, or the Code and Standards?

A. II

B. I

C.

D.

View answer

Correct Answer: D

Question #112

When the weighted average method is used, ending inventory units are priced at the

A. one of these answers is correct

B. arliest price

C. verage price

D. ower of cost or market

View answer

Correct Answer: C

Question #113

Standard II (B) - Professional Misconduct, states which of the following is a violation?

A. dding inappropriate expenses to expense reports over an extended period, although never criminally convicted

B. sing material prepared by another, in the same form as the original, without acknowledging and identifying the author, publisher or source of such material

C. ll of these answers

D. ntoxication at work, which reflects poorly on the profession, raises questions about competence and affects investment decisions

View answer

Correct Answer: D

Question #114

Standard IV of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

A. one of these answers

B. lients and Prospects

C. IMR

D. upervisors

E. he Employer

View answer

Correct Answer: B

Question #115

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

A. ross profit

B. IFO

C. IFO

D. eighted average

View answer

Correct Answer: B

Question #116

What does the coefficient of determination equal if r = 0.89?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: E

Question #117

Given the following four points: (-2, 0), (-1,0), (0,1), (1, 1) and (2, 3)What is the standard error of the regression line estimate?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: C

Question #118

A(n) ________ is a publicly available independent representation of the market and if used as a benchmark, should be investable.

A. utual fund

B. onvertible bond

C. ortfolio

D. omposite

E. ndex

View answer

Correct Answer: E

Question #119

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

F. I only

View answer

Correct Answer: D

Question #120

What annual interest rate, compounded annually, would cause a series of 10 deposits of $500 to accumulate to $9,000, if the first deposit is made one year from today?

A. 2

B. 5

C. 1

D.

E. 0

View answer

Correct Answer: A

Question #121

The reason that the translation of foreign subsidiaries will generate discrepancies between the changes in accounts reported on the balance sheet and those reported in the cash flow statement is

A. he change in the exchange rate does not appear on the balance sheet but will appear as a component of cash collections it is not a change resulting from operations

B. he change in the exchange rate appears as part of the balance of accounts receivable on the balance sheet but will not appear as a component of cash collections because it is not a change resulting from operations

C. he change in the exchange rate does not appear on the balance sheet but will appear as a component of cash from financing activities

D. he change in the exchange rate appears as part of the stockholders' equity on the balance sheet but will not appear as a component of cash collections because it is not a change resulting from operations

View answer

Correct Answer: B

Question #122

Two sets of observations, A and B, each contain 160 observations. The variance of data in A equals 198.4 and that of the data in B equals 231.9. The two sets have the same mean. Then, A has a ________ dispersion and a ________ coefficient of variation.

A. igher; higher

B. ower; higher

C. ower; lower

D. igher; lower

View answer

Correct Answer: C

Question #123

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 #124

At December 31, 1996, Eaton Corp. reported $1,750,000 of appropriated retained earnings for the construction of a new office building, which was completed in 1997 at a cost of $1,500,000. In 1997, Eaton appropriated $1,200,000 of retained earnings for the construction of a new plant. Also, $2,000,000 of cash was restricted for the retirement of bonds due in 1998. In its 1997 balance sheet, what amount should Eaton report as appropriated retained earnings?

A. 2,950,000

B. 3,200,000

C. 1,450,000

D. 1,750,000

E. 1,200,000

View answer

Correct Answer: E

Question #125

The inflation rate in an economy currently in equilibrium jumps up unexpectedly. According to the Adaptive Expectations hypothesis, unemployment will in the short run.

A. ll of these answers can happen

B. ecrease

C. ncrease

D. emain unaffected

View answer

Correct Answer: B

Question #126

Kerry Garrett, CFA, manages a hedge fund. The hedge fund industry has enjoyed strong growth over the past ten years. Garrett states that the hedge fund industry has a goal of absolute returns. In addition, Garrett states that the industry's high Sharpe ratio indicates that hedge funds are superior investment vehicles. Is Garrett correct with regard to his statement on hedge fund returns and/or his statement on hedge funds as superior investment vehicles?

A. nly the statement on return is correct

B. nly the statement on superiority is correct

C. one

View answer

Correct Answer: A

Question #127

Holding income constant, if consumers and investors decide to spend more on goods and services, then

A. dditional spending will require increased borrowing (or less saving), which will drive up the real rate of interest

B. roducers will expand output without increasing prices to accommodate the stronger demand

C. dditional spending will increase the supply of loanable funds, which will reduce the real interest rate and thereby trigger additional spending

D. he economy's long-run capacity (LRAS) will expand to accommodate the stronger demand

View answer

Correct Answer: A

Question #128

According to The Code of Ethics, members of AIMR shall: "Use reasonable care and exercise ________."

A. ach and every day

B. one of these answers

C. ndependent professional judgment

D. ptimal diversification

E. pen communications with clients

View answer

Correct Answer: C

Question #129

Which is true of a leptokurtic distribution?

A. t will be more peaked than the normal distribution

B. and II

C. and IV

D. II and II

E. II and IV

View answer

Correct Answer: B

Question #130

Coleman Industries' stock is currently trading in the market for a price of $21. Three months ago, Myong Packard wrote a 6-month put option on 100 shares of Coleman stock for a premium of $3. The exercise price on the put option is equal to S25. The put option is now trading in the market for $5.25. Determine the moneyness of the put option.

A. ut-of-the money

B. n-the-money

C. t-the-money

View answer

Correct Answer: B

Question #131

A loss contingency should be accrued on a company's records only if it is

A. easonably possible that a liability has been incurred and the amount of the loss is known

B. emotely probable that a liability has been incurred but the amount of the loss can be reasonably estimated

C. robable that a liability has been incurred and the amount of the loss is unknown

D. one of these answers

E. robable that a liability has been incurred and the amount of the loss can be reasonably estimated

View answer

Correct Answer: E

Question #132

You are given a risk-free rate of 3% per year, a portfolio return of 8% per year, and a standard deviation of portfolio return of 22% per year. What is the Sharpe measure of risk-adjusted performance?

A.

B.

C.

D.

View answer

Correct Answer: C

Question #133

When a plant asset is sold for more than its book value

A. ook value of the asset minus gain on disposal equals cash received

B. ash received plus accumulated depreciation plus gain on disposal equals the original cost

C. riginal cost minus accumulated depreciation equals cash received plus gain on disposal

D. ash received plus accumulated depreciation minus gain on disposal equals the original cost

View answer

Correct Answer: D

Question #134

At the end of every year for the next 3 years, you deposit $400 in an account that pays 5% per year, annually compounded. After that, you do not make any more deposits. The amount that you can withdraw after 7 yearsis:

A. 1,533

B. 1,492

C. 1,917

D. 1,261

View answer

Correct Answer: A

Question #135

Which of the following is not a current liability?

A. llowance for Uncollectible Accounts

B. ages Payable

C. nearned Revenue

D. otes Payable

View answer

Correct Answer: A

Question #136

What annual interest rate, compounded quarterly, would cause a series of 20 quarterly deposits of $800 to accumulate to $25,000, if the first deposit is made three months from today?

A. 2

B. 9

C. 9

D. 7

E. 8

View answer

Correct Answer: D

Question #137

What deposit today is needed to have $2,000 in 4 years, assuming the money will earn interest at 5% per year, compounded monthly?

A. 2,000

B. 1,290

C. 584

D. 1,638

E. 1,934

View answer

Correct Answer: D

Question #138

Which of the following is/are TRUE?

A. osses due to union strike at a plant are classified as extraordinary items

B. I & III

C. & IV

D. & II

E. II & IV

View answer

Correct Answer: D

Question #139

An analyst is considering buying a call option on ZXC stock, which is currently trading at $33.75 per share. Three month call options with a strike price of $30 are trading at a premium of $4.50. Identify which of the following statements is most likely true regarding the ZXC call options.

A. he ZXC call options are currently out of the money

B. he breakeven underlying price for ZXC stock is $38

C. he potential upside of the ZXC call options is unlimited

View answer

Correct Answer: C

Question #140

According to the Prudent Investor Rule, the trustee must:- adhere to ________, impartiality and prudence- maintain overall portfolio risk at a reasonable level- provide for reasonable diversification of trust investments- act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents- be cost conscious when investing

A. upervisors

B. oyalty

C. one of these answers

D. ommitment

E. iversification

View answer

Correct Answer: B

Question #141

Serena Zaltz is a portfolio manager at Katalina Investments, a small boutique in Connecticut. She currently manages 3 client accounts, one of which belongs to John Hersham. John recently told Serena that if his portfolio beat the S&P500 by 75 basis points over the next 3 months, he would give 10 basis points to her as a "superior performance reward." Serena told him this was unnecessary but John insisted that such an arrangement be made on a handshake. Serena subsequently spoke to her supervisor, Helena, ab

A. as violated Standard IV (3) - Independence and Objectivity

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

C. ot violated any code of conduct

D. as violated Standard IV (B

View answer

Correct Answer: B

Question #142

An investment recommendation can be disseminated to clients via each of the following methods, EXCEPT:

A. hrough a brief update report

B. y addition to a recommended list

C. y oral communication

D. hrough an initial detailed research report

E. y deletion from a recommended list

F. ll of these answers are acceptable methods

View answer

Correct Answer: F

Question #143

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 #144

What annual interest rate, compounded annually, is equivalent to 6% per year, compounded monthly?

A.

B.

C.

D. %

E.

View answer

Correct Answer: B

Question #145

What annual deposit would you need to make, beginning one year from today, into an account paying 11% per year, compounded annually, in order to have $1,000,000 in 30 years?

A. 6,129

B. 33,333

C. 418

D. 5,024

E. 1,374

View answer

Correct Answer: D

Question #146

As the alternative mean approaches the hypothesized mean, what can we say about the risk?

A. maller risk of a Type II error

B. reater risk of a Type II error

C. maller risk of a Type I error

D. one of these answers

E. reater risk of a Type I error

View answer

Correct Answer: B

Question #147

Which of the following factors would affect the authenticity of a firm's receivables?

A. ndustry practices

B. ll of these answers

C. firm's policy for returns and allowances

D. one of these answers

E. firm's credit policy

View answer

Correct Answer: B

Question #148

Which of the following is NOT one of the goals of AIMR-PPS?

A. nforce a single standard on the various performance presentations through a mandatory adoption of the PPS

B. one of these answers

C. olster the notion of self-regulation and enhance the professionalism in the industry

D. mprove the service offered to investment management clients

View answer

Correct Answer: A

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