CFA Practice Exam Questions Level 1, Chartered Financial Analyst

Question #1

What is the Net Present Value of this series of annual cash flows: Year 0: <$20,000>, Year 1: $15,000, Year 2:$5,000, Year 3: $7,500, using an interest rate of 10% per year? (Note that the <> are used to indicate a negative number).

A. 2,851

B. 3,512

C. 48

D. 4,116

E. 3,403

View answer

Correct Answer: E

Question #2

The value of an existing single-family home used for residential purposes will most likely be calculated using the:

A. ost approach

B. ncome approach

C. ales comparison approach

View answer

Correct Answer: C

Question #3

Which of the following is/are true about pension plans?

A. n a defined benefit plan, the investment risks are borne by the employer

B. & II

C. I only

D. , II & III

E. & III

View answer

Correct Answer: C

Question #4

The weights (in grams) of the contents of several small bottles are 4, 2, 5, 4, 5, 2 and 6. What is the sample variance?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: D

Question #5

Which of the following conditions would allow a firm to classify a short-term liability as a long-term debt?

A. he firm has issued a long-term note with the stated purpose of extinguishing the short-term debt when it matures

B. II only

C. & III

D. I only

E. I & III

View answer

Correct Answer: C

Question #6

On a certain date, the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12.5 percent. Potentially, the banking system as a whole could increase its loans a maximum of

A. ore than $25 billion

B. 2 billion

C. 12

D. 16 billion

View answer

Correct Answer: D

Question #7

Anti-dilutive securities are those that:

A. re always included in the computation of the Diluted EPS

B. ifferentiate between a simple capital structure and complex capital structure

C. one of these answers

D. ncrease the earnings per share when assumed exercised

View answer

Correct Answer: D

Question #8

Assume you deposit $800 now into an account that had nothing in it previously, make an additional deposit of $800 in 2 years, and a final deposit of $800 in 4 years. How much is in your account in 5 years, if the account earns interest at 8% per year, compounded annually?

A. 3,047

B. 2,708

C. 4,331

D. 3,120

E. 2,905

View answer

Correct Answer: A

Question #9

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

A. roxy voting

B. one of these answers

C. eturn objectives

D. ime horizon

E. iquidity needs

F. nvestable funds

View answer

Correct Answer: C

Question #10

Al the end of the last 12-month period, Romano s Italian Foods had net income and ending equity for the company of $16.68 million and $115 million, respectively. Romano's declared a $7.5 million dividend for the year. Using internally generated funds, Romano's can grow its equity by approximately:

A.

B. 0

C. 4

View answer

Correct Answer: A

Question #11

Two events, A and B, are mutually exclusive if:

A. (A and B) = P(A) + P(B)

B. (A and B) = 0

C. (A and B) = P(A) P(B)

D. (A and B) = 1

View answer

Correct Answer: B

Question #12

PRC International just completed a S234 million floating rate convertible bond offering. As stated in the indenture, the interest rate on the bond is the lesser of 90-day LIBOR or 10%. The indenture also requires PRC to retire $5.6 million per year with the option to retire as much as $10 million. Which of the following embedded options is most likely to benefit the investor? The:

A. 0% cap on the floating interest rate

B. ccelerated sinking fund provision for principal repayment

C. onversion option on the convertible bonds

View answer

Correct Answer: C

Question #13

A firm decides to capitalize the interest expenditure on a large, building construction project, instead of expensing it. This ________ its debt-to-equity ratio.

A. as an ambiguous effect on

B. eaves unaffected

C. ecreases

D. ncreases

View answer

Correct Answer: C

Question #14

Which of the following statements is false regarding confidence levels and/or tests of significance?

A. n most hypothesis testing, the confidence level is equal to 0

B. ll else equal, the confidence interval of a hypothesis test with a 5% level of significance is less than the confidence interval for a hypothesis test with a 1% level of significance

C. n most hypothesis tests, the power of the test is equal to (1 - alpha)

D. ore than one of these answers is incorrect

E. he significance level of a test is equal to (1 - confidence level)

F. he power of a test is equal to the confidence level

View answer

Correct Answer: D

Question #15

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

F. uty to Employer

View answer

Correct Answer: E

Question #16

According to Standard IV (B.7), Disclosure of Conflicts, service on a board of directors poses which of the following as a basic conflict of interest?

A. iduciary duties owed to clients and the duties owed to shareholders

B. one of these answers

C. ll of these answers

D. nvestment personnel who serve as directors may receive securities or the option to purchase securities of the company as compensation for serving on the board

E. pportunity to receive material nonpublic information

View answer

Correct Answer: C

Question #17

When preparing a direct method statement of cash flows, the net cash flow must equal

A. he cash collections minus the cash expenses

B. he cash collections plus the net noncash revenues and expenses

C. he cash flow from operations plus the cash flow from investments

D. he change in cash

E. he cash collections plus the changes in the operating accounts

View answer

Correct Answer: D

Question #18

Which of the following best describes an income statement?

A. t reports revenues and expenses for a specific accounting period

B. t reports the amount and composition of assets and liabilities for a specific accounting period

C. one of these answers

D. t reports investment activities for a specified accounting period

E. t reports cash receipts and cash disbursements for a specific accounting period

View answer

Correct Answer: A

Question #19

Seeing that the unemployment rate is reaching new highs each month, several Senators group together to propose major tax cuts and spending increases to stimulate the economy. Both the increased spending and tax cuts will be implemented in the following January, more than six months away. Due to major public outcry, these bills pass through legislature very quickly. During the six months in between passage and implementation, the unemployment rate begins to fall. Another year passes, now 18 months after the

A. ecognition lagII

B. , II, III, IV

C. , II, III

D. only

E. I only

F. , II

View answer

Correct Answer: E

Question #20

Which of the following temporary differences will result in a deferred tax asset?

A. nstallment sale profits accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes

B. repaid expenses accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes

C. se of the straight-line depreciation method for financial statement purposes and the Modified Accelerated Cost Recovery System (MACRS) for income tax purposes

D. one of these answers

E. dvance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes

View answer

Correct Answer: E

Question #21

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

A. isk tolerance

B. one of these answers

C. ype and nature of clients

D. xpected cash flows

E. nvestable funds

View answer

Correct Answer: C

Question #22

What is the range of values for a coefficient of correlation?

A. 1

B. nlimited range

C. 3 to +3 inclusive

D. one of these answers

E. to +1

View answer

Correct Answer: A

Question #23

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 #24

The multiplier effect refers to the fact that an autonomous change in spending (aggregate demand) will

A. ause prices to rise by some multiple of the initial increase in spending

B. educe prices by some multiple of the increase in spending

C. ncrease the money supply

D. ncrease unemployment

E. ause nominal output to rise by some multiple of the initial increase in spending

View answer

Correct Answer: E

Question #25

If the underlying theory does not suggest a particular direction for the value of an estimated variable, it is appropriate to use a:

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: C

Question #26

Which of the following groups are least likely to be creditors of a company?

A. uppliers

B. nvestors

C. anks

D. ustomers

View answer

Correct Answer: D

Question #27

In 1998, firm A's financial statements showed the following:Net income = $23,000Operating cash flows = $10,000Financing cash flows = $24,000Non-cash expenses = $19,000Change in cash accounts = $6,500Cash spent on acquiring operating capacity = $19,000Then, the investing cash flow of the firm in 1998 was ________.

A. $27,500

B. 42,000

C. $19,000

D. 69,500

View answer

Correct Answer: A

Question #28

A financial economist runs the following regression: Demand for cars = alpha + beta*income level + error In this regression, the demand for cars is ________ variable and the income level is ________ variable.

A. ependent; dependent

B. ependent; independent

C. ndependent; independent

D. ndependent; dependent

View answer

Correct Answer: B

Question #29

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 #30

The financial analyst is allowed to breach client confidentiality if the information concerns ________ activities that the client is engaged in.

A. ersonal

B. onfidential

C. nsider

D. one of these answers

E. llegal

View answer

Correct Answer: E

Question #31

The following data are available for a firm for a given year:Net Sales 21,896Sales & marketing expenses 4,346Administrative expenses 2,143COGS 10,084Depreciation 967Interest expense 573Tax rate 35%Dividends paid 3,445Preferred Dividends 897Average total equity 37,432Average common equity 26,782Average total liabilities 18,583In the above example, the firm's return on common equity equals ________.

A.

B.

C.

D.

View answer

Correct Answer: A

Question #32

If you deposit $10,000 into an account paying 6% per year, compounded semiannually, how much do you have in the account in 8 years?

A. 15,938

B. 16,047

C. 12,667

D. 14,800

E. 25,403

View answer

Correct Answer: B

Question #33

Which of the following are considered when applying generally accepted accounting principles.

A. hen income is recognized as earned

B. hen expenses and losses accrue

C. ow assets are measured

D. ll of these answers are correct

E. hen liabilities are incurred

View answer

Correct Answer: D

Question #34

How much would an original deposit of $1,500 grow to be after 8 and a half years, if the deposit earns interest at 6.5% per year, compounded quarterly?

A. 870,183

B. 3,601

C. 2,541

D. 2,594

E. 1,570

View answer

Correct Answer: D

Question #35

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 #36

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

A. member who complies with the mandatory requirements of the PPS but does not follow the recommended requirements can publicly claim compliance with the PPS

B. II only

C. I and III only

D. , II and III

E. and III only

View answer

Correct Answer: D

Question #37

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 #38

Holiday Corp. holds 10,000 shares of its $10 par value common stock as treasury stock reacquired in 1994 for $120,000. On December 12, 1996, Holiday reissued all 10,000 shares for $190,000. Under the cost method of accounting for treasury stock, the reissuance resulted in increasing

A. dditional paid-in capital by $70,000

B. reasury stock by $100,000

C. apital stock by $100,000

D. etained earnings by $70,000

E. ain on sale of investments by $70,000

View answer

Correct Answer: A

Question #39

All of the following statements are true except for:

A. hen inventory balances decrease, cash flows increase

B. hen short-term debt increases, cash flows increase

C. hen accounts receivable balances increase, cash flows increase

D. hen accounts payable balances increase, cash flows increase

View answer

Correct Answer: C

Question #40

Which of the following is/are true about the PPS?

A. ccounts of clients that are not currently under the firm's management should not be included in the presentation of the historical performance results

B. II only

C. only

D. and III only

E. I only

F. , II and III

View answer

Correct Answer: D

Question #41

Tasty Food, Inc.'s statements have overstated accounts payable by 400 and understated the accounts receivables by 225. Then, which of the following is/are true?

A. ts income is correctly stated

B. I, III and IV

C. & III

D. & IV

E. I & IV

View answer

Correct Answer: C

Question #42

How much would an original deposit of $900 grow to be after 10 and a half years, if the deposit earns interest at 6.5% per year, compounded quarterly?

A. 1,853

B. 1,254

C. 1,573

D. 1,771

E. 1,837

View answer

Correct Answer: D

Question #43

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

A. IMR

B. lients

C. he Profession

D. mployers

E. one of these answers

View answer

Correct Answer: C

Question #44

The heights of the five members in a family have been measured and found to be (in centimeters):146, 162, 165, 187, 152The range and the mean deviation of the heights are:

A. 1, 46

B. 1, 54

C. 1, 10

D. 9, 61

View answer

Correct Answer: C

Question #45

How much would an original deposit of $500 grow to be after 8 and a half years, if the deposit earns interest at 6.5% per year, compounded quarterly?

A. 853

B. 573

C. 4,254

D. 837

E. 864

View answer

Correct Answer: E

Question #46

In the basic Keynesian model of national income determination, aggregate expenditures refer to

A. he amount of demand for consumer goods that would arise if all citizens had all the income they wanted

B. he combined expenditures of consumers and businesses minus government spending

C. pending for consumption, investment and exports less imports plus government purchases of goods and services

D. onsumer spending measured in constant prices

E. he amount of GDP that could be produced if unemployment were zero

View answer

Correct Answer: C

Question #47

A researcher has a sample of 900 observations from a population whose standard deviation is known to be 3,381. The mean of the sample is calculated to be 465.2. The null hypothesis is stated as Ho: mean < 200. The p-value in this case equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #48

Which of the following is NOT a form of plagiarism as defined by AIMR code of conduct?

A. opying proprietary software programs without permission

B. sing data from a well-known statistical service without attribution

C. iting specific quotations to "leading analysts," without specific reference

D. sing publicized research reports prepared by others without attribution

View answer

Correct Answer: B

Question #49

Which of the following would be an example of non-activist monetary policy?

A. he Central Bank attempts to counter-act negative developments in the economy

B. nflation is the only target for the Central Bank

C. he Central Bank tries to keep the money supply constant

D. he government keeps spending constant and allows tax revenues to rise or fall to compensate for changes in aggregate income

E. he Central Bank increases the money supply by 5% every year

View answer

Correct Answer: E

Question #50

A thorough analysis of financial statements should include an examination of which of the following sources of information?

A. ll of these are correct

B. he report of the independent external auditor

C. anagement's discussion and analysis of its financial condition and results of operation

D. orm 10-K reports

E. xplanatory footnotes that accompany financial statements

View answer

Correct Answer: A

Question #51

What annual interest rate, compounded annually, will cause an original deposit of $500 to grow to $625, after 3 years?

A.

B.

C.

D.

E.

View answer

Correct Answer: D

Question #52

The deferred income tax account

A. one of these answers

B. s always reported as a long-term liability since the tax is not due until the next fiscal year

C. s reported as an other asset even though it has a credit balance

D. s where the difference between income tax expense and income tax payable is reconciled

View answer

Correct Answer: D

Question #53

If you already have $500 in a savings account, how much must you deposit 4 years from now in order to have $5,000 in 8 years, assuming the account earns interest at 10% per year, compounded annually?

A. 4,500

B. 732

C. 2,683

D. 3,415

E. 2,332

View answer

Correct Answer: C

Question #54

Under ERISA, fiduciaries must:-act solely in the interest of and for the exclusive purpose of benefiting, the plan participants and beneficiaries; -act with the care, skill, prudence and diligence of a prudent person acting in like capacity; -diversify the plan's investments to protect it from the risk of substantial loss; -act in accordance with the provisions of the plan documents to the extent that the documents comply with ________;-refrain from engaging in prohibited transactions.

A. IMR regulations

B. IMR code of ethics

C. one of these answers

D. RISA

View answer

Correct Answer: D

Question #55

According to the AIMR-PPS, plan sponsors, consultants and software vendors

A. re exempt from any of the Standards

B. re directly responsible for ensuring the companies they employ are in compliance with the Standards

C. re held accountable to the Standards in the same way as AIMR Members, Charterholders and Candidates

D. annot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance

View answer

Correct Answer: D

Question #56

The following data are taken from the AlphaBeta Company's financial statements ending Dec 31, 1990:Increase in salaries payable 120Decrease in accounts payable 45Provision for bad debt 15Depreciation 90Interest paid 35Proceeds from new bonds issued 225Net Income 350Tax rate 35%What was AlphaBeta's operating cash flow in 1990?

A. 50

B. 05

C. 20

D. 30

View answer

Correct Answer: D

Question #57

Members pursuing the investment profession outside of the U.S. ________ the Code and Standards when local regulations are less stringent in order to maintain a level playing field.

A. ay disregard

B. an modify

C. hould ignore

D. ust adhere to

View answer

Correct Answer: D

Question #58

When analyzing the balance sheet, which of the following is an argument against using LIFO in times of rising prices?

A. either of these answers is correct

B. oth of these answers are correct

C. nder LIFO, ending inventory will be overstated

D. nder LIFO, ending inventory is valued at the oldest prices, an unrealistic valuation

View answer

Correct Answer: D

Question #59

How many months will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 7% per year, compounded monthly?

A.

B. 0

C. 17

D. 25

E. 19

View answer

Correct Answer: E

Question #60

If you deposit $900 a year, beginning next year, for 20 years into an account paying 8% per year, compounded annually, how much is in your account after that last deposit?

A. 40,598

B. 50,003

C. 530,118

D. 48,304

E. 41,185

View answer

Correct Answer: E

Question #61

Michelieu tells a prospective client, "I may not have a long-term track record yet, but I'm sure that you'll be very pleased with my recommendations and service. In the three years that I've been in the business, my equity- oriented clients have averaged a total return of more than 26 percent a year." The statement is true, but Michelieu only has a few clients and one of his clients took a large position in a penny stock (against Michelieu's advice) and realized a huge gain. This large return caused the ave

A. es, because the statement misrepresents Michelieu's track record

B. es, because the statement about return ignores the risk preferences of his clients

C. o, because the statement is a true and accurate description of Michelieu's track record

D. o, because Michelieu is not promising that he can earn a 26 percent return in the future

View answer

Correct Answer: A

Question #62

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 #63

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 #64

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 #65

Which of the following would be considered a liability that arises from operating activities?

A. axes payable

B. ll of these answers

C. nearned income

D. ccounts payable

E. ccrued salaries

View answer

Correct Answer: B

Question #66

Which of the following statements regarding hypothesis testing is false?

A. f the population standard deviation is known, then the standard deviation of the sample is found by dividing the population standard deviation by the square root of "n

B. he test statistic is also known as the "critical value

C. Type II error is defined as the act of incorrectly failing to reject the null hypothesis

D. he level of significance is denoted by the Greek letter alpha

E. espite the different ways to formulate a hypothesis, the null hypothesis is always tested at the point of equality

F. ore than one of these answers is incorrect

View answer

Correct Answer: B

Question #67

The main use of the balance sheet for creditors would be

A. o forecast future cash flow needs

B. o review the short-term liquidity of the firm

C. o forecast cash collections

D. o forecast changes in fixed assets thereby assisting in the firm's profitability

E. o provide information about the nature of assets that the firm uses as debt collateral

View answer

Correct Answer: E

Question #68

What semiannual deposits are needed to accumulate $7,000 in 5 years if the account pays 6% per year, compounded semiannually, assuming that the first deposit is made in 6 months and also assuming that the account already has $1,750 in it today?

A. 405

B. 377

C. 436

D. 459

E. 578

View answer

Correct Answer: A

Question #69

What is the Net Present Value of this series of annual cash flows at an interest rate of 20% per year: Year 0:<$15,000>, Year 1: $2,000, Year 2: $0, Year 3: $15,000, Year 4 $0, Year 5 $18,000? (Note that the <> are used to indicate a negative number).

A. 2,947

B. 2,581

C. $77

D. 2,442

E. 2,414

View answer

Correct Answer: B

Question #70

In order to comply with Standard IV (B.4), Priority of Transactions, firms should prepare and distribute to firm personnel a code of ethics and compliance procedures. The code and procedures should do all of the following, EXCEPT:

A. nsure that procedures will be enforced

B. ontain disciplinary procedures

C. imit the number of access persons

D. stablish reporting and prior-clearance requirements

E. efine personal transactions, investment and prohibited transactions

F. aintain a list of clients and their holdings

View answer

Correct Answer: F

Question #71

A firm's tax rate is 40%. If its pretax income is overstated by 100 due to errors in recording cash transactions, then the operating cash flow due to these errors is:

A. verstated by 40

B. verstated by 100

C. verstated by 60

D. nderstated by 60

View answer

Correct Answer: C

Question #72

Under Standard IV (B.6), Prohibition against Misrepresentation, a member may discuss a "guaranteed" investment, as long as that investment is which of the following?

A. omestic stocks

B. oreign stocks

C. edium-term notes

D. ong-term bonds

E. one of these answers

F. hort-term Treasury securities

View answer

Correct Answer: F

Question #73

Preferred and common stock differ in that

A. ailure to pay dividends on common stock will not force the firm into bankruptcy, while failure to pay dividends on preferred stock will force the firm into bankruptcy

B. ommon stock dividends are a fixed amount, while preferred stock dividends are not

C. referred stock dividends are deductible as an expense for tax purposes, while common stock dividends are not

D. referred stock has a higher priority than common stock with regard to earnings and assets in the event of bankruptcy

E. one of these answers

View answer

Correct Answer: D

Question #74

The accumulated depreciation account should show:

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

B. nly the depreciation expense recognized during the current year

C. otal depreciation for fixed assets still in use

D. urrent depreciation expense plus estimated depreciation for next year

View answer

Correct Answer: C

Question #75

During the past six months, the purchasing agent bought:Tons of Coal 1,200 3,000 500Price Per Ton $28.50 $87.25 $88.00What is the weighted mean price per ton?

A. 89

B. 68

C. one of these answers

D. 87

E. 72

View answer

Correct Answer: E

Question #76

Country A's workforce consists in large part of seasoned workers, with an average age of around 45. Country B is relatively young, with an average workforce age of just 31. A is also a mature country, having implemented many modern advances in technology. B is a growing country with a dynamic leadership which is bringing about a technological revolution in the country. Given this, country A has ________ structural unemployment and ________ frictional unemployment than country B.

A. ower, lower

B. igher, lower

C. ower, higher

D. igher, higher

View answer

Correct Answer: D

Question #77

How much would you have in a savings account 12 months from now if you start with a balance of $1,000 today, make a deposit of $2,000 in 6 months and make another deposit 6 months after that of $3,000? Assume that interest accrues at 6% per year, compounded monthly.

A. 6,000

B. 5,500

C. 6,122

D. 7,684

E. 5,777

View answer

Correct Answer: C

Question #78

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

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 #79

At the end of a fiscal period, any revenue that has been earned but the company has not received payment for should be debited to an appropriate

A. sset account

B. xpense account

C. iability account

D. evenue account

View answer

Correct Answer: A

Question #80

Which of the following is/are true about the Central Limit Theorem?

A. t cannot be applied if the population distribution is non-normal

B. I only

C. only

D. & III

E. II only

F. & II

View answer

Correct Answer: D

Question #81

When purchased, plant assets are recorded at ________.

A. uture value

B. arket value

C. ower of cost or market

D. ost

View answer

Correct Answer: D

Question #82

Charlice is a portfolio manager who manages (with the help of four analysts) the pension plan assets of Gordon Industries. Charlice received this account four years ago from Gordon Industries Vice President, Michael Burnbaum, who is also in charge of investment oversight. To whom does Charlice owe fiduciary duties?

A. ichael Burnbaum, in his capacity as Gordon Industries' Investment Officer

B. II only

C. and III only

D. only

E. I and III only

View answer

Correct Answer: A

Question #83

RipOff Dealers, Inc. offers a financing plan for car purchases, charging 2% per month. If a car costs $30,000, what's the monthly payment you will have to make - starting a month from now - if you need 5 years to pay off the debt on the car?

A. 824

B. 513

C. 863

D. 798

View answer

Correct Answer: C

Question #84

Type I error refers to the event that we will:

A. ccept the alternative when it is true

B. one of these answers

C. eject the null when it is true

D. ail to reject the null when it is false

E. eject the alternative when it is true

View answer

Correct Answer: C

Question #85

Ann Fowler, CFA, has a client that wants to invest in hedge funds. Fowler recommends the client invest in a Fund of Funds (FOF), which will invest in a variety of hedge funds. Fowler makes the following statements:Statement 1:Investing in several different types of hedge funds will reduce risk compared to investing in a single fund.Statement 2:An important part of the selection process is due diligence to resolve any transparency issues.Which statements are correct?

A. nly statement 1 is correct

B. nly statement 2 is correct

C. oth statements 1 and 2 are correct

View answer

Correct Answer: A

Question #86

An analysis of a firm's financial statements indicates that the average age of its assets is declining. This could be due to which of the following?

A. he firm is acquiring new assets with longer depreciable lives

B. & IV

C. & II

D. , II, III & IV

E. II & IV

View answer

Correct Answer: B

Question #87

When using transactional analysis, the following changes in the balance sheet account and the corresponding cash flow description would be correct except,

A. ong-term debt; increase or decrease in debt

B. ent payable; cash paid for inputs

C. ccounts payable; cash paid for inputs

D. hort-term debt; increase or decrease in debt

E. etained earnings; dividends paid

View answer

Correct Answer: B

Question #88

The semiannually compounded rate is 6% quoted on an annualized basis. The equivalent quarterly compounded rate is:

A.

B.

C.

D.

View answer

Correct Answer: C

Question #89

Performance Presentation Standards require that income and capital appreciation be presented in addition to total return when dealing with ________.

A. nti-linear appreciation

B. eal estate

C. one of these answers

D. ong-term liabilities

View answer

Correct Answer: B

Question #90

A 10-year 5% Treasury bond is issued at a price to yield 5.2%. Three months after issuance, market rates for 10-year Treasuries decline by 100 basis points. The most likely price of this bond at issuance and three months later is:

A. bove par at issuance, but below par three months later

B. elow par at issuance, but above par three months later

C. elow par at issuance, and below par three months later

View answer

Correct Answer: B

Question #91

The following data are available for a firm for a given year:Net Sales 21,896Sales & marketing expenses 4,346Administrative expenses 2,143COGS 10,084Depreciation 967Interest expense 573Tax rate35%Dividends paid 3,445Preferred Dividends 897Average total equity 37,432Average common equity 26,782Average total liabilities1 8,583In the above example, the firm's operating profit margin equals ________.

A.

B.

C.

D.

View answer

Correct Answer: A

Question #92

Which of the following is/are true about Goodwill?

A. t represents the amount paid for an acquired firm that cannot be identified with tangible assets

B. & II

C. I only

D. , II & III

E. & III

View answer

Correct Answer: D

Question #93

Which of the following is/are true?

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

B. , II & III

C. II only

D. I & III

E. I only

F. only

View answer

Correct Answer: A

Question #94

Brad Kit, CFA, is analyzing the broadcasting industry. Kit has narrowed his analysis to Willow Corp. and Vision Inc.Willow Corp. is a media company with a diversified group of leading TV, newspaper, and cable news operations. Revenues and earnings have grown slightly over the past ten years. The company's long-term debt to capital ratio is 40%. During the last recession, the company's earnings remained flat with the prior year. Still, Kit believes that Willow Corp. will have positive earnings surprises over

A. illow Corp

B. illow Corp

C. illow Corp

View answer

Correct Answer: C

Question #95

Which of the following is/are true about Goodwill?

A. t represents the amount paid for an acquired firm that cannot be identified with tangible assets

B. & III

C. & II

D. I & III

E. , II & III

View answer

Correct Answer: A

Question #96

Which measure of central tendency is used to determine the average annual percent increase?

A. ode

B. ean

C. eighted mean

D. edian

E. eometric mean

View answer

Correct Answer: E

Question #97

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 #98

Standard IV (B.1) clearly states that ________ owe undivided loyalty to their clients and must place client interests before their own.

A. IMR members

B. upervisors

C. one of these answers

D. iduciaries

E. nalysts

View answer

Correct Answer: D

Question #99

A benefit period for accounting amortization can not exceed how many years ________.

A. 5

B. 0

C. 0

D. 5

View answer

Correct Answer: B

Question #100

According to Standard V (B), firms can claim compliance with the PPS only if their presentation is ________ in compliance with the Performance Presentation Standards in all material respects.

A. one of these answers

B. etroactively

C. ully

D. t least 50 percent

E. artially

View answer

Correct Answer: C

Question #101

Under ERISA, fiduciaries must:-act solely in the interest of and for the exclusive purpose of benefiting, the plan participants and beneficiaries; -act with the ________, prudence and diligence of a prudent person acting in like capacity; -diversify the plan's investments to protect it from the risk of substantial loss; -act in accordance with the provisions of the plan documents to the extent that the documents comply with ERISA;-refrain from engaging in prohibited transactions.

A. aution

B. are, skill

C. one of these answers

D. ttention

View answer

Correct Answer: B

Question #102

The loss from an uncollectible account is:

A. n asset

B. liability

C. regular expense of doing business

D. reduction in revenue

View answer

Correct Answer: C

Question #103

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 #104

What disadvantage(s) are there of the mean deviation?

A. one of these answers

B. t is based on only two observations

C. t is based on deviations from the mean

D. ll of these answers

E. t uses absolute values, which are difficult to manipulate

View answer

Correct Answer: E

Question #105

The crowding-out effect refers to the possibility that an

A. ncrease in consumption spending will crowd out government spending

B. ncrease in private savings will crowd out the taxable income of households

C. ncrease in the money supply will result in a decline in taxes

D. ncrease in the federal deficit will result in higher interest rates, which will crowd out private investment and consumption

View answer

Correct Answer: D

Question #106

The supply curve for British pounds in the foreign exchange market:

A. s independent on the purchases of British goods by foreigners

B. one of these answers

C. s dependent on the purchases of foreign goods by the British

D. s dependent on the purchases of British goods by foreigners

View answer

Correct Answer: C

Question #107

Which of the following is NOT an objective of the conceptual framework devised by FASB?

A. stablish a logical and coherent system of accounting thought

B. stablish objectives of financial reporting by businesses

C. dentify the characteristics of accounting information that make its disclosure useful

D. nforce a single standard of accounting disclosures across the various industries

View answer

Correct Answer: D

Question #108

Which of the following is not one of the five steps in the hypothesis testing procedure?

A. dentify the test statistic

B. ll of these answers are part of the five steps

C. elect a level for beta

D. tate the null and alternate hypothesis

E. ormulate a decision rule

View answer

Correct Answer: C

Question #109

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 #110

A positively skewed distribution:

A. as fat tails

B. s skewed to the right

C. as a large variance

D. s skewed to the left

View answer

Correct Answer: B

Question #111

Inflation

A. auses the purchasing power of a dollar to rise

B. enerally benefits the poor at the expense of the rich

C. s measured by changes in the cost of a typical market basket of goods between time periods

D. lmost always benefits creditors at the expense of debtors

View answer

Correct Answer: C

Question #112

An acceleration in the growth rate of the money supply is known as ________.

A. xpansionary monetary policy

B. estrictive monetary policy

C. he quantity of money

D. he velocity of money

E. xcess supply of money

View answer

Correct Answer: A

Question #113

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

F. nterest paid on bonds $2,400

View answer

Correct Answer: C

Question #114

Which of the following marketable securities would provide the greatest liquidity and stability?

A. one of these answers

B. ll of these answers

C. A corporate bonds that mature in 5 years

D. ommon stock of a publicly held firm

E.

View answer

Correct Answer: E

Question #115

Compared to the no-trade situation, when a country exports a good

A. omestic consumers gain, domestic producers lose and the losses outweigh the gains

B. omestic consumers gain, domestic producers lose and the gains outweigh the losses

C. omestic producers gain, but domestic consumers lose an equal amount

D. omestic producers gain, domestic consumers lose and the gains outweigh the losses

View answer

Correct Answer: D

Question #116

Which of the following best describes an income statement?

A. n income statement reports changes over a period of time in component accounts that comprise the ownership of a firm

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

C. one of these answers

D. n income statement summarizes the financial position of a company at a given point in time

E. n income statement measures a company's financial performance over a specified period of time

View answer

Correct Answer: E

Question #117

Rebecca Dustin, a freelance research analyst, is currently working on a research study on the pharmaceutical industry for KLM Brokerage. She has been using KLM's research facilities in this endeavor. There has been no written agreement between Rebecca and KLM about the project, though there was a verbal agreement that KLM would provide reasonable support for the research. In return, KLM would pay for the final report in case she uncovers something worthwhile. Rebecca is now interviewing with Jacob & Associa

A. ot be violating the AIMR code, because she is the owner of the study

B. e violating Standard III (B) - Duty to Employer - because KLM has property rights over the study

C. e violating Standard III (B) - Duty to Employer - because KLM has first rights over the study

D. ot be violating the AIMR code, since she is not under any written obligation to KLM

View answer

Correct Answer: C

Question #118

Mr. and Mrs. Jones live in a neighborhood where the mean family income is $45,000 with a standard deviation of $9,000. Mr. and Mrs. Smith live in a neighborhood where the mean is $100,000 and the standard deviation is $30,000. What is the relative dispersion of the family incomes in the two neighborhoods?

A. ones 20%, Smith 30%

B. ones 50%, Smith 33%

C. one of these answers

D. ones 40%, Smith 20%

E. ones 30%, Smith 20%

View answer

Correct Answer: A

Question #119

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 #120

Fred Fleming is considering working as a security analyst for Sector Investments. In the past, the firm has preferred to employ a top-down investment approach to analyzing potential investments. However, Fred prefers to use a bottom-up approach. Which of the following statements regarding the two analytical approaches ismost accurate?

A. undamental analysts only employ the bottom-up approach to security selection

B. nalysts using the top-down approach begin with forecasts of economic growth, interest rates, and inflation

C. he bottom-up approach emphasizes industry analysis for investment selection

View answer

Correct Answer: B

Question #121

________ 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 #122

In practice, companies who use the direct method in presenting cash flows from operations:

A. ust also disclose cash flows from operations using the indirect method

B. ust classify interest paid as an investing activity

C. ust be privately held or closely held corporations

D. re not required to report cash flows not incurred during the ordinary course of business

View answer

Correct Answer: A

Question #123

Sally Ferguson, CFA, is a hedge fund manager. Ferguson utilizes both futures and forward contracts in the fund she manages. In speaking with a client, Ferguson makes the following statements to answer their questions about futures and forward contracts:Statement 1:A futures contract is an exchange traded instrument with standardized features. Statement 2:Forward contracts are marked-to-market on a daily basis to reduce credit risk to both counter parties.Indicate whether Statement 1 and Statement 2 are most

A. nly Statement 1 is correct

B. nly Statement 2 is correct

C. oth statements are correct

View answer

Correct Answer: A

Question #124

The mean of a normal probability distribution is 500 and the standard deviation is 10. About 95 percent of the observations lie between what two values?

A. one of these answers

B. 75 and 525

C. 80 and 520

D. 50 and 650

E. 00 and 600

View answer

Correct Answer: C

Question #125

A firm's financial statements reveal the following data:interest coverage ratio 3.6Xinterest expense rate 7.2%depreciation 678total assets 10,946total asset turnover 1.46The firm's operating margin equals ________.

A. 3

B. 3

C. 1

D. 5

View answer

Correct Answer: C

Question #126

John buys a house that costs $275,000 and agrees to pay for it with a 15 year mortgage at 6% per year, compounded monthly. What is John's monthly payment on the loan?

A. 2,250

B. 2,320

C. 1,552

D. 1,972

E. 2,218

View answer

Correct Answer: B

Question #127

Which of the following is/are true about a normal distribution?

A. t has only one mode

B. II only

C. , II and III

D. I only

E. & IV

F. only

View answer

Correct Answer: E

Question #128

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

F. irected brokerage and violates the manager's fiduciary duty

View answer

Correct Answer: C

Question #129

On a survey questionnaire, students were asked to indicate their class rank in college. If there were only four choices from which to choose, which measure(s) of central tendency would be appropriate to use for the data generated by that questionnaire item?

A. ean and mode

B. ode only

C. ode and median

D. edian only

E. ean and median

View answer

Correct Answer: C

Question #130

Firms with records or performance calculations for periods prior to the effective dates for AIMR-PPS compliance can still claim compliance with the PPS using which of the following methods?

A. estate all of its performance numbers in accordance with the standards

B. , II and III

C. only

D. and II only

E. and III only

View answer

Correct Answer: A

Question #131

________ accounting is mandatory for fixed-income securities.

A. ccrual

B. ash

C. lexible

D. qual

E. isk-free

F. otal

View answer

Correct Answer: A

Question #132

A bell-shaped, symmetrical frequency distribution has a mean of 10. If 16% of the observations in the distribution are negative, what is the coefficient of variation of X?

A.

B.

C. 0

D.

View answer

Correct Answer: A

Question #133

Carve-outs may not be combined with ________ portfolios.

A. ew

B. xchanged

C. tand-alone

D. omposite

E. enchmark

View answer

Correct Answer: C

Question #134

Which of the following is/are true about computation of Basic EPS?

A. ith stock splits and stock dividends, previously reported EPS numbers are retroactively readjusted

B. I & III

C. , II & III

D. & III

E. only

View answer

Correct Answer: B

Question #135

The primary current source of generally accepted accounting principles rests with the ________.

A. ecurities and Exchange Commission

B. nstitute of Management Accountants

C. merican Institute of Certified Public Accountants

D. ew York Stock Exchange

E. inancial Accounting Standards Board

View answer

Correct Answer: E

Question #136

If the money supply is held constant, an increase in nominal GDP leads to ________ in the velocity of money.

A. ll of these answers are possible

B. o change

C. decrease

D. n increase

View answer

Correct Answer: D

Question #137

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 $90,000

F. ividends received from investments $17,000

View answer

Correct Answer: C

Question #138

What deposit today is needed to have $2,000 in 4 years, assuming the money will earn interest at 6% per year, compounded monthly?

A. 1,934

B. 1,290

C. 1,574

D. 1,384

E. 1,900

View answer

Correct Answer: C

Question #139

James Martindale, CFA, manages a small mutual fund specializing in defensive equity investments. Martindale has purchased 10,000 shares of BLM stock for the portfolio after deciding that the stock would contribute tomeeting the fund's objectives. Which of the following characteristics would make BLM stock suitable for Martindale's mutual fund?

A. high beta

B. ow systematic risk

C. igher rate of return than other stocks with similar risk characteristics

View answer

Correct Answer: B

Question #140

If you have $5,000 in an account today and withdraw $2,000 in 3 years, how much can you withdraw from the account in 5 years, if the account earns interest at 8% per year, compounded annually?

A. 3,000

B. 5,013

C. 4,407

D. 5,714

E. 2,000

View answer

Correct Answer: B

Question #141

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

A. ash received plus accumulated depreciation plus loss on disposal equals the original cost

B. riginal cost minus accumulated depreciation equals cash received minus loss on disposal

C. ook value of the asset plus loss on disposal equals cash received

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

View answer

Correct Answer: A

Question #142

James Larson, CFA, manages a large capitalization growth mutual fund. Larson's benchmark is the Russell 1000 Growth index. Larson's colleague, Kevin Moore, CFA, manages an index fund which mimics the Russell 1000 index. Moore believes that the capital markets are fully efficient, while Larson disagrees. Larson defends his position with the following supporting statements.Statement 1:Market participants must be adequately compensated for processing new information to ensure the markets remain efficient. Yet

A. es

B. nly Statement 1 is correct

C. nly Statement 2 is correct

View answer

Correct Answer: B

Question #143

An investor purchased a stock for $60 a share using margin from his broken If the initial margin requirement is 40%, and the maintenance margin requirement is 20%, which of the following best describes the price at which a margin call will initially be triggered?

A. elow $30

B. elow $45

C. elow $48

View answer

Correct Answer: B

Question #144

A researcher has rejected the null hypothesis. The p-value in the test must be:

A. ess than the significance level

B. ore than 1-significance level

C. ess than 1-significance level

D. ore than the significance level

View answer

Correct Answer: A

Question #145

Which of the following could increase outstanding capital stock?

A. onversion of bonds

B. ll of these answers

C. he exercise of stock options

D. he exercise of warrants

E. he payment of stock dividends

View answer

Correct Answer: B

Question #146

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 #147

If you buy a television for $650 and agree to pay for it with 24 monthly payments of $33, beginning next month, what annual interest rate, compounded monthly, are you being charged?

A. 5

B. 1

C.

D. 8

E. 9

View answer

Correct Answer: E

Question #148

Which of the following is/are true?

A. f P(A or B) = P(A) + P(B), A and B are independentII

B. II only

C. I & III

D. only

E. I only

F. & II

View answer

Correct Answer: A

Question #149

What is another name for the alternate hypothesis?

A. one of these answers

B. ejected hypothesis

C. esearch hypothesis

D. ull hypothesis

View answer

Correct Answer: C

Question #150

When prices are rising, which of the following inventory valuation methods produces a higher profit?

A. one of these answers

B. IFO

C. IFO

D. verage cost

View answer

Correct Answer: B

Question #151

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

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

B. two-tailed test

C. one of these answers

D. right-tailed test

E. left-tailed test

View answer

Correct Answer: D

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