Free CFA Exam Sample Questions Level 1, Practice Exam Online

Question #1

Pulser Primorak is an investment manager who recently bid in an IPO on behalf of his clients and was allowed to buy 1,000 shares of the issue. What should Primorak do?

A. e should distribute the IPO shares amongst the client accounts over which he has discretionary investment powers on a pro rata basis

B. e should treat all his customers equally and fairly by distributing the IPO shares amongst all his client accounts on a pro rata basis

C. e should distribute the IPO shares amongst all his client accounts for which the IPO is an appropriate investment on a pro rata basis

D. he question is based on a false premise

View answer

Correct Answer: C

Question #2

Standard III includes which of the following?

A. one of these answers

B. rofessional Misconduct

C. uty to Employer

D. rohibition against Plagiarism

E. ll of these answers

F. se of Professional Designation

View answer

Correct Answer: C

Question #3

Each of the following are conditions that must be met if revenue is going to be recognized at the time of sale except

A. eller has no significant obligations for future performance to directly effect resale of product

B. roduct return periods are less than or equal to 30 days from the time of sale

C. rice is substantially fixed or determinable at the sale date

D. uyer pays the seller or is obligated to pay the seller (not contingent on resale)

View answer

Correct Answer: B

Question #4

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

A. xpenses are recognized as services are used

B. I & III

C. & II

D. & III

E. , II & III

View answer

Correct Answer: B

Question #5

The Central Bank increases the money supply by 5%. This was not anticipated by economic participants. The economy is operating below potential. In the long-run, this will cause the aggregate supply curve to _______, the aggregate demand curve to ________, and the price level to ________.

A. hift left, shift right, increase

B. ot change, shift right, increase

C. ot change, shift left, increase

D. ot shift, not shift, not change

E. hift right, shift left, increase

F. hift right, shift right, not change

View answer

Correct Answer: A

Question #6

One way for a company to increase its book value per share is to ________.

A. ssue long-term debt

B. ncrease dividend payout ratio

C. uy back shares at market prices below their book value

D. etire long-term debt

View answer

Correct Answer: C

Question #7

The following data have been extracted from the financial statements of a firm for two years, 1991 and 1992:1991 1992Assets 9,947 9,682Sales 11,035 10,377Current liabilities 4,193 3,920Non-current liabilities 3,827 3,476The asset turnover and the equity turnover for 1992 equal ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #8

You are examining a group of 20 mutual funds. You find that 5 have an 8% position in foreign stocks, 7 have a 9% position in foreign stocks, and 8 have no position in foreign stocks. What is the weighted average position in foreign stocks of these 20 mutual funds?

A.

B.

C.

D.

View answer

Correct Answer: D

Question #9

A passive budget deficit is a deficit that

A. erely reflects a decline in tax revenue during an economic boom

B. esults from legislative action that reduces tax rates

C. esults from legislative action that increases government expenditures

D. erely reflects a decline in tax revenue during a recession

View answer

Correct Answer: D

Question #10

Costs that can be reasonably associated with specific revenues but not with specific products should be

A. apitalized and then amortized over a period not to exceed 60 months

B. xpensed in the period in which the related revenue is recognized

C. apitalized and then amortized over a period not to exceed 40 years

D. llocated to specific products based on the best estimate of the production processing time

E. harged to expense in the period incurred

View answer

Correct Answer: B

Question #11

When the economy is in short-run equilibrium below potential output, then

A. ctual unemployment will be greater than the natural unemployment

B. he natural unemployment will decline

C. he economy will be unable to sustain output in the long run

D. ctual unemployment will be less than the natural unemployment

E. strong demand for resources will place upward pressure on resource prices

View answer

Correct Answer: A

Question #12

A firm needs to purchase 20 warehouses in various states. To finance the purchases, it issues new shares in a seasoned equity offering. It also issues high coupon bonds on which interest must be paid semi-annually. If the firm purchases the warehouses at the beginning of the year, which of the cash flows will be affected in the year- end statements?Investing Operating Financing

A. ffected affected affectedII

B.

C. I

D. V

E. II

View answer

Correct Answer: A

Question #13

A dataset of 105 observations is organized in a relative frequency distribution into 9 classes. The sum of the relative frequencies across all the classes equals ________.

A.

B.

C. 05

D. 00

View answer

Correct Answer: B

Question #14

The unemployment rate of teen-agers is substantially higher than the unemployment rate of prime-age workers primarily because teen-agers

A. re more likely to be in the armed forces and therefore they end up being counted as unemployed

B. re less likely to be in the labor force than older workers since many teenagers are still attending school

C. re less likely to switch jobs and move into and out of the labor force than older workers

D. re more likely to switch jobs and move into and out of the labor force than older workers

E. f they search more diligently, can generally find high-paying jobs that are available only to experienced, highly skilled workers

View answer

Correct Answer: D

Question #15

Which of the following is/are true?

A. ultiplying a variable by a positive constant will cause its standard deviation to be multiplied by the square of that constant

B. V only

C. , II and IV

D. I only

E. only

F. & II

View answer

Correct Answer: C

Question #16

Assume the least squares equation is Y' = 10 + 20X. What does the value of 10 in the equation indicate?

A. one of these answers

B. or each unit increased in X, Y increases by 10

C. intercept

D. or each unit increased in Y, X increases by 10

View answer

Correct Answer: C

Question #17

The deferred income tax account

A. an be reported as an asset

B. s reported as a liability if it has a credit balance

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

D. ll of these answers are correct

View answer

Correct Answer: D

Question #18

Urvashi Kulkarni is an investment manager with Amritrust Bank, a mid-size investment bank. Urvashi is managing the pension plan assets of Megalith ICs, a maker of cloned integrated chips for PCs. Megalith is planning a take-over of Microchip Corp., a fast-growing rival which recently patented a technology which promises to change the face of chip cloning business. The pension plan assets of Megalith consist of 17% of Microchip's stock. Megalith's management has decided to buy up to 33% of the stock in a ten

A. efuse to follow the directive since she can be held liable under ERISA if she follows directives issued by the plan sponsor

B. efuse to follow the directive since the action is harmful to the pension plan beneficiaries and Urvashi owes fiduciary loyalty to them, not the plan sponsor

C. ollow the management's directive and sell the stock to the general account

D. one of these answers

View answer

Correct Answer: B

Question #19

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

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

B. ll of these answers are violations

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

D. se of statistical information provided by Standard & Poor's, without acknowledgment

E. se of a small part of an analyst's work who is employed in a completely different (non-competitive) industry, without acknowledgment

View answer

Correct Answer: D

Question #20

What is the primary function of the Securities and Exchange Commission as it relates to a company's financial statements?

A. one of these answers

B. o function as the standard-setting body of the accounting profession

C. o provide the investment public with completely independent and unbiased advice regarding the purchase of good quality public securities

D. o ensure that a public company makes full and accurate disclosure of all pertinent information relating to a company's business

View answer

Correct Answer: D

Question #21

If you owe $5,000 today and will repay it with 8 annual payments of $900 beginning next year, what is the annual interest rate, compounded annually, that you are paying?

A.

B.

C. 8%

D.

E. 4%

View answer

Correct Answer: D

Question #22

An AIMR member who lives in Atlantis, where some laws are stricter than the AIMR Code of Ethics and others are less strict, should follow:

A. tlantis' laws, since the member resides in Atlantis

B. combination of the two which results in a stricter set of laws

C. IMR code, since the code is a strict set of rules

D. ot clear from the information provided

View answer

Correct Answer: B

Question #23

Which of the following persons does AIMR hold most accountable for fiduciary duties owed to clients?

A. nvestment Advisors

B. rokers

C. one of these answers

D. ealers

View answer

Correct Answer: C

Question #24

All of the following statements about a member's use of clients' brokerage commissions are true except

A. lient brokerage commissions may be directed to pay for the investment manager's operating expenses

B. lient brokerage commissions should be commensurate with the value of the brokerage and research services received

C. lient brokerage commissions may be used by the member to pay for securities research used in managing the client's portfolio

D. lient brokerage commissions should be used by the member to ensure that fairness to the client is maintained

View answer

Correct Answer: A

Question #25

David Garcia, CFA, is analyzing two bonds. Bond X is an option tree corporate security with a 7% annual coupon and ten years to maturity. Bond Y is a mortgage backed security that also matures in ten years. Garcia is considering two possible interest rate scenarios--one in which rates are flat over the entire 10-year horizon, and one in which the yield curve is sloped steeply upwards. For each bond, Garcia has calculated the nominal spread over the 10-year U.S. Treasury issue as well as the zero-volatility

A. or Bond X, when the yield curve is sloped steeply upwards

B. or Bond Y, when the yield curve is sloped steeply upwards

C. or Bond X, when the yield curve is flat

View answer

Correct Answer: B

Question #26

Which of the following statements about the AIMR Performance Presentation Standards is true?

A. ll aspects of the AIMR Performance Presentation Standards are mandatory

B. one of these answers is true

C. ll aspects of the AIMR Performance Presentation Standards are recommended

D. ome aspects of the AIMR Performance Presentation Standards are mandatory, while others are recommended

View answer

Correct Answer: D

Question #27

If the use of leverage is ________, the performance presented must include the effects of the leverage.

A. andatory

B. ondiscretionary

C. iscretionary

D. ptional

View answer

Correct Answer: C

Question #28

A firm currently has a negative working capital. Which of the following is true?

A. he firm is close to bankruptcy

B. he firm's accounting profits are low

C. he firm's current ratio is less than 1

D. he firm has a high debt-to-asset ratio

View answer

Correct Answer: C

Question #29

A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?

A. etermine which companies in the same industry are at approximately the same stage of development

B. valuate financial statements of companies within a given industry of approximately the same value

C. scertain the relative potential of companies of similar size in different industries

D. ompare the mix of assets, liabilities, capital, revenue, and expenses within a given industry without respect to relative size

E. one of these answers

View answer

Correct Answer: D

Question #30

In an investment environment, an initial outlay of $100 grows to $156 in 7 years. The quarterly compounded rate of annual interest implicit in this is:

A.

B.

C.

D.

View answer

Correct Answer: B

Question #31

Standard IV (A) is known as ________.

A. nteractions with Clients and Prospects

B. reservation of Confidentiality

C. rofessional Misconduct

D. rohibition against Use of Material Nonpublic Information

E. uty to Employer

F. air Dealing

View answer

Correct Answer: A

Question #32

When a composite of international portfolios is created, firms should separate portfolios that are allowed to use currency ________ from portfolios that may not use ________, unless the use of currency ________ is considered immaterial. (Same answer for all three spaces)

A. election

B. edging

C. xchanges

D. waps

E. trategy

View answer

Correct Answer: B

Question #33

Horace Lance, CFA, states that the efficient market hypothesis and its rigorous testing have yielded many benefits to investors. Lance makes the following statements concerning an efficient market. Statement I:The Efficient Market Hypothesis (EMH) assumes that changes in security prices occur in a random fashion.Statement 2:Portfolio managers should reduce trading turnover of client accounts. Statement 3:The EMH establishes that the expected rate of return is the risk-free rate plus a risk premium that is t

A. tatement 1

B. tatement 2

C. tatement 3

View answer

Correct Answer: C

Question #34

David's gasoline station offers 4 cents off per gallon if the customer pays in cash and does not use a credit card. Past evidence indicates that 40% of all customers pay in cash. During a one-hour period twenty-five customers buy gasoline at this station. What is the probability that at least ten pay in cash?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: B

Question #35

You are examining a group of 6 companies. Their average profit margins have been 49%, 10%, 5%, 35%, 30%, and 30%. What is the range of profit margins?

A. 9

B. 0

C. 4

D.

View answer

Correct Answer: C

Question #36

A firm using LIFO accounting has a LIFO reserve of 500, with a LIFO ending inventory of 2,300. It is currently in the 35% tax bracket. If it switches to FIFO accounting, its ending inventory would be reported at ________.

A. ,305

B. ,800

C. ,800

D. ,805

View answer

Correct Answer: B

Question #37

Standard III (A) states that members notify their ________ of the Code and Standards. This notification must bedone ________.

A. earest Society secretary; within 45 days of candidacy

B. mmediate supervisor; in writing

C. earest Society secretary; orally or in writing

D. hief operating officer (or equivalent); in writing

E. hief operating officer (or equivalent); orally or in writing

F. mmediate supervisor; orally or in writing

View answer

Correct Answer: B

Question #38

Tessmer is a hard-working employee working in the sales department of a large bank. In this capacity, Tessmer is allowed to have an expense account to be used to entertain clients and cover business expenses. Over the past 3 months, Tessmer's expenses have almost doubled, a large part coming from expenses attributed to "business expense." While his manager, Janus Lace, is suspicious about this and believes that Tessmer is using the account for personal expenses, he has no proof of this. All of Tessmer's rei

A. iolated the AIMR standard on Professional Misrepresentation

B. iolated the AIMR standard on Reasonable Costs

C. ot violated any AIMR standard

D. iolated the AIMR standard on Professional Misconduct

View answer

Correct Answer: C

Question #39

Miller Mining, a calendar-year corporation, purchased the rights to a copper mine on July 1, 1996. Of the total purchase price, $2,800,000 was appropriately allocated to the copper. Estimated reserves were 800,000 tons of copper. Miller expects to extract and sell 10,000 tons of copper per month. Production began immediately. The selling price is $25 per ton. Miller uses percentage depletion (15%) for tax purposes. To aid production, Miller also purchased some new equipment on July 1, 1996. The equipment co

A. 420,000

B. 215,400

C. 105,000

D. 210,000

E. 430,800

View answer

Correct Answer: D

Question #40

Omega Prime Securities is a sizable investment bank that undertakes security issuances on behalf of small and medium-size businesses. Treffil Ellis is the senior vice president of corporate finance at Omega. Treffil, on one of his golf junkets, made acquaintance with Tralth Trevor, owner of a growing chain of resort hotels. Tralth invites Treffil to his estate mansion the next day and over drinks, asks him how fast Omega could issue equity- linked callable notes to finance the $200 million construction of n

A. iolated Standard IV (B

B. II and IV only

C. and III only

D. II only

E. I only

View answer

Correct Answer: C

Question #41

The following is referred to as the critical event in income determination:

A. ecording of revenues

B. ecording of changes in cash

C. ecording of changes in retained earnings during the period

D. ecording of expenses

View answer

Correct Answer: A

Question #42

The ages of all the patients in the isolation ward of the hospital are 38, 26, 13, 41 and 22. What is the population variance?

A. 1

B. 06

C. one of these answers

D. 40

E. 2

View answer

Correct Answer: B

Question #43

The peaks and valleys of the business cycle tend to be magnified using which inventory method?

A. IFO

B. IFO

C. ross profit method

D. eighted average

View answer

Correct Answer: B

Question #44

Where is Unearned Revenue reported in the financial statements?

A. iability section of the balance sheet

B. evenue section of the income statement

C. sset section of the balance sheet

D. perating expense section of the income statement

View answer

Correct Answer: A

Question #45

When preparing a direct method statement of cash flows, the calculation of equity financing cash flows requires analysis of the change in stockholders' equity, separating all of the following except

A. nvestments in affiliates

B. ividends declared

C. et income

D. hares issued/repurchased

E. hanges in valuation accounts

View answer

Correct Answer: A

Question #46

The following is true about the price earnings ratio

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

B. one of these answers

C. he ratio is calculated based on the earnings per share from the past year

D. tocks with price earnings ratios of 25 or less are considered to be underpriced

View answer

Correct Answer: A

Question #47

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

A. $675,000

B. $75,000

C. $75,000

View answer

Correct Answer: B

Question #48

If a frequency distribution has open-ended intervals at the extremes, which measure of central tendency is the most difficult to estimate?

A. ean

B. one of these answers

C. edian

D. ll of these answers

E. ode

View answer

Correct Answer: A

Question #49

If you buy an item and pay for it with 48 monthly payments of $75, beginning next month, what was the cash price today, if interest accrues at 13% per year, compounded monthly?

A. 575

B. 44

C. 2,795

D. 2,904

E. 2,598

View answer

Correct Answer: C

Question #50

A researcher has organized 310 observations into 9 classes. The frequency of the 50-75 frequency class is 34.The relative frequency of the class equals ________.

A.

B. 4

C.

D.

View answer

Correct Answer: C

Question #51

Level I verification requires independent attestation that portfolio returns are calculated according to a(n) ________ weighted return methodology.

A. ize

B. rice

C. ime

D. isk

E. sset

View answer

Correct Answer: C

Question #52

What is the Net Present Value of this series of annual cash flows at an interest rate of 12% per year: Year 0:<$14,000>, Year 1: $5,000, Year 2: $4,000, Year 3: $5,000, Year 4 are used to indicate a negative number).

A. $379

B. 114

C. $77

D. 51

E. $245

View answer

Correct Answer: E

Question #53

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

A. 15,403

B. 21,911

C. 24,800

D. 22,667

E. 25,938

View answer

Correct Answer: B

Question #54

The weight of an offensive lineman may be 210 pounds, 210.1 pounds, 210.13 pounds or 210.137 pounds depending on the accuracy of the scale. What is this an illustration of?

A. one of these answers

B. iscrete random variable

C. ontinuous random variable

D. ll of these answers

E. omplement rule

View answer

Correct Answer: C

Question #55

A U.S. investor is considering investing in a security of a company in a developing country. The country's market is characterized by infrequent trading, high inflation, large market volatility, low operating leverage, political unrest, low debt usage, and a depreciating exchange rate. In determining the appropriate country risk premium for the developing country, the investor should consider:

A. iquidity risk, exchange rate risk, financial risk, business risk, balance sheet risk

B. inancial risk, liquidity risk, exchange rate risk, country risk, business risk

C. usiness risk, variability risk, country risk, exchange rate risk, financial risk

View answer

Correct Answer: B

Question #56

When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?

A. isclose levels of service

B. imit the number of people involved

C. horten the time frame between decision and dissemination

D. stablish procedures for determining material change

E. imultaneous dissemination

F. isclose all corporate relationships

View answer

Correct Answer: F

Question #57

Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct.Cash from operating activities $60,000Net Income (4,000)Depreciation (2,000)Increase in accounts receivable (1,000)Increase in deferred tax liability $53,000Cash from investing activities ($48,000)Purchase of marketable securities 2,500Dividends received 1,500Dividends paid ($44,000)Cash from financing activities (500)Increase in Short-term debt (2,500)Increase in Long-term debt ($3,000)Increas

A. one of these answers

B. 1,500

C. 3,000

D. $4,500)

View answer

Correct Answer: B

Question #58

If the marginal propensity to consume (MPC) is .75 or 3/4, what is the expenditure multiplier?

A.

B.

C.

D.

View answer

Correct Answer: B

Question #59

In year 1, the nation of Economica has no government debt, production is at potential, the nominal interest rate is 8.6% and the real rate is 5.2%. In year 2, the nominal rate is 11.1% and the real rate is 6.7%. Which of the following would be most likely to cause such a situation?

A. ederal budget deficit

B. onetary expansion

C. ecession

D. rade surplus

E. ncrease in aggregate supply

View answer

Correct Answer: A

Question #60

The formula for conditional probability is given by:

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

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

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

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

View answer

Correct Answer: A

Question #61

In graphs of return performance, which of the following scales is commonly used?

A. xponential scale

B. emi-logarithmic scale

C. rithmetic scale

D. og-normal scale

View answer

Correct Answer: B

Question #62

A survey of top executives revealed that 35% of them regularly read Time magazine, 20% real Newsweek and 40% read U.S. News & World Report. Ten percent read both Time and U.S. News & World Report. What is the probability that a particular top executive reads either Time or U.S. News & World Report regularly?

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: D

Question #63

Which of the following can be found in Standard II?

A. embers shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation

B. embers must use the CFA designation in a dignified manner

C. embers shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists

D. embers shall maintain knowledge of AIMR's Code of Ethics

E. f members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates

View answer

Correct Answer: B

Question #64

Stockholders' Equity is

A. he rights to the assets of the business once the liabilities have been met

B. ssets plus liabilities

C. ll of these answers are correct

D. he financial obligations of the company

View answer

Correct Answer: A

Question #65

The cash conversion cycle equals:

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

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

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

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

View answer

Correct Answer: D

Question #66

What annual interest rate, compounded annually, will cause an original deposit of $400 to grow to $725, after 7 years?

A. 1

B.

C.

D.

E.

View answer

Correct Answer: E

Question #67

If a company receives an unqualified audit opinion, it means the auditors

A. re providing assurance that the company's financial statements are free from misstatement, fraudulent accounting and fairly indicate future performance

B. re providing assurance that the company will remain financially viable for at least the next year

C. re providing assurance that the company's financial statements fairly present company's financial performance and position

D. id not complete a full audit and therefore do not feel qualified to give and opinion on financial statements

View answer

Correct Answer: C

Question #68

If you deposit $100 a month, beginning next month, for 8 years into an account paying 6% per year, compounded monthly, how much is in your account after that last deposit?

A. 13,678

B. 12,282

C. 9,600

D. 12,097

E. 23,585,957

View answer

Correct Answer: B

Question #69

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

A. 2,131

B. 58,902

C. 4,576

D. 61,549

E. 24,000

View answer

Correct Answer: B

Question #70

From tax perspective, which of the following depreciation methods is usually the best?

A. ouble declining

B. odified accelerated

C. traight line

D. um-of-digits

View answer

Correct Answer: A

Question #71

A company is currently being sued by a customer. A reasonable estimate can be made of the costs that would result from a ruling unfavorable to the company, and the amount involved is material. The company's managers, lawyers, and auditors agree that there is a remote likelihood of an unfavorable ruling. This contingency

A. one of these answers

B. hould be disclosed as a parenthetical comment in the balance sheet

C. hould be disclosed as an appropriation of retained earnings

D. hould be disclosed in a footnote

E. eed not be disclosed in a footnote

View answer

Correct Answer: E

Question #72

If a firm uses non-discretionary leverage, it must present performance using:

A. oth actual returns and all-cash basis

B. ll-cash basis i

C. ctual returns

D. one of these answers

View answer

Correct Answer: B

Question #73

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: D

Question #74

Van Jeffery, CFA, utilizes price multiples to evaluate the attractiveness of potential investment opportunities. However, Jeffery's supervisor does not support using price multiples exclusively in making investment decisions. The supervisor points out the following:Statement 1:P/S ratios are not able to capture the different cost structures of companies-Statement 2: The P/ CF ratio is more stable than the P/E ratio.Statement 3:An advantage of the P/B ratio (unlike the P/E ratio) is that the P/B ratio cannot

A. tatement 1

B. tatement 2

C. tatement 3

View answer

Correct Answer: C

Question #75

Warranty liabilities:

A. esult when a company sells a product

B. ust also result in an expense during the same period as the revenue from the sale of the product

C. ll of these answers are correct

D. re estimated liabilities

View answer

Correct Answer: C

Question #76

A manager who pays a higher commission than would normally be paid to purchase the goods or services is said to be ________ services.

A. xploiting

B. ndercharged for

C. aying up for

D. ee-bound for

E. one of these answers

View answer

Correct Answer: C

Question #77

Which of the following would not be included as an asset on a corporate balance sheet?

A. nventory

B. arketable securities

C. uildings

D. ccounts receivable

E. ommon stock

View answer

Correct Answer: E

Question #78

In the simple Keynesian model, if equilibrium output is less than the level required for full employment, what must happen for full employment to be achieved?

A. ggregate demand must fall

B. nterest rates must rise

C. ggregate supply must increase

D. rices must rise

E. ggregate demand must increase

View answer

Correct Answer: E

Question #79

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

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: E

Question #80

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

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

B. & II

C. II only

D. I only

E. V only

F. only

View answer

Correct Answer: A

Question #81

If the critical value for a test statistic equals 2.45, what value of the test statistic would guarantee no chance of making a Type I error?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: C

Question #82

A survey of 144 retail stores revealed that a particular brand and model of a VCR retails for $375 with a standard deviation of $20.If 95% and 98% confidence intervals are developed to estimate the true cost of the VCR, what difference would they have?

A. nterval widths

B. -variates

C. one of these answers

D. oth interval widths and z-variates

E. tandard errors

View answer

Correct Answer: D

Question #83

Sunil Vaskar is an employee of Glamorgan, a reputable investment banking firm. Glamorgan is a major underwriter for an equity issued by a private firm, Raindrop Waterworks. Sunil has accidentally discovered that the preliminary prospectus issued by Raindrop contains material overstatements about the scope of its businesses and future earning potential. Sunil:

A. ust report his findings to his supervisor and consult his legal department

B. ust sever all connections with Glamorgan and dissociate himself from its activities

C. eed not do anything because the prospectus has been distributed and is, in any case, preliminary

D. ust report the case to the SEC since there has been a violation of laws governing equity issues

View answer

Correct Answer: A

Question #84

What is the effective date for compliance with the AIMR-PPS for U.S. and Canadian investments?

A. anuary 1, 1995

B. anuary 1, 1992

C. anuary 1, 1993

D. anuary 1, 1994

View answer

Correct Answer: C

Question #85

Kelly Clark, CFA, is a fixed income analyst for Convex Capital. She is evaluating a 15-year bond with a 6.0% coupon. At the current interest rate of 5.5%, the bond is priced at $1,050.62. Clark calculates that a 25 basispoint drop in interest rates increases the bond's price to $1,077.20, while a 25 basis point increase in interest rates reduces the bond's price to $1,024.90. Based on the information provided, calculate the bond's effective duration.

A.

B.

C.

View answer

Correct Answer: C

Question #86

John Gavin, CFA, manages money for high net worth individuals. Gavin utilizes a combination of open-end and closed-end mutual funds to meet each individual's investment objectives. Gavin is evaluating a mutual fund that has assets of $233 million and liabilities of $2 million. In addition, the Fund has a sales charge of 4% and a redemption fee of 1%. The Fund has 16.8 million shares. Gavin makes the following two statements.Statement 1: The net asset value (NAV) of the fund is $13.75.Statement 2: The primar

A. nly Statement 1 is correct

B. nly Statement 2 is correct

C. tatements 1 and 2 are both correct

View answer

Correct Answer: A

Question #87

If the beginning inventory is overstated and the ending inventory is understated, which of the following is/are true:

A. OGS is understatedII

B. & III

C. V only

D. I only

E. I & IV

View answer

Correct Answer: D

Question #88

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

A. ederal reserves

B. oney market deposit accounts

C. oreign bank reserves

D. iat money

E. urodollar deposits

View answer

Correct Answer: E

Question #89

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

A. 2

B. 1

C. 1

D. 1

E. 6

View answer

Correct Answer: E

Question #90

Which of the following would not be an expected impact of a debt pay down program?

A. decrease in aggregate demand

B. shift to the left in the aggregate supply curve

C. n increase in unemployment

D. decrease in the price level

E. alling interest rates

View answer

Correct Answer: B

Question #91

All of the following would be considered financing activities except for:

A. ividends payable

B. otes payable to bank

C. urrent portion of long-term debt

D. oans receivable (ex

View answer

Correct Answer: D

Question #92

Performance (relating to Performance Presentation Standards) is the record of the ________.

A. erson

B. nvestment manager

C. ndividual

D. hild

E. irm

View answer

Correct Answer: E

Question #93

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 7,387The average inventory processing period for 1994 equals ________.

A. 64

B. 23

C. 14

D. 98

E. nventory turnover ratio = COGS/average inventory

View answer

Correct Answer: A

Question #94

Jack Hare, CFA, is a fixed income analyst. Hare is evaluating a 15-year zero-coupon bond, which is priced at $30.83. Determine the issue's approximate yield to maturity.

A. %

B. %

C. %

View answer

Correct Answer: C

Question #95

Rhonda McLeavon, a quantitative analyst with Churn Brothers Brokerage, has been instructed to perform a statistical analysis to test whether increases in marketing expenses amongst drug companies is positively related to institutional buying of these same companies' common stock. Rhonda begins her analysis and performs the following steps, in succession:Step 1: Formulating and stating the hypothesisStep 2: Identifying the appropriate test statistic and probability distribution Step 3: Specifying the signifi

A. one of these answers is correct

B. ollecting the data and performing the calculations

C. etermining the z-statistic

D. etermining the p-value

E. erforming and autocorrelation test to identify any heterskedasticity problems

F. valuating the goodness of fit

View answer

Correct Answer: B

Question #96

The Jones company had a net receivable balance at the beginning of 1998 of $350,000 and ended 1998 with a receivable balance of $400,000. During the year the company had credit sales of $1,000,000 and cash sales of $200,000. How much cash did the company collect during 1998?

A. 1,050,000

B. 950,000

C. 1,150,000

D. 1,250,000

View answer

Correct Answer: C

Question #97

An analyst stated that the purpose of a collateralized mortgage obligation is to redistribute prepayment risk among investors with different risk tolerances while at the same time reducing total prepayment risk for all tranches in the structure. The analyst's statement is correct:

A. nly with respect to redistribution of risk

B. nly with respect to reducing total prepayment risk

C. ith respect to both redistribution of risk and reducing total prepayment risk

View answer

Correct Answer: A

Question #98

What does it mean if r = -1.00?

A. igh values of one variable are associated with low values of the other variable

B. ependent variable can be perfectly predicted by the independent variable

C. ll of the variation in the dependent variable can be accounted for by the independent variable

D. oefficient of nondetermination equals zero

E. ll of these answers are correct

View answer

Correct Answer: E

Question #99

The sampling method in which a sample is selected by first dividing the population into groups and then selecting members from each group is known as:

A. imple random sampling

B. tratified random sampling

C. luster sampling

D. ystematic random sampling

View answer

Correct Answer: B

Question #100

An increase in the LIFO reserves implies which of the following?

A. rices may have risen

B. I, III & IV

C. & II

D. & IV

E. one of them

View answer

Correct Answer: C

Question #101

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

A. edge

B. isclosure

C. ax rate

D. ifferentials

E. urrency effects

View answer

Correct Answer: C

Question #102

The Basic EPS represents which of the following?

A. he net income divided by number of shares outstanding

B. I & III

C. II & IV

D. , II & IV

E. , II, III & IV

View answer

Correct Answer: A

Question #103

A test statistic is:

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

B. ll of these answers

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

D. parameter characterizing the null hypothesis

View answer

Correct Answer: A

Question #104

MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:Equipment $25,000 increaseAccumulated depreciation 40,000 increaseNote payable 30,000 increaseAdditional information:During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.Depreciation expense for the year was $52,

A. 12,000

B. 18,000

C. 20,000

D. 32,000

E. 2,000

View answer

Correct Answer: E

Question #105

Which of the following are characteristics of material nonpublic information?

A. he information may be considered relevant by reasonable investors

B. he information would have a substantial impact on the market if released

C. ll of these answers

D. he information has not been generally disclosed

View answer

Correct Answer: C

Question #106

In a common size statement, a firm shows average receivables of 9.3%. Its receivables turnover equals 1.23.What's the average receivables collection period?

A. 96

B. nsufficient information

C. 21

D. 84

View answer

Correct Answer: A

Question #107

You are examining a special group of 5 stock market indices. Of these 5, the returns were 4%, 8%, 12%, 16%, and 10%. What is the population standard deviation of this group of stock market indices?

A. 0%

B. %

C. %

D. 6%

View answer

Correct Answer: B

Question #108

Events X and Y are mutually exclusive. P(X) = 0.15, P(Y) = 0.32. The probability of either X or Y occurring equals ________.

A.

B.

C.

D.

View answer

Correct Answer: C

Question #109

A Japanese auto company announces a new plant to be constructed in San Antonio, Texas. The company will partly finance the project with a dual currency bond offering. The $200 million offering will have a 6.0% couponpayable in yen and mature in 2021 with the final principal payment in U.S. dollars. Indicate whether a U.S.- based investor and/or the company will assume any potential currency exchange risk related to these bonds.

A. nvestor only

B. ssuer only

C. oth the issuer and the investor

View answer

Correct Answer: C

Question #110

Which of the following appear(s) on the Income Statement?

A. nterest revenue

B. II only

C. , II & IV

D. I & IV

E. & III

View answer

Correct Answer: B

Question #111

According to the AIMR PPS, composites must include new portfolios at the start of the next performance measurement period, ________, after the portfolio comes under management or according to reasonable and consistently applied firm guidelines.

A. t least annually

B. t least semi-annually

C. t least quarterly

D. t least monthly

View answer

Correct Answer: C

Question #112

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. 00,000

B. 23,077

C. 12,648

D. 00,000

View answer

Correct Answer: B

Question #113

A country cannot maintain currency convertibility if:

A. one of these answers

B. t allows the exchange rate value of its currency to fluctuate and follows an independent monetary policy

C. t fixes the exchange rate value of its currency and has a dependent monetary policy

D. t fixes the exchange rate value of its currency and follows an independent monetary policy

View answer

Correct Answer: D

Question #114

If the one month FF/$ exchange rate is 8.0200-50 this implies:

A. he bank is willing to commit itself today to sell dollars in one month for 8

B. he bank is willing to commit itself today to buy dollars in one month for 8

C. he bank is willing to commit itself today to buy dollars for 8

D. he bank is willing to commit itself today to buy dollars in one month for 8

E. one of these answers

View answer

Correct Answer: B

Question #115

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

A. he effective date of firm compliance

B. , II and III

C. and III only

D. only

E. and II only

View answer

Correct Answer: A

Question #116

A defined benefit pension plan:

A. ays defined benefits for a certain period after retirement

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

C. romises to pay retirees a specific income stream

D. one of these answers

View answer

Correct Answer: C

Question #117

Standard I of the Standards of Professional Conduct deals with ________.

A. one of these answers

B. undamental Responsibilities

C. iduciary Duties

D. riority of Transactions

E. lagiarism

View answer

Correct Answer: B

Question #118

How will an unanticipated increase in aggregate demand emanating from an increase in business and consumer optimism influence equilibrium output in the goods and services market?

A. utput will decrease and prices rise

B. utput will decrease and prices fall

C. utput will increase and prices rise

D. utput will increase and prices decline

View answer

Correct Answer: C

Question #119

Companies report accounts receivable at:

A. heir net realizable value

B. heir liquidation value

C. he lower-of-cost-or-market value

D. heir fair market value

View answer

Correct Answer: A

Question #120

Which of the following would be classified a cash inflow from investing activities?

A. roceeds from selling investments in the debt securities of other entities, except cash equivalents

B. ll responses are correct

C. roceeds from collecting the principal amount of loans

D. roceeds from selling investments in the equity securities of other companies

View answer

Correct Answer: B

Question #121

Standard III (D) - Disclosure of Additional Compensation Arrangements - requires members to provide complete disclosure to their employer about any additional compensation arrangements. In order to abide by this, you must:

A. nform the legal department in writing

B. nform your immediate supervisor in writing or by email

C. nform senior management orally or in writing

D. nform your supervisor in writing, by email or orally

View answer

Correct Answer: B

Question #122

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. A securities trader lives in MS but conducts his business in LS. His behavior is governed by MS laws. However, the MS law states that the applicable business laws are the local laws where the business is conducted. In that case, the trader must adhere to:

A. S business laws

B. IMR code

C. S business laws

D. combination of MS and LS business law

View answer

Correct Answer: B

Question #123

A board of directors consists of eight men and four women. A four member search committee is to be chosen at random to recommend a new company president. What is the probability that all four members of the search committee will be women?

A. one of these answers

B. /16 or 0

C. /495 or 0

D. /8 or 0

E. /120 or 0

View answer

Correct Answer: C

Question #124

If you deposit $1,202.50 into an account paying 6% per year simple interest, how much interest will you have earned in 2 years?

A. 124

B. 126

C. 120

D. 112

E. 144

View answer

Correct Answer: E

Question #125

What is the effective date for compliance with the AIMR-Performance Presentation Standards for non-U.S. and/ or non-Canadian investments and taxable portfolios?

A. anuary 1, 1994

B. anuary 1, 1993

C. anuary 1, 1992

D. anuary 1, 1995

View answer

Correct Answer: A

Question #126

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. 00,000

B. 75,000

C. 00,000

D. 00,000

View answer

Correct Answer: D

Question #127

In a common-size balance-sheet statement, a firm's current assets are reported at 37% and the long- term liabilities are at 12%. The equity is shown to be 64%. The firm's current ratio equals ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #128

Which of the following information would not be filed with the SEC by a publicly company?

A. roxy statement

B. ax return

C. 0K report

D. rospectus

View answer

Correct Answer: B

Question #129

An economy is currently operating at full employment. If the Fed unexpectedly decreases the reserve requirement, in the short run, the aggregate output will ________. The unemployment will ________ the natural rate.

A. all, rise above

B. ise, fall below

C. ise, rise above

D. all, fall below

View answer

Correct Answer: B

Question #130

The sampling method commonly employed when the population is scattered over a large geographic area is known as:

A. ystematic random sampling

B. imple random sampling

C. tratified random sampling

D. luster sampling

View answer

Correct Answer: D

Question #131

Which of the following statements is true?

A. ecognition is concerned with recognizing a liability from a current cash

B. eferral is the process of formally recording or incorporating an item in the financial statements of an entity

C. ealization would reduce a liability that is recorded as a result of a cash receipt by recognizing revenues

D. llocation is the process of converting non-cash resources and rights into money

E. ccrual is the process of recognizing assets, liabilities, and components of comprehensive income

View answer

Correct Answer: E

Question #132

Which of the following is/are true about available-for-sale securities?

A. hey are current assets

B. & II

C. I only

D. I & III

E. , II & III

View answer

Correct Answer: D

Question #133

Why do the corporation's directors declare stock dividends?

A. ll of these answers

B. o increase the number of shares outstanding

C. o provide tangible evidence of management's confidence in the company's strong performance

D. o keep the market value of the company's stock affordable

View answer

Correct Answer: A

Question #134

Which of the following best highlights a company's financial condition and overview of the results of operations?

A. he security and exchange commissions 401-k report

B. he auditor report

C. he statement of cash flows

D. one of these answers

E. anagement's discussion and analysis

View answer

Correct Answer: E

Question #135

Excerpts from the balance sheet of Milton Corporation as of April 30, 1997 are presented as follows:Cash $725,000 Accounts receivable (net) $1,640,000 Inventories $2,945,000 Total current assets $5,310,000 Accounts payable $1,236,000 Accrued liabilities $831,000 Total current liabilities $2,067,000Cash $725,000Accounts receivable (net) $1,640,000Inventories $2,945,000Total current assets $5,310,000Accounts payable $1,236,000Accrued liabilities $831,000Total current liabilities $2,067,000The board of directo

A. nchanged by either the dividend declaration or the dividend distribution

B. nchanged by the dividend declaration and decreased by the dividend distribution

C. ecreased by the dividend declaration and increased by the dividend distribution

D. ncreased by the dividend declaration and decreased by the dividend distribution

E. ncreased by the dividend declaration and unchanged by the dividend distribution

View answer

Correct Answer: A

Question #136

A firm using LIFO accounting has a LIFO reserve of 4,700, with a FIFO ending inventory of 34,600. It is currently in the 40% tax bracket. If it switches to FIFO accounting for reporting purposes, it's deferred taxes ________.

A. ecrease by 2,820

B. ncrease by 2,820

C. ncrease by 1,880

D. ecrease by 1,880

View answer

Correct Answer: C

Question #137

Which of the following is/are true about held-to-maturity securities?

A. hey are mostly non-current assets

B. I only

C. I & III

D. & III

E. , II & III

View answer

Correct Answer: C

Question #138

Which of the following can be found in Standard IV?

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

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

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

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

E. embers shall not misrepresent investment performance

View answer

Correct Answer: B

Question #139

The bonds of Grinder Corp. trade at a nominal spread of 150 basis points (bp) above comparable maturity U.S. Treasury securities. The option adjusted spread (OAS) on the Grinder Corp. bonds is 75 bp. Using this information, and assuming that the Treasury yield curve is flat, which of the following statements is most likely to be true?

A. he zero-volatility spread should be 75 bp

B. he zero-volatility spread for these bonds is 225 bp

C. he option cost component of these bonds should be 75 bp

View answer

Correct Answer: C

Question #140

Which of the following best describes retained earnings?

A. ll of these answers

B. one of these answers

C. etained earnings represent the cumulative net profits a firm since inception

D. etained earnings represent the sum total of cash obtained from the sale of common stock to investors

E. etained earnings represent the cumulative net profits of a firm since inception, minus cumulative dividends paid to common stockholders

View answer

Correct Answer: E

Question #141

Which of the following types of receivables is generally the most liquid?

A. rade receivables

B. eceivables due from affiliated companies

C. one of these answers

D. otes receivable

E. eceivables due from corporate officers

View answer

Correct Answer: A

Question #142

A bond dealer determines that the present value of a particular Treasury note based on Treasury spot rates is greater than its market price. The dealer can generate an arbitrage profit (assuming no transactions costs) by:

A. uying the Treasury note and selling its cash flows as Treasury STRIPS

B. uying the equivalent Treasury STRIPS and selling them as a Treasury note

C. uying the undervalued note and selling short the Treasury security with the nearest maturity

View answer

Correct Answer: A

Question #143

Rose Half, CFA, is analyzing EI Toro Electric Company. She has collected the following data:What is El Toro Electric Company's expected long-run rate of return?

A. 0

B. 3

C. 5

View answer

Correct Answer: B

Question #144

Portfolios that include more than one asset class are called ________ portfolios.

A. uasi-asset

B. ultivariate

C. ultiple leverage

D. nivariate-asset

E. ultiple-asset

View answer

Correct Answer: E

Question #145

Capital account transactions include:

A. irect investments by Americans in real assets abroad and loans from foreigners

B. irect investments by Americans in real domestic assets and loans to and from foreigners

C. nilateral transfers to and from foreigners and direct investments by Americans in real assets abroad

D. irect investments by Americans in real assets abroad and loans to and from foreigners

E. nilateral transfers to and from foreigners and loans to and from foreigners

View answer

Correct Answer: D

Question #146

An investor has a quarterly compounded required rate of return of 9% per year. How much will he pay for a nine-year ordinary annuity that pays $100 per year?

A. 599

B. 574

C. 592

D. 594

View answer

Correct Answer: C

Question #147

The following is a distribution of monthly commissions:Monthly Commissions Class Frequencies$600 - $7993$800 - $9997$1,000 - $1,19911$1,200 - $1,39922$1,400 - $1,59940$1,600 - $1,79924$1,800 - $1,9999$2,000 - $2,1994Referring to the table above, what is the relative frequency for those salespersons that earn between $1,600 and $1,799?

A. 4%

B.

C. one of these answers

D. 0%

E. %

View answer

Correct Answer: D

Question #148

Book value of a company is equal to all of the following except

A. he amount resulting if the company were to liquidate at amounts reported on the balance sheet

B. otal assets reduced by claims against them

C. he market value of the net assets

D. et asset value

View answer

Correct Answer: C

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