Practice Exam CFA Level 1, Free Exam QuestionS and Answers

Question #1

You are given n = 12, sum of the (X_i) = 2%, sum of the (X_i)^2 = 0.5%%. Find the sample standard deviation.

A.

B.

C.

D.

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Correct Answer: C

Question #2

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

A. ncomes of lawyers

B. umber of pages in textbooks on statistics

C. ges of adults at a senior citizen center

D. arital status of college students at a particular university

E. one of these answers

View answer

Correct Answer: D

Question #3

The domestic demand Q for a good A at a price P is given by Q = 500 - 5P while the supply function is given by 300 + 3P. The world price for good X is 19.If the government imposes a 10% tariff on imports, the revenues of the domestic producers will

A. ecrease by 233

B. ncrease by 579

C. ncrease by 797

D. ecrease by 485

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Correct Answer: C

Question #4

The GDP measures:

A. he total value of all goods, services and financial transactions during a period

B. he total value of all the earnings in the economy

C. he total value of all goods and services produced in the economy during a period

D. he total value of all final goods and services produced in the economy during a period

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Correct Answer: D

Question #5

A joint probability is expressed symbolically as:

A. (A | B)

B. (B | AB)

C. (AB)

D. (A or B)

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Correct Answer: C

Question #6

3 months ago, Fred Hoyle received the AIMR letter, informing him that he had passed Level II exam. He has now registered for Level III exam. Fred can do which of the following?

A. ut "CFA-II" on his business card, as long as it is in a smaller font than his name

B. , II and III only

C. I and IV only

D. , II and IV only

E. I and III only

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Correct Answer: D

Question #7

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

A. 607

B. 700

C. 1,330

D. 949

E. 571

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Correct Answer: B

Question #8

Free cash flow is not

A. ash flow that includes discretionary uses such as debt reduction

B. he measure of cash available to the firm for discretionary uses after making all required cash outlays

C. etter to have a large sum of

D. efined as cash flow from operations minus all capital expenditures

E. cash flow with one definition because of its several discretionary uses

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Correct Answer: E

Question #9

Mirabelle is an experienced analyst who has worked for the investment research ARM of Clifford & Clifford, Inc. for the past 7 years. Recently, TransOmega retained Clifford & Clifford to conduct a study on possible takeover candidates in the aviation industry. Mirabelle has been given the project and two assistants to conduct the research. During their review, Mirabelle's assistants located a research report created recently by Donaldson, a freelance analyst. Mirabelle found the report thorough, though she

A. oth Mirabelle and John Cliff violated the standards

B. nly Mirabelle violated the plagiarism standard by using Donaldson's report

C. nly John Cliff violated the Standard of Reasonable Care (IVA

D. either Mirabelle nor John Cliff violated any of the standards

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Correct Answer: D

Question #10

Why do the corporation's directors declare stock dividends?

A. o increase the market value of the company's stock

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

C. o decrease the number of shares outstanding

D. one of these answers is correct

View answer

Correct Answer: B

Question #11

Standard III includes which of the following?

A. easonable Basis and Representations

B. reservation of Confidentiality

C. ll of these answers

D. erformance Presentation

E. se of Professional Designation

F. one of these answers

View answer

Correct Answer: F

Question #12

John makes T-shirts and sells them only to American citizens and he purchases one bottle of French wine with his income. Which of the following will be true?

A. ohn will not be affecting the U

B. ohn will be reducing the U

C. ohn will be adding to the U

D. ohn will be reducing the U

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Correct Answer: C

Question #13

Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

A. he manager's soft-dollar practice must be disclosed

B. he manager may seek satisfactory price and execution

C. he goods or services purchased must be for "research service

D. one of these answers

E. he commission paid must be reasonable in relation to the research and execution services received

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Correct Answer: B

Question #14

Which of the following is/are true about Treasury stock?

A. hey represent registered shares that have been reacquired from shareholders

B. & II

C. , II & III

D. only

E. & III

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Correct Answer: D

Question #15

Which of the following would be counted in the calculation of GDP?

A. he sale of cocaine in the black market

B. he broker's fees from the sale of 100 shares of IBM stock

C. amage to a house caused by a hurricane

D. he sale of a rare coin to a coin collector

View answer

Correct Answer: B

Question #16

Which of the following statements regarding hypothesis testing is false?

A. he F-statistic is used in multivariate quantitative analysis

B. ore than one of these answers is incorrect

C. f the null hypothesis is rejected, then it is said the result is "not statistically significant

D. f the population standard deviation is unknown, then the standard error of the estimate is found by dividing the sample standard deviation by the square root of "n

E. he power of a test is usually equal to (1 - the probability of a Type II error)

F. n quantitative analysis, the Type I error is defined as the act of incorrectly rejecting the null hypothesis

View answer

Correct Answer: C

Question #17

Which of the following statements is false in reference to confidence intervals and/or tests of significance?

A. s the confidence level increases, the area between the upper confidence limit and the lower confidence limit increases

B. ore than one of these answers is false

C. he significance level is denoted by the Greek letter alpha

D. he significance level is typically measured by (1 - the probability of a Type II error)

E. s the confidence level increases, the power of the does not necessarily increase

F. ignificance levels are typically set equal to 0

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Correct Answer: D

Question #18

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

A. 3,290

B. 3,276

C. 4,000

D. 384

E. 3,934

View answer

Correct Answer: B

Question #19

Which of the following statements is/are correct under the Code and Standards?

A. IMR members are prohibited from undertaking independent practice in competition with their employer

B. I, III and IV only

C. and IV only

D. V only

E. I and III only

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Correct Answer: D

Question #20

The statement of cash flows includes sections on all of the following except ________.

A. inancing activities

B. urchasing activities

C. nvesting activities

D. perating activities

View answer

Correct Answer: B

Question #21

On a very hot summer day, 5 percent of the production employees at Midland States Steel are absent from work. The production employees are to be selected at random for a special in depth study on absenteeism. What is the probability of selecting 10 production employees at random on a hot summer day and finding that none of them are absent?

A.

B.

C.

D.

E. one of these answers

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Correct Answer: A

Question #22

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

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

B. & II

C. & III

D. , II & III

E. II only

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Correct Answer: D

Question #23

Tom wants to retire a millionaire. If he is 30 years old today, what monthly payment would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

A. 670

B. 435

C. 2,380

D. 5,803

E. 439

View answer

Correct Answer: B

Question #24

Irwin Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums saved minus recognized losses from lawsuits and other claims. As a result of a 1996 accident, Irwin is a defendant in a lawsuit in which it will probably have to pay damages of $190,000. What are the effects of this lawsuit's probable outcome on Irwin's 1996 financial statements?

A. n increase in expenses and no effect on liabilities

B. o effect on expenses and an increase in liabilities

C. n increase in both expenses and liabilities

D. one of these answers

E. o effect on either expenses nor liabilities

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Correct Answer: C

Question #25

An analyst with Guffman Investments has developed a stock selection model based on earnings announcements made by high P/E stocks. The model predicts that investing in companies with P/E ratios twice that of their industry average that make positive earnings announcements will generate significant excess return. If the analyst has consistently made superior risk-adjusted returns using this strategy, which form of the efficient market hypothesis has been violated?

A. eak form of market efficiency

B. emistrong and weak forms of market efficiency

C. trong, semistrong, and weak forms of market efficiency

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Correct Answer: B

Question #26

The AIMR-PPS recommend that both ________ and ________ risks be presented in conjunction with composite returns.

A. bsolute; unsystematic

B. otal; market

C. xternal; internal

D. nsystematic; systematic

View answer

Correct Answer: B

Question #27

If the resources of an economy were fully employed and the marginal propensity to consume were 0.75, a $10 billion increase in investment would cause

A. eal income to rise $40 billion

B. eal income to rise $80 billion

C. eal income to rise $20 billion

D. nflation to increase

View answer

Correct Answer: D

Question #28

According to the Keynesian model, if the marginal propensity to consume were 0.80, an independent increase in investment expenditures of $20 billion would cause the equilibrium aggregate nominal income to rise

A. 80 billion

B. 16 billion

C. 100 billion

D. 20 billion

E. 50 billion

View answer

Correct Answer: C

Question #29

According to Standard IV (B.4), Priority of Transactions, a member is a "beneficial owner" if the member has each of the following, EXCEPT:

A. he power to vote or direct the voting of the shares of the securities or investments

B. he power to dispose or direct the disposition of the security or investment

C. he authority to supervise reasonably and adequately the actions of those accountable to him

D. direct or indirect pecuniary interest in the securities

View answer

Correct Answer: C

Question #30

Which of the following statements is NOT true relating to Standard IV (B.3) - Fair Dealing?

A. his standard covers the conduct of two groups: those who prepare recommendations and those who take investment action

B. embers shall deal equally and objectively with all clients

C. nly through the fair treatment of all parties can the investment management profession maintain the confidence of the investing public

D. one of these answers

E. his standard covers investment action such as general purchases, new issues, or secondary offerings

View answer

Correct Answer: B

Question #31

Congress proposes to stimulate the economy by cutting taxes for middle income families but raising taxes for wealthier tax payers. The effect will be the same net taxes collected, but most tax payers would pay less in taxes. According to which of the following economic theories would this stimulate the economy?

A. iscal policyII

B. , III

C. one of these answers is correct

D. II only

E. , II, III

F. only

View answer

Correct Answer: B

Question #32

Which of the following would not normally be found in the footnotes that accompany financial statements?

A. ignificant legal proceedings

B. ist of officers and directors of company

C. etails of business acquisitions

D. ignificant accounting principles used

View answer

Correct Answer: B

Question #33

What is the area under the normal curve between z = 1.0 and z = 2.0?

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: B

Question #34

The following account is affected when recording a return of inventory to the vendor under a perpetual inventory system.

A. urchase returns and allowances

B. ccounts receivable

C. ash

D. erchandise inventory

View answer

Correct Answer: D

Question #35

At the end of a fiscal period, any revenue that has been earned but not received should be credited to an appropriate:

A. xpense account

B. evenue account

C. iability account

D. sset account

View answer

Correct Answer: B

Question #36

If senior managers are unwilling to permit dissemination of adverse opinions about a particular corporate client,according to Standard IV (A.3), you should attempt to put that corporate client on a ________.

A. olding-pattern

B. estricted list

C. oratorium register

D. one of these answers

E. uspension roster

F. aptive list

View answer

Correct Answer: B

Question #37

Which of the following is not a current liability?

A. otes Payable

B. ages Payable

C. llowance for Uncollectible Accounts

D. nearned Revenue

View answer

Correct Answer: C

Question #38

Which of the following are true regarding covariance?

A. ovariance of returns on two assets is 0 when the returns are unrelated

B. ll but II

C. ll but I

D. ll but IV

E. ll but III

View answer

Correct Answer: A

Question #39

Which of the following is/are component(s) of Shareholder's equity?

A. referred equityII

B. I & III

C. only

D. , II & III

E. & III

View answer

Correct Answer: C

Question #40

The mosaic theory holds that an analyst:

A. an use material public information or nonmaterial nonpublic information in the analyst's analysis

B. hould distinguish between facts and opinions in research reports

C. hould use all available and relevant information in support of an investment recommendation

D. iolates the Code and Standards if the analyst fails to notify her or his employer of the Code and Standards fails to have knowledge of and comply with applicable laws

View answer

Correct Answer: A

Question #41

The population of Tunisia is 100 million; 5 million are unemployed and 90 million hold jobs. The employment rate in Tunisia is

A. 0 percent

B. percent

C. 5 percent

D. 5 percent

View answer

Correct Answer: A

Question #42

All possible samples of size n are selected from a population and the mean of each sample is determined.What is the mean of the sample mean?

A. annot be estimated in advance

B. one of these answers

C. xactly the same as the population mean

D. arger than the population mean

E. maller than the population mean

View answer

Correct Answer: C

Question #43

Monthly commissions of first-year insurance brokers are $1,270, $1,310, $1,680, $1,380, $1,410, $1,570, $1,180 and $1,420. These figures are referred to as:

A. one of these answers

B. aw data

C. requency distribution

D. give

E. istogram

View answer

Correct Answer: B

Question #44

Suppose the average stock price in the above example were 40. How many shares will be used in the calculation of Diluted EPS now?

A. one of these answers

B. ,250,000

C. ,208,333

D. ,300,000

View answer

Correct Answer: C

Question #45

Which one of the following will most likely reduce aggregate supply?

A. technological advance that reduces the cost of energy

B. n increase in the nation's net investment rate

C. n increase in the labor force participation rate

D. egulatory action that generates more benefits than costs

E. substantial increase in the minimum wage

View answer

Correct Answer: E

Question #46

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

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: A

Question #47

Which of the following is/are current liabilities?

A. ccounts receivableII

B. I, III & IV

C. I & III

D. II & IV

E. , II, III & IV

View answer

Correct Answer: A

Question #48

Berger Corporation has a profit margin of 10.0%, total asset turnover of 0.75, financial leverage of 1.6, and debt/equity ratio of 62.5%. Profit margin is defined as Net income/Sales, total asset turnover is Sales/ Total assets, financial leverage is Total assets/Equity, and debt/equity ratio is Total debt/Equity. Berger\s payout ratio is 60.0%. If these ratios are sustainable for the long term, the best estimate of Berger's growth rate of earnings and dividends is:

A.

B.

C.

View answer

Correct Answer: A

Question #49

A discrete probability distribution is the same as:

A. collection of all possible outcomes of an experiment

B. n absolute frequency distribution

C. relative frequency distribution

D. one of these answers

View answer

Correct Answer: C

Question #50

A true-false test consists of six questions. If you guess the answer to each question, what is the probability of getting all six questions correct?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: E

Question #51

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

A. ommitment

B. one of these answers

C. rudence

D. iversification

E. upervisors

View answer

Correct Answer: C

Question #52

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

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: C

Question #53

Standard V (B) deals with

A. ndependence and objectivity

B. erformance presentation

C. reservation of confidentiality

D. nsider information

E. air dealing

F. esearch report

View answer

Correct Answer: B

Question #54

Complete the following: According to The Code of Ethics, members of AIMR shall: "Act with integrity, competence, ________ and in an ethical manner when dealing with the public, clients, prospects, employers, employees and fellow members."

A. onorability

B. ignity

C. orality

D. one of these answers

E. irtue

View answer

Correct Answer: B

Question #55

The portion of the supplies inventory that has been consumed during the fiscal period is classified as

A. n expense

B. n increase in retained earnings

C. liability

D. n asset

View answer

Correct Answer: A

Question #56

You wish to count the number of ways in which n objects can be assigned to k different categories, with n_i members in the ith category. The counting method you should use is:

A. he permutation rule

B. he binomial formula

C. one of these answers is correct

D. he multinomial formula

View answer

Correct Answer: D

Question #57

Which of the following is/are problems with comparing firm ratios with industry ratios?

A. he firm under consideration may not be a typical firm in the industry

B. , II, III & IV

C. , III & IV

D. , II & III

E. & III

View answer

Correct Answer: D

Question #58

An investment of $100 grows in five years to $205. The investor observes that the annual arithmetic rate of return and the geometric rate of return were the same over this period. The annual arithmetic rate of return must be ________.

A.

B. 5

C. 7

D. 3

E.

View answer

Correct Answer: B

Question #59

Prepaid expenses are:

A. lassified as current liabilities on the balance sheet

B. dvance payments for goods not yet received which extend beyond the current accounting period

C. ot included in the calculation of a company's working capital

D. dvance payments for work that the company has not yet performed

View answer

Correct Answer: B

Question #60

The balance sheet

A. eports all of the cash inflows and shows specifically how that cash was used

B. s a report that shows the change in the financial position of a firm

C. eports the firm resources and how those resources were specifically used

D. eports the firm resources, claims on those resources, and stockholders' equity at specific points in time

E. eports the assets and liabilities of the firm for the accounting period

View answer

Correct Answer: D

Question #61

A drawback of using the price-to-book value ratio as a valuation tool is that book value:

A. oes not reflect human capital

B. s not appropriate for valuing firms with large, highly liquid assets

C. s only effective in valuing companies that are not expected to continue as a going concern

View answer

Correct Answer: A

Question #62

Standard IV (B.4) deals with ________.

A. isclosure of Conflicts to Clients and Prospects

B. rohibition against Misrepresentation

C. one of these answers

D. isclosure of Referral Fees

E. riority of Transactions

F. rohibition against Use of Material Nonpublic Information

View answer

Correct Answer: E

Question #63

Walter Jennings, a quantitative analyst with Smith, Kleen & Beetchnutty Brokerage, has just been informed of an important error in one of his recent statistical endeavors. Specifically, in one hypothesis test, Mr. Jennings failed to reject a null hypothesis that later was proven to be false. Which of the following best describes this type of error in hypothesis testing? Further, if the confidence level of the test were increased, would the probability of this error increase, decrease, or is this probability

A. ype II error; difficult to determine

B. ype I error; difficult to determine

C. ype I error; decrease

D. ype II error; decrease

E. ype I error; increase

F. ype II error; increase

View answer

Correct Answer: A

Question #64

According to Standard IV (A.2), members should consider including the following information in research reports, except:

A. he methodology that drove the investment decisions

B. ield-to-maturity

C. nnual amount of income expected

D. egree of uncertainty associated with the cash flows

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

F. one of these answers

View answer

Correct Answer: A

Question #65

Another name for flexible exchange rates is:

A. one of these answers

B. ll of these answers

C. loating exchange rates

D. oveable exchange

E. reely determined exchange

View answer

Correct Answer: C

Question #66

Which is true of all skewed distributions?

A. hey are is not symmetrical

B. and III

C. one of these answers is correct

D. and II

E. I and III

View answer

Correct Answer: C

Question #67

What annual deposit would you need to make, beginning in one year, into an account paying 7% per year, compounded annually, in order to have $50,000 in it after 20 years, assuming that the account has nothing in it today?

A. 1,129

B. 1,219

C. 4,719

D. 1,291

E. 2,191

View answer

Correct Answer: B

Question #68

A firm is purchased for more than the fair market value of its assets. The excess is:

A. ritten off against the retained earnings on the balance sheet

B. reated as an extraordinary loss & presented net of taxes on the income statement

C. onsidered as "Goodwill

D. onsidered a "premium paid" and amortized over the life of the acquired assets

View answer

Correct Answer: C

Question #69

The closing prices of a common stock have been 61 1/2, 62, 61 1/4, 60 7/8, and 61 1/2 for the past week. What is the range?

A. one of these answers

B. 1

C. 1

D. 1

E. 1

View answer

Correct Answer: E

Question #70

What is the present value of $250 per year for 6 years, with the first cash flow occurring today, rather than 1 year from now? Assume interest is 7% per year, compounded annually.

A. 1,209

B. 1,500

C. 1,191

D. 1,275

E. 1,293

View answer

Correct Answer: D

Question #71

The relationship between inflation and unemployment rate is known as:

A. hillips curve

B. quation of exchange

C. ucas curve

D. nflation-unemployment parity

View answer

Correct Answer: A

Question #72

Proctor Ltd. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are recorded as unearned contract revenues. This account had a balance of $720,000 at December 31, 1996. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 1996. Outstanding service contracts at December 31, 1996 expire as follows:During 1997 $150,000During 1

A. 475,000

B. one of these answers

C. 295,000

D. 245,000

E. 540,000

View answer

Correct Answer: A

Question #73

Which of the following is NOT a reason for sampling the population?

A. ome tests are destructive in nature and hence, should be carried out only on small samples

B. nferences from a sample are the same that would be obtained by studying the entire population

C. t is almost impossible to work with the entire population in most cases

D. amples are far easier to work with than the entire population

View answer

Correct Answer: B

Question #74

Ron Logan, CFA, is a bond manager. He purchased $50 million in 6.0% coupon Southwest Manufacturing bonds at par three years ago. Today, the bonds are priced to yield 6.85%. The bonds mature in nine years. Identify the most accurate statement regarding the pricing and yield of these bonds.

A. he bonds are trading at a discount, and the yield to maturity (YTM) has increased since purchase

B. he bonds are trading at a premium, and the yield to maturity (YTM) has decreased since purchase

C. he bonds are trading at a discount and the yield to maturity (YTM) has decreased

View answer

Correct Answer: A

Question #75

If the Fed introduces an expansionary monetary policy:

A. eal interest rates fall

B. I & III

C. , II & III

D. & II

E. & III

View answer

Correct Answer: D

Question #76

Which of the following is/are true in an inflationary environment?

A. or income statement purposes, LIFO is preferable to FIFO

B. I, III & IV

C. I & IV

D. II only

E. , III & IV

View answer

Correct Answer: D

Question #77

A stock had the following percentage increases in its value over the last 5 years: 7%, 4%, 12%, 10%, 15%. The geometric rate of return on the stock equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #78

If a firm recognizes expenses before that dictated by accrual accounting, which of the following best describes the effects on income, total assets and retained earnings?Income Total assets Retained earnings

A. nderstated Understated UnderstatedII

B.

C. I

D. V

E. II

View answer

Correct Answer: A

Question #79

Karen Callaway is an investor in the 35% tax bracket. She is evaluating a tax-exempt municipal security with a tax-exempt yield of 4.5%. What is the taxable equivalent yield (TEY) of the municipal security?

A.

B.

C. 2

View answer

Correct Answer: C

Question #80

Use the following financial data on Enterprise:

A. ale of equipment $32,000

B. oss on equipment sale $9,000

C. ividends paid $12,500

D. urchase of an office suite $104,000

E. ommon stock repurchase $45,000

F. ividends received from investments $8,500

View answer

Correct Answer: C

Question #81

Which of the following is a valid reason for an analyst to question the value of a deferred asset or justify capitalizing it?

A. apid product obsolescence

B. ver estimation of future sales

C. ll of these answers

D. he proper amortization might be substantially shorter that the one selected by management

E. on-existence of future benefits

View answer

Correct Answer: C

Question #82

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

A. roceeds from collecting the principal amount of loans

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

C. ll of these answers are correct

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

View answer

Correct Answer: C

Question #83

Under inflationary conditions and stable inventories, the COGS under Average Cost method:

A. ower than FIFO COGS

B. ould be greater or less than FIFO COGS

C. igher than FIFO COGS

D. s higher than LIFO COGS

View answer

Correct Answer: C

Question #84

Full employment means that which of the following is zero?

A. rictional unemployment

B. ggregate unemployment

C. yclical unemployment

D. tructural unemployment

E. otal unemployment

View answer

Correct Answer: C

Question #85

A buy side analyst is discussing the relative functionality of the Australian stock market with her colleagues. She states three specific attributes of the Australian stock market that infer that the market is a well-functioning securities market. She says, 'The Australian stock market is characterized by (1) rapid adjustment of prices to reflect new information, and (2) price continuity in the absence of significant new information." Are these accurate descriptions of attributes of a well functioning marke

A. oth descriptions are accurate

B. either description is accurate

C. nly one of these descriptions is accurate

View answer

Correct Answer: A

Question #86

The chairman of the House Ways and Means committee, who has major sway on spending programs, has been researching the economy and believes that the nation is heading for an inflationary spiral. Inflation iscurrently not considered a problem. He proposes a fiscal policy solution. Which of the following would not impede his proposition from alleviating the problem?

A. ongressional opposition to spending cutsII

B. ecognition lag

C. II, IV

D. , II, IV, V

E. I, IV, V

F. I, IV

View answer

Correct Answer: B

Question #87

You are faced with a counting problem in which you must choose k objects from n total objects. The order of choosing does not matter. The counting method you should use is:

A. one of these answers is correct

B. he binomial formula

C. he multinomial formula

D. he multiplication rule

View answer

Correct Answer: B

Question #88

A firm has just experienced a LIFO liquidation under inflation. Which of the following could be true?

A. he firm's purchases were lower than the number of units sold

B. I only

C. & III

D. I & III

E. , II & III

View answer

Correct Answer: D

Question #89

The cash spent on replacing operating capacity used up in the normal course of business is classified as:

A. nvesting cash flow

B. perating cash flow

C. ither operating cash flow and investing cash flow

D. inancing cash flow

View answer

Correct Answer: A

Question #90

Theta Corp.'s stock is expected to appreciate 6% per year. If no dividends are paid out over the next 5 year and the current stock price is $28, what's the expected price in 5 years?

A. 39

B. 37

C. 41

D. 34

View answer

Correct Answer: B

Question #91

Which of the following is the best example of a quota?

A. tax placed on all small cars sold in the domestic market

B. limit imposed on the number of men's suits that can be imported from a foreign country

C. $100-per-car excise tax levied on all small cars sold in the domestic market

D. subsidy from the U

E. $100-per-car fee imposed on all small cars imported

View answer

Correct Answer: B

Question #92

An end-of-period adjustment for depreciation of fixed assets is necessary

A. roper statement of net income

B. o be consistent with the matching principle

C. ll of these answers are correct

D. o recognize the expense of using fixed assets

View answer

Correct Answer: C

Question #93

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

A. odel

B. ortfolio

C. sset-only

D. ash

E. erformance

View answer

Correct Answer: C

Question #94

An accelerated life test on a large number of type-D alkaline batteries revealed that the mean life for a particular use before they failed is 19.0 hours. The distribution of the lives approximated a normal distribution. The standard deviation of the distribution was 1.2 hours. About 95.44 percent of the batteries failed between what two values?

A. 6

B. 4

C. 2

D. one of these answers

E.

View answer

Correct Answer: A

Question #95

Which of the following is true?

A. uring a recession, cyclical unemployment will be low

B. rictional unemployment implies a lack of available jobs

C. hen an economy is at full employment, actual unemployment will be less than the natural unemployment

D. hen actual GDP equals potential GDP, the actual unemployment will equal the economy's natural unemployment

View answer

Correct Answer: D

Question #96

You borrow $100,000 at a mortgage rate of 8% per year. What's the annual payment you must make to repay the loan in 25 years?

A. 8,349

B. 5,982

C. 9,368

D. 7,493

View answer

Correct Answer: C

Question #97

Routine physical examinations are conducted annually as part of a health service program for the employees. It was discovered that 8% of the employees needed corrective shoes, 15% needed major dental work and 3% needed both corrective shoes and major dental work. What is the probability that an employee selected at random will need either corrective shoes or major dental work?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: A

Question #98

A researcher has a sample of 600 observations from a population whose standard deviation is known to be 51.44. The mean of the sample is calculated to be 3.6. The null hypothesis is stated as Ho: mean > 8.4. The researcher should

A. ccept the null at 95% significance

B. eject the null at 99% significance

C. ail to reject the null at 95% significance

D. one of these answers

View answer

Correct Answer: B

Question #99

The Keynesian range (the horizontal range) of a short-run aggregate supply curve illustrates that changes in aggregate demand exert little impact on prices and a great deal of impact on output when

A. esources in the economy are fully employed

B. ggregate demand exceeds aggregate supply

C. atural unemployment is present

D. ubstantial excess capacity is present

View answer

Correct Answer: D

Question #100

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

A. IMR

B. lients and Prospects

C. one of these answers

D. he Employer

View answer

Correct Answer: D

Question #101

A defined contribution pension plan:

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

B. one of these answers

C. romises to pay retirees a specific income stream

D. ays defined benefits for a certain period after retirement

View answer

Correct Answer: A

Question #102

Standard I includes rules on which of the following?

A. rofessional Misconduct

B. ll of these answers

C. se of Professional Designation

D. one of these answers

E. rohibition against Plagiarism

View answer

Correct Answer: D

Question #103

What monthly payment, beginning next month, is required over the next 48 months to pay off a $10,000 debt today, if interest is charged at 10% per year, compounded monthly?

A. 253

B. 266

C. 216

D. 270

E. 400

View answer

Correct Answer: A

Question #104

Under an inflationary environment with stable inventories, a firm may change to FIFO from LIFO due to which ofthe following reason(s)?

A. o allow earnings manipulation

B. I & IV

C. II only

D. & IV

E. & III

View answer

Correct Answer: A

Question #105

If you deposit $100 a month, beginning next month, for 20 years into an account paying 6% per year, compounded monthly, how much is in your account after that last deposit?

A. 46,204

B. 1,973,585,957

C. 24,000

D. 2,097

E. 3,678

View answer

Correct Answer: A

Question #106

You are reviewing a list of 8 recommended securities and wish to invest in 4. You will put 40% of your capital in one, 30% in another, 20% in the third, and 10% in the last one. How many different ways can you choose among the 8 securities and invest according to your design?

A. ,980

B. ,680

C. ,774

D. ,860

View answer

Correct Answer: B

Question #107

The following information is provided about Jacko Industries.Using the method of average return on equity, Jacko's P/E ratio is closest to:

A. 0

B. 6

C. 0

View answer

Correct Answer: A

Question #108

Which of the following transactions will impact a company's balance sheet?

A. he payment of principal on a long-term loan

B. he sale of new common stock

C. et income earned by a company

D. ll of these answers

E. he purchase of equipment for cash

View answer

Correct Answer: D

Question #109

Which of the following correctly describes how expansionary fiscal policy through tax cuts eventually impacts employment?

A. ax cuts result in more income for consumers, which shifts the aggregate demand curve upward, which increases the price level

B. tax cut shifts the aggregate demand curve out

C. ax cuts result in more government debt which causes the interest rate to rise and therefore unemployment to fall

D. ax cuts result in a multiplier effect, as politicians showing confidence in the economy encourages businesses to spend on expansions

E. he tax cut causes an increase in quantity demand

View answer

Correct Answer: B

Question #110

The R-square in a univariate regression measures:

A. he significance of the regression

B. he variance of the error term

C. he amount of variance in the dependent variable caused by the variance in the independent variable

D. he correlation between the dependent and the independent variables

View answer

Correct Answer: C

Question #111

Standard II (B) is known as ________.

A. rofessional Misconduct

B. air Dealing

C. nteractions with Clients and Prospects

D. reservation of Confidentiality

E. one of these answers

F. rohibition against Use of Material Nonpublic Information

View answer

Correct Answer: A

Question #112

Standard II (C) - Prohibition against Plagiarism - addresses all of the following forms of communication, except:

A. nternet communications

B. ral presentations

C. lectronic data transfer

D. ritten presentations

E. udio/visual presentations

F. one of these answers

View answer

Correct Answer: F

Question #113

A stock's return is normally distributed with a mean of 16% and a standard deviation of 8%. The probability that an investment in the stock will result in a loss in one year is approximately:

A. %

B.

C. annot be calculated

D. 0%

View answer

Correct Answer: B

Question #114

Birch Ltd. had net income for the year of $101,504 and a simple capital structure consisting of the following common shares outstanding:Months Outstanding Number of SharesJanuary - February 24,000March - June 29,400July - November 36,000December 35,040Birch's earnings per share (rounded to the nearest cent) were ________.

A. 2

B. 3

C. 4

D. 3

E. 3

View answer

Correct Answer: D

Question #115

A piece of equipment costs $250,000, has a useful life of 10 years and an estimated salvage value of $50,000. How much depreciation expense should the company recognize in year 7 if it is using the straight-line method of depreciation?

A. 10,000

B. 25,000

C. 140,000

D. 20,000

View answer

Correct Answer: D

Question #116

Taxes must be recognized

A. n the same period as when the taxable event occurred

B. n a quarterly basis

C. n the period immediately following the period in which the taxable event occurred

D. n a yearly basis

View answer

Correct Answer: A

Question #117

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

A. eneficiaries

B. one of these answers

C. tockholders of the firm

D. nvesting public

E. ntity who hires the manager

F. orporation

View answer

Correct Answer: A

Question #118

The rate of unemployment is equal to:

A. he number of unemployed people as a fraction of the total labor force

B. he number of unemployed people as a fraction of the total population

C. one of these answers

D. he number of unemployed people as a fraction of the total population eligible to work

View answer

Correct Answer: D

Question #119

Which of the following can be found in Standard V?

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

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

C. 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

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

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

View answer

Correct Answer: C

Question #120

Which of the following assumptions is least likely to be consistent with the concept of efficient capital markets?

A. xpected returns implicitly include risk in the price of the security

B. arket participants correctly adjust prices based on new information

C. ew information about securities comes to the market in a random fashion

View answer

Correct Answer: B

Question #121

Fiduciaries are obligated to vote proxies:

A. one of these answers

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

C. nly when there is a nonroutine governance issue

D. nly when there is a change in firm capitalization

E. n an informed and responsible manner

F. nly when management requests the fiduciary to vote, in writing

View answer

Correct Answer: E

Question #122

What monthly payment, beginning next month, is required over the next 60 months to pay off a $10,000 debt today, if interest is charged at 14% per year, compounded monthly?

A. 116

B. 166

C. 2070

D. 1,400

E. 232

View answer

Correct Answer: E

Question #123

When a firm records a lease as a capital lease:

A. ts working capital increases

B. ts current ratio decreases

C. ts debt-to-asset ratio increases

D. ts financial leverage ratio decreases

View answer

Correct Answer: B

Question #124

The mean gross annual income of certified tack welders are normally distributed with the mean of $20,000 and a standard deviation of $2,000. The ship building association wishes to find out whether their tack welders earn more or less than $20,000 annually. The alternate hypothesis is that the mean is not $20,000. The 0.10 level of significance is to be used. What is the decision rule?

A. o not reject the null hypothesis if computed z lies between -1

B. one of these answers

C. eject the null hypothesis if computed z is below -1

D. o not reject the null hypothesis if computed z lies greater than 1

E. o no reject the null hypothesis if computed z lies between -1

View answer

Correct Answer: E

Question #125

The portion of the insurance premiums that has expired during the fiscal period is classified as:

A. n expense

B. n asset

C. n increase in retained earnings

D. liability

View answer

Correct Answer: A

Question #126

Sid Barnes is the senior most partner with Noble & Noble, a well-known brokerage firm. Bruce Lohmann is a senior partner who reports to Barnes. Lohmann is an AIMR member while Barnes is not. Recently, N&N's research department identified a sterling investment opportunity and Barnes decided to allow some of the largest discretionary accounts to benefit from this first. He directed Lohmann to take the appropriate steps and in turn, Lohmann assigned Doug Jardine, a senior analyst, to complete the portfolio reb

A. arnes has violated the AIMR code

B. , II and III

C. I only

D. and III only

E. I and III only

View answer

Correct Answer: B

Question #127

Suppose we set the criterion for the rejection of the null that is extremely stringent, assuring us that the null will be definitely rejected. Then, which of the following is/are true?

A. he probability of a Type I error is zero

B. I only

C. one of these answers

D. only

E. I & III

F. & III

View answer

Correct Answer: D

Question #128

Ten experts rated a newly developed chocolate chip cookie on a scale of 1 to 50. Their ratings were: 34, 35, 41, 28, 26, 29, 32, 36, 38 and 40. What is the mean deviation?

A. 2

B.

C.

D.

E. one of these answers

View answer

Correct Answer: B

Question #129

An entry made to recognize the cost of using an asset during the period is

A. closing entry

B. reversing entry

C. n opening entry

D. n adjusting entry

View answer

Correct Answer: D

Question #130

A financial analyst should conduct himself with ________, competence and dignity and act in an ethical manner in his dealings with the public, clients, customers, employers, employees and fellow analysts.

A. ntegrity

B. orality

C. one of these answers

D. onor

E. rincipal

View answer

Correct Answer: A

Question #131

What is the area under the normal curve for z > 1.79?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: E

Question #132

According to Standard IV (B.4), Priority of Transactions: "Transactions for clients and employers shall have priority over transactions in securities or other investments of which a member is the ________ so that such personal transactions do not operate adversely to their clients' or employer's interests."

A. aterial agent

B. rimary decision maker

C. one of these answers

D. roxy voter

E. eneficial owner

F. rincipal broker

View answer

Correct Answer: E

Question #133

Standard IV (B.8), Disclosure of Referral Fees, includes ________.

A. eferral fees paid in cash

B. eferral fees paid "in kind"

C. oft dollar referral fees

D. ll of these answers

View answer

Correct Answer: D

Question #134

What single deposit could you make today in order to have $1,000,000 in 30 years, assuming it earns interest at 11% per year, compounded monthly?

A. 403,512

B. 115,024

C. 9,523

D. 43,682

E. 37,441

View answer

Correct Answer: E

Question #135

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

A. IFO

B. one of these answers

C. verage cost method

D. ross profit method

E. IFO

View answer

Correct Answer: D

Question #136

All of the following are components of Shareholder's equity EXCEPT ________.

A. ar value

B. ividends paid

C. etained earnings

D. apital contributed in excess

View answer

Correct Answer: B

Question #137

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

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

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

C. isko is not applying the AIMR code correctly

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

View answer

Correct Answer: C

Question #138

Three banks have quoted interest rates as follows:Bank A: 10% per year, compounded quarterly.Bank B: 11% per year, compounded annually.Bank C: 10.5% per year, compounded semi-annually.Which bank should you choose to invest with for a period of one year and what's the effective annual rate?

A. ank B, 11%

B. ank A, 10

C. ank C, 12

D. ank A, 11

View answer

Correct Answer: A

Question #139

Three young children approach a gum ball machine, each with a nickel to spend. The machine has just been filled with 50 black, 150 white, 100 red and 100 yellow balls that have been thoroughly mixed. Sue and Jim approached the machine first. They both said they wanted red gum balls. What is the likelihood they both will get their wish?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: B

Question #140

Grey recommends the purchase of a mutual fund that invests solely in long-term U.S. Treasury bonds. Hemakes the following statements to his clients:

A. The payment of the bond is guaranteed by the U

B. either statement violated the Code and Standards

C. tatement I and II violated the code and Standards

D. nly statement I violated the Code and Standards

E. nly statement II violated the Code and Standards

View answer

Correct Answer: D

Question #141

Which accounting principle is consistent with reporting financial results that can be compared with previous periods?

A. atching

B. dequate disclosure

C. ateriality

D. onsistency

View answer

Correct Answer: D

Question #142

A systematic sampling method should not be used when:

A. he data are commingled

B. he data are systematically biased

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

D. he data are divided into open-ended classes

View answer

Correct Answer: C

Question #143

According to Say's law, there cannot be overproduction of goods and services because

A. verproduction will lead to higher unemployment, which will reduce production

B. emand creates its own supply

C. ess fortunate countries will always buy the excess output

D. roducing goods generates enough income to buy the total output

View answer

Correct Answer: D

Question #144

Firm A currently shows assets worth 2,000 and equity of 1,500. During the year, it capitalized interest expense worth 200, of which 50 was depreciated/amortized. The firm faces a tax rate of 50%. If the firm had expensed the interest paid, which of the following would be true?

A. ts assets would be stated at 1,750

B. ts assets would be stated at 1,850

C. ts assets would be stated at 2,000

D. ts assets would be stated at 1,800

View answer

Correct Answer: B

Question #145

Which of the following is not a characteristic of a binomial probability distribution?

A. robability of success remains constant from trial to trial

B. ach outcome results from two trials

C. ach trial is independent

D. ll of these answers are characteristics of the binomial distribution?

E. ach outcome is mutually exclusive

View answer

Correct Answer: B

Question #146

At the end of an accounting period, each expense that has been incurred but not yet paid should be recorded as ________.

A. closing entry

B. n opening entry

C. n adjusting entry

D. reversing entry

View answer

Correct Answer: C

Question #147

An analyst is interested in determining the value of a real estate investment and has estimated the following data for the property:---------------------------------------------------------------------------------- Net operating income $50,480 Cost of debt 8.2%Depreciation $3,550 Cost of equity 12.5%Interest expense $2,720 WACC 9.6%Tax rate 35% Cap rate 11.0%---------------------------------------------------------------------------------- Which of the following is closest to the value of the property using

A. 403,900

B. 458,900

C. 466,500

View answer

Correct Answer: B

Question #148

In order to inform your employer that as a member of AIMR, you must abide by the code of ethics, you must:

A. nform the legal department in writing

B. nform senior management in writing

C. nform your immediate supervisor in writing or by email

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

View answer

Correct Answer: C

Question #149

The retail industry has __________ asset turnover ratio compared to that of a capital intensive industry like the auto industry.

A. higher

B. bout the same

C. higher and lower are both possible

D. lower

View answer

Correct Answer: A

Question #150

If the null hypothesis that two means are equal is in fact true, where will 97% of the computed z-value lie between?

A. /- 2

B. /- 2

C. /- 2

D. one of these answers

E. /- 2

View answer

Correct Answer: C

Question #151

Which of the following statements about stock dividends is true?

A. tock dividends are dividends given in the form of stock from another company

B. tock dividends are more valuable than stock splits

C. tock dividends are recorded as a reduction in cash

D. tock dividends increase the number of shares outstanding

View answer

Correct Answer: D

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