Question #1 of 180 Question ID: 1614732

A market can be characterized as efficient if assets':

A) book values equal their market values.

B) intrinsic values equal their book values.
C) market values equal their intrinsic values.

Question #2 of 180 Question ID: 1614793

A direct investment in a cryptocurrency is said to occur when:

A) a transaction is recorded on the blockchain.

B) the purchase of a cryptocurrency stock is settled.
C) an investor takes a position in a cryptocurrency futures contract.

Question #3 of 180 Question ID: 1614675

Long-term shifts in population from one country to a neighboring country are best
described as which type of geopolitical risk?

A) Event risk.
B) Thematic risk.
C) Exogenous risk.

Question #4 of 180 Question ID: 1614699

A website produces content that it allows the public to view for free. Users may post
comments on the site's content if they register with the website and agree to permit it
to show them targeted advertisements. The website's business model is best
described as being based on:
A) hidden revenue.
B) crowdsourcing.
C) network effects.

Question #5 of 180 Question ID: 1614805

A professional organization most appropriately enforces upon its members:

A) legal standards only.

B) ethical standards only.
C) both legal and ethical standards.

Question #6 of 180 Question ID: 1614747

Assuming annual compounding, the price of a zero-coupon bond with a face value of
$1,000, maturing 10 years from today, with a yield to maturity of –1.5% is closest to:

A) $860.
B) $1,015.
C) $1,160.

Question #7 of 180 Question ID: 1614809

Thomas Baker recently passed the Level III CFA examination. Baker is reviewing a draft
of the firm's marketing material to be distributed after he receives his CFA charter.
One passage reads, "Baker passed all three Levels of the CFA exam on his first
attempts in three consecutive years." Is this statement in compliance with CFA
Institute Standards?

A) Yes, as long as it is a statement of fact.

B) No, because it implies that Baker has superior ability.
No, because Members or Candidates who passed the exams on their first attempts
C)
may not differentiate themselves from those who did not.
Question #8 of 180 Question ID: 1614661

If an investor uses a threshold return of 0% in calculating the safety-first ratio, which

combination of expected returns and standard deviations is most desirable?

A) Expected return of 7% and standard deviation of 9%.

B) Expected return of 6% and standard deviation of 8%.
C) Expected return of 4% and standard deviation of 6%.

Question #9 of 180 Question ID: 1614687

An owner of a business is most likely to have limited liability if he is a:

A) shareholder.
B) sole proprietor.
C) general partner.

Question #10 of 180 Question ID: 1614660

An analyst determines that there is a 60% probability that a stock price will end the
year at $12 per share. If there is an equivalent probability that the stock will end the
year at either $10 or $16, the expected value of the stock price is:

A) $11.20.
B) $12.40.
C) $13.60.

Question #11 of 180 Question ID: 1614810

Telling potential investors that a short-term U.S. Treasury fund contains "guaranteed"
securities:

A) does not violate any Standard.

B) violates the Standards by misrepresenting the securities in the fund.
violates the Standards by failing to consider the suitability of the fund for potential
C)
investors.

Question #12 of 180 Question ID: 1614710

When a company grants stock options to employees, the company is required to:

A) value the options using the Black-Scholes-Merton model.

B) disclose how the options affect the income statement and balance sheet.
C) recognize the fair value of the options as an expense in the period of the grant date.

Question #13 of 180 Question ID: 1614811

Riley and Smith, a broker-dealer, is bringing to market a secondary offering for All Pro
Company. One of the reasons All Pro selected the firm to lead the offering is because
Riley and Smith has been a market maker for All Pro's stock for the past five years. The
firm is in possession of material nonpublic information relevant to All Pro's offering.
To be in compliance with the Code and Standards, Riley and Smith:

A) may not serve as underwriter for the same stock in which it acts as a market maker.
should continue to serve as market maker but take only the contra side of
B)
unsolicited customer trades.
should abstain from making a market in All Pro stock during the offering period but
C)
may resume market making activities after the offering.

Question #14 of 180 Question ID: 1614672

Tax policy that is designed to minimize its interference with market forces is said to
exhibit:

A) fairness.
B) efficiency.
C) sufficiency.
Question #15 of 180 Question ID: 1614715

An analyst who believes a company's financial reporting is aggressive would most

likely point out:

A) low salvage value estimates for fixed assets.

B) large valuation allowances for deferred tax assets.
C) longer useful lives of equipment than those of peer companies.

Question #16 of 180 Question ID: 1614806

Which of the following statements is most accurate regarding the GIPS requirement
for definition of the firm?

A) The firm must be the distinct business entity held out to clients.
If a firm has offices in different geographical locations, the firm definition may
B)
include just the primary location where all the investment decisions are made.
The firm definition may include the corporation or a subsidiary of the corporation,
C)
but the firm cannot be defined as simply a “division” of the corporation.

Question #17 of 180 Question ID: 1614689

Which of the following is most accurate regarding information asymmetry in

corporations?

A) Management has more information than shareholders.

B) Shareholders have more information than debtholders.
C) The board of directors has more information than management.

Question #18 of 180 Question ID: 1614663

Which of the following statements is most accurate regarding parametric and
nonparametric tests?

A) A z-test is an example of a parametric test, while a t-test is nonparametric.

B) Both kinds of tests assume that the underlying data are normally distributed.
Data that are ranks rather than values are best evaluated using a nonparametric
C)
test.

Question #19 of 180 Question ID: 1614673

A central bank's long-term policy goal for the exchange rate of its domestic currency is
most likely to be to pursue:

A) stability.
B) appreciation.
C) depreciation.

Question #20 of 180 Question ID: 1614812

Ray Brown, CFA, gives prospects his firm's marketing materials, not prepared by him,
that indicate he has a graduate degree from State University, when in fact he did
graduate work there but did not receive a degree. Brown informed the marketing
department of this error when he first saw it. Brown has:

A) violated the Standards by misrepresenting his qualifications.

B) not violated the Standards because he has informed his firm of the mistake.
not violated the Standards because he did not prepare the marketing materials or
C)
misrepresent his credentials to his firm.

Question #21 of 180 Question ID: 1614719

An analyst asks a number of her colleagues, who she believes have no emotional
investment in the matter, for their views on a particular company. Which bias is the
analyst most likely trying to mitigate by seeking these opinions?
A) Confirmation bias.
B) Conservatism bias.
C) Illusion of control bias.

Question #22 of 180 Question ID: 1614813

Which of the following statements is most accurate about the Standard concerning
knowledge of the law? Members and candidates are responsible for violations:

A) that are proven by a regulatory authority.

B) of which they are aware or should be aware.
C) in which they knowingly participate or assist.

Question #23 of 180 Question ID: 1614814

Andrew Pollard, CFA, overhears two executives from a multinational oil company
discussing an unexpectedly large earnings increase the company is preparing to
announce the following morning. When Pollard gets home that evening, he places an
order to buy shares in this oil company. Which of the following best describes this
situation?

A) Pollard violated the Standards by acting on material nonpublic information.

There is no violation of CFA Institute Standards since this was simply an overheard
B)
conversation.
Pollard violated CFA Institute Standards by not contacting counsel for advice before
C)
placing the trade.

Question #24 of 180 Question ID: 1614688

Bill Jones holds ten $1,000 par, 6% bonds maturing in 3 years. Kathy Reed holds 200
shares of common stock from the same company. Which of the following statements
is most accurate about their respective investments?

A) Both investors have unlimited upside and limited downside exposure.

B) Jones’s investment has a lower priority of claims than Reed’s investment.
C) Reed’s investment may return more cash overall than Jones’s investment.

Question #25 of 180 Question ID: 1614703

A firm has recently incurred the following costs in relation to two projects.

Project 1: Purchase of a copyright for $1,000 6 months ago, although there is now an
active market valuing this asset at $1,700.

Project 2: Research costs of $4,000 and development costs of $7,000. In addition to

these costs, advertising costs associated with the project were $2,000.

Under U.S. GAAP, these projects will increase intangible assets on the balance sheet
by:

A) $1,000.
B) $8,000.
C) $12,700.

Question #26 of 180 Question ID: 1614690

Which of the following is most likely to improve a company's cash position, other
things equal?

A) Decreasing days’ payables.

B) Decreasing inventory turnover.
C) Decreasing credit terms from 2/60 to 2/45.

Question #27 of 180 Question ID: 1614815

A member provides a client with an investment performance presentation that does

not include detailed information, but reflects the member's reasonable efforts to
present results that are fair, accurate, and complete. Has the member complied with
the Standard related to performance presentation?
A) Yes, the member has met the requirements of the Standard.
No, because the performance presentation must comply with Global Investment
B)
Performance Standards.
No, because “reasonable efforts” do not ensure that the presentation is fair,
C)
accurate, and complete.

Question #28 of 180 Question ID: 1614669

Peaks and troughs in the business cycle are most likely to appear earliest as measured
by the:

A) growth cycle.
B) classical cycle.
C) growth rate cycle.

Question #29 of 180 Question ID: 1614816

Gary Hoskins, CFA, runs a macro strategy hedge fund. The hedge fund has a short
position in July osmium futures. Hoskins attempts to gain control of the available
supply of osmium that can be delivered in July, which will cause holders of long July
futures to make offsetting trades instead of settling by delivery. Has Hoskins violated
the Standard concerning market manipulation?

A) Yes.
B) No, because Hoskins is executing an arbitrage trade.
C) No, because Hoskins is not manipulating the price of osmium.

Question #30 of 180 Question ID: 1614693

A project with a conventional cash flow pattern has a net present value of $15,000. If
the discount rate used was 6%, the project's internal rate of return is:

A) equal to 6%.
B) less than 6%.
C) greater than 6%.

Question #31 of 180 Question ID: 1614807

Which of the following statements best describes how GIPS requires portfolios to be
grouped into composites?

A discretionary portfolio should be included in all composites that are consistent

A)
with the assets held.
All discretionary portfolios must be included in a composite, but only if they are still
B)
managed by the firm.
Each composite must include all discretionary portfolios that the firm has managed
C)
according to a particular strategy or style.

Question #32 of 180 Question ID: 1614700

Which of the following is the most likely reason why an analyst needs to monitor
developments in financial reporting standards?

A) Company managements may choose aggressive or conservative accounting policies.

Financial statements might not always present a company’s economic reality
B)
accurately.
Changes in accounting standards may require a company to restate its financial
C)
statements.

Question #33 of 180 Question ID: 1614671

A national government that wants to increase economic growth through fiscal policy is
most likely to:

A) decrease the discount rate.

B) purchase government securities.
C) increase spending on infrastructure.
Question #34 of 180 Question ID: 1614712

The following data appear on the balance sheet of a U.S. GAAP reporting company:

Gross deferred tax asset at the beginning of the year = $10,500

Gross deferred tax asset at the end of the year = $11,250

Valuation allowance at the beginning of the year = $2,700

Valuation allowance at the end of the year = $3,900

Based only on this information, the company's earnings in future periods are
expected to:

A) increase.
B) decrease.
C) remain relatively stable.

Question #35 of 180 Question ID: 1614691

Drags on liquidity are most likely to include:

A) inventory obsolescence.
B) paying vendors too soon.
C) suppliers requiring payment sooner.

Question #36 of 180 Question ID: 1614713

Other things equal, which of the following conditions would place a company highest
on a spectrum of financial reporting quality?

A) Reported earnings that are not sustainable.

B) Efforts by management to keep net income steady over time.
Financial statements that reflect the company’s economic activities accurately but
C)
are not in compliance with accounting principles.
Question #37 of 180 Question ID: 1614705

A company purchases an asset in the first quarter and decides to capitalize the asset.
Compared to expensing the asset cost, capitalizing the asset cost will result in higher
cash flows in the first quarter from:

A) investing.
B) financing.
C) operations.

Question #38 of 180 Question ID: 1614817

Moe Girard, CFA, works in a large group that decides on recommendations by

consensus. Girard does not always agree with the group consensus, but he is
confident in the group's analytical ability. To comply with the Code and Standards
when the group issues a recommendation with which he disagrees, Girard:

A) does not need to take any action.

B) must request that his name be removed from the group’s report.
C) should include his independent opinion as an appendix to the group’s report.

Question #39 of 180 Question ID: 1614818

Jimmy Deininger, CFA, manages several client portfolios. One of his clients offers him
use of a cabin in a vacation spot because the client's investment results under
Deininger's management have exceeded the client's goals. Deininger discloses the gift
to his employer. With reference to the Standards of Practice, Deininger:

A) has complied with the Standards and may accept the gift.
is not permitted to accept the gift because he does not have permission from his
B)
employer.
has appropriately disclosed the gift to his supervisor, but must also disclose it to his
C)
other clients.
Question #40 of 180 Question ID: 1614707

In periods of rising prices and stable or increasing inventory quantities, compared

with companies that use LIFO inventory accounting, companies that use the FIFO
method will have:

A) higher COGS and lower taxes.

B) higher net income and higher taxes.
C) lower inventory balances and lower working capital.

Question #41 of 180 Question ID: 1614695

Martin Zwingle is making a capital allocation decision with regard to a new project.
The initial expense of the project would cause the company's earnings per share for
the current year to come in below analysts' expectations. If Zwingle decides against
the project, his firm will allocate his division a smaller capital budget next year. Which
of these factors are appropriate for Zwingle to include in the capital allocation
decision?

A) Both of these factors are appropriate.

B) Neither of these factors is appropriate.
C) Only one of these factors is appropriate.

Question #42 of 180 Question ID: 1614667

A manufacturing plant exhibits diseconomies of scale if long-run average cost (LRAC)

is:

decreasing as output increases, and the plant is at its minimum efficient scale if
A)
LRAC is at its lowest level.
decreasing as output increases, and the plant is at its minimum efficient scale if
B)
LRAC is decreasing over the entire range of output.
increasing as output increases, and the plant is at its minimum efficient scale if LRAC
C)
is at its lowest level.
Question #43 of 180 Question ID: 1614676

Placing a tariff on imports of a good is most likely to decrease:

A) producer surplus for domestic producers of the good.

B) quantity of the good supplied by domestic producers.
C) quantity of the good demanded in the domestic market.

Question #44 of 180 Question ID: 1614666

The standard error of estimate in a simple linear regression is equal to:

A) the square root of the mean squared error.

B) the sum of squares regression divided by the sum of squares total.
C) the sum of squared errors divided by the degrees of freedom for the error term.

Question #45 of 180 Question ID: 1614670

Data for a manufacturing industry indicate that inventories of work in progress are
increasing faster than sales. This is most likely to indicate that:

A) the business cycle is at a peak.

B) inventory is becoming obsolete.
C) firms expect demand to increase.

Question #46 of 180 Question ID: 1614678

Consider two currencies, the VKN and the PKR. The PKR is trading at an annual
premium of 2.3% relative to the VKN in the forward market. The 1-year risk-free PKR
rate is 3.0%. If no arbitrage opportunities are available, the current 1-year risk-free
VKN interest rate is closest to:

A) 0.7%.
B) 2.3%.
C) 5.3%.

Question #47 of 180 Question ID: 1614656

Frank Jones is considering three separate investments. Investment 1 pays a stated

annual interest rate of 6.1%, compounded annually. Investment 2 pays a stated
annual interest rate of 6.0%, compounded monthly. Investment 3 pays a stated annual
interest rate of 5.9%, compounded quarterly. Which investment should Smith choose?

A) Investment 1.
B) Investment 2.
C) Investment 3.

Question #48 of 180 Question ID: 1614819

Carlos Mendez, CFA, is beginning an investment advisory relationship with a new

client and plans to formulate an investment policy statement (IPS) for the client.
According to the Standard concerning suitability, Mendez is least likely to consider the
client's:

A) regulatory and legal circumstances.

B) conflicts of interest.
C) performance measurement benchmarks.

Question #49 of 180 Question ID: 1614668

Wilmer Jones owns several restaurants in different cities. His restaurants compete on
quality of food and service, price, and marketing. Competitors can enter and exit his
markets, and there are usually several competitors in each market. His market
structure can best be characterized as:

A) perfect competition.
B) monopolistic competition.
C) oligopoly.
Question #50 of 180 Question ID: 1614808

With regard to performance measurement, the Global Investment Performance

Standards for firms:

A) require time-weighted rates of return.

B) require money-weighted rates of return.
C) permit both time-weighted and money-weighted rates of return.

Question #51 of 180 Question ID: 1614820

A portfolio manager of a city's police pension fund owes his duty of loyalty to the:

A) city’s taxpayers.
B) pension trustees.
C) plan beneficiaries.

Question #52 of 180 Question ID: 1614821

Matt O'Neill, CFA, is an advisor for Century Investments, a retail financial services firm.
Century has a firmwide policy that its advisors recommend the firm's own investment
products to clients unless Century does not offer a product suitable for the client's
needs. Can O'Neill follow his firm's policy without violating the Code and Standards?

A) Yes, if O’Neill discloses this policy to his clients.

B) Yes, if his firm’s offerings are competitive with other available products.
C) No, because the policy conflicts with the Standard on loyalty, prudence, and care.

Question #53 of 180 Question ID: 1614694

An appropriate way to address the effectiveness of a company's management in

creating value for shareholders is to compare the company's:
A) net profit margin to its cost of equity.
B) weighted average cost of capital to its return on invested capital.
C) total cost of debt and equity financing to its earnings before interest and taxes.

Question #54 of 180 Question ID: 1614704

An IFRS reporting firm holds equity securities as investments and classifies them for
financial reporting as measured at fair value through profit and loss. Can the firm
reclassify these securities as measured at fair value through other comprehensive
income?

A) Yes.
B) No, because IFRS does not permit this classification for equity securities.
C) No, because the firm did not choose this treatment at the time of purchase.

Question #55 of 180 Question ID: 1614822

Wayne Sergeant, CFA, is an independent investment advisor who works with

individuals. A longtime client asks Sergeant if he can recommend an attorney.
Sergeant refers his client to Jim Chapman, a local attorney who is also a friend of
Sergeant's. Previously, Chapman had agreed to perform some legal work for Sergeant
in exchange for the referral of new clients. Do Sergeant's actions violate CFA Institute
Standards of Professional Conduct?

No, because the client is under no obligation and is still free to select another
A)
attorney.
Yes, because Sergeant is making a recommendation that is not independent and
B)
objective.
Yes, because Sergeant did not disclose the nature of his arrangement with Chapman
C)
to his client.

Question #56 of 180 Question ID: 1614823

Ron Brenner, CFA, manages portfolios for individuals. One of his clients, John Perlman,
offers Brenner several inducements above those provided by his employer to
motivate superior future performance in managing his portfolio. Brenner notifies his
manager via e-mail about the terms of this offer, and his employer grants permission.
According to the Standard on additional compensation arrangements, Brenner:

A) must notify “all parties involved,” which includes his other clients.
B) has taken all the actions required to accept the arrangement.
should decline this arrangement because it could cause partiality in the handling of
C)
other client accounts.

Question #57 of 180 Question ID: 1614674

A central bank's policy rate is considered expansionary if it is less than:

A) the central bank’s target inflation rate.

B) the long-term growth rate of real economic output.
the sum of the long-term growth rate of real economic output and the target
C)
inflation rate.

Question #58 of 180 Question ID: 1614711

Dot Corporation uses accelerated depreciation for tax purposes and straight-line
depreciation for financial reporting. The company has a large cash position which is
invested in tax-free municipal bonds. With regard to Dot's financial statements and tax
reporting:

both the interest income and the depreciation method will necessitate the use of a
A)
valuation allowance account.
the interest income will result in a deferred tax asset and the depreciation method
B)
will result in a deferred tax liability.
the depreciation expense causes a temporary difference between income tax
C)
expense and taxes payable, and the interest income creates a permanent difference.
Question #59 of 180 Question ID: 1614824

Denise Chavez, CFA, is the senior energy analyst for a major brokerage firm. Chavez is
also a social and environmental activist, and is opposed to coal-fired power plants.
She has been arrested twice for trespassing during organized pickets at some of these
power plants. Chavez has recently accepted a volunteer position as Board member of
Greensleeves, a foundation that lobbies governments on environmental issues. The
position will involve significant volunteer hours, including some travel. Are Chavez's
activities consistent with CFA Institute Standards?

Chavez violated the Standards by being arrested, but the volunteer Board position is
A)
not a violation.
The environmental activism is not a violation, but the Standards prohibit Chavez
B)
from accepting the Board position.
The activism and subsequent arrests are not a violation, but Chavez must disclose
C)
the Board position to her employer.

Question #60 of 180 Question ID: 1614825

With respect to a client's confidential information, if a member or candidate believes a

client is engaging in illegal activity, the member should most appropriately:

A) preserve the client’s confidentiality.

B) report the client to the appropriate governmental authorities.
C) seek advice from his firm’s legal counsel or compliance department.

Question #61 of 180 Question ID: 1614718

Bivac Corp. has been experiencing a declining return on equity over the past few
years. Selected financial statement ratios for Bivac appear below:

Prior Year Current Year

Tax Burden 0.60 0.62

Interest Burden 0.80 0.81

EBIT Margin 0.26 0.26

Asset Turnover 1.06 1.06

ROE 0.15 0.14

What is the most likely reason for the decline in Bivac's ROE?

A) Leverage has declined.

B) The tax rate has increased.
C) Net profit margin has declined.

Question #62 of 180 Question ID: 1614697

The capital structure theory that implies an optimal capital structure employing both
debt and equity is:

A) pecking order theory.

B) static trade-off theory.
C) Modigliani and Miller with taxes.

Question #63 of 180 Question ID: 1614826

Jenny Pickler, a Level II CFA Candidate, writes an economic forecast containing several
interest rate projections. Her firm's investment committee reviews Pickler's report and
changes several of the interest rates Pickler had forecast. To comply with CFA Institute
Standards, Pickler:

A) does not need to take any further action.

B) should ask that her name be removed from the report.
 is required to independently review the data supporting the investment committee’s
C)
changes.

Question #64 of 180 Question ID: 1614720

An analyst is forecasting a company's sales and costs. He notes that the company's
product demand is elastic, and that the unit price of its product is expected to
increase by 4% over the forecast period. The analyst should forecast the company's
revenue to:

A) increase.
B) decrease.
C) remain constant.

Question #65 of 180 Question ID: 1614658

An analyst has calculated the arithmetic, harmonic, and geometric mean using the last
10 years of returns on a stock. Which of these means should the analyst most
appropriately use to forecast next year's return on the stock?

A) Harmonic mean.
B) Geometric mean.
C) Arithmetic mean.

Question #66 of 180 Question ID: 1614659

The histogram of returns data for the Accel Equity Fund has a long left tail and is more
peaked than a normal distribution. Based on the histogram, the distribution of returns
for Accel has:

A) positive skewness.
B) negative skewness.
C) negative excess kurtosis.
Question #67 of 180 Question ID: 1614827

Recommended procedures for compliance with the Standard concerning misconduct

suggest that firms in the investment industry should:

periodically test their employees’ knowledge of applicable laws, regulations, and the
A)
firm’s code of ethics.
periodically inform employees of violations that have occurred and the disciplinary
B)
actions that the firm took against the employees involved.
check references of potential employees to verify that they are of good character
C)
and eligible for employment in the investment industry.

Question #68 of 180 Question ID: 1614716

A company understates year-end depreciation. As compared to the properly stated

year-end results, what effect will this understatement have on the company's asset
turnover ratio?

A) No impact.
B) Decrease.
C) Increase.

Question #69 of 180 Question ID: 1614679

A spot exchange rate is 8.6145 and the 1-year forward quotation is +0.25%. The 1-year
forward quotation on a points basis is closest to:

A) 2.
B) 25.
C) 215.

Question #70 of 180 Question ID: 1614702

Thunderbird Company reported net income of $500 million and the company had 100
million common shares outstanding. In addition, Thunderbird had 5 million shares of
convertible preferred and 10 million outstanding warrants during the year. Each
preferred share pays a dividend of $4 per share and is convertible into three common
shares. Each warrant is convertible into one common share at $25 per share. The
company's stock traded at an average $50 per share. Thunderbird's diluted earnings
per share for the year is closest to:

A) $4.00 per share.

B) $4.20 per share.
C) $4.80 per share.

Question #71 of 180 Question ID: 1614665

The regression line in a simple linear regression model minimizes the sum of the
squared differences between:

A) the values of the dependent variable and its mean.

B) the predicted and actual values of the dependent variable.
C) the model’s errors and the standard error of the dependent variable.

Question #72 of 180 Question ID: 1614701

Mullins Company's financial statements include an auditor's report with a qualified

opinion. This most likely implies that the:

auditor is reasonably assured that the financial statements are free of material
A)
errors.
financial statements include exceptions to the applicable accounting standards but
B)
are presented fairly.
financial statements are materially out of compliance with the applicable accounting
C)
standards and are not presented fairly.

Question #73 of 180 Question ID: 1614828

Which of the following statements is most accurate? An analyst who changes
employers and wants to maintain coverage of a stock:

A) may copy supporting records from the prior firm and use them at the new firm.
must re-create the supporting records at the new firm with information from public
B)
sources or from the covered firm.
may maintain his recommendations at the new firm without re-creating the
C)
supporting documentation if those recommendations had a reasonable basis.

Question #74 of 180 Question ID: 1614829

After taking the Level I exam, Willie Winchester posts a comment on a social media
website wondering why the exam had no questions about interest rate risk and
currency risk. Winchester has:

A) violated the Code and Standards by discussing the CFA Program on social media.
violated the Code and Standards by disclosing confidential information about the
B)
exam.
not violated the Code and Standards because he did not disclose specific exam
C)
questions.

Question #75 of 180 Question ID: 1614706

During 20X1, Tusa Company sold machinery with an original cost of $100,000, and
recognized a $15,000 gain from the sale. At the time of the sale, the accumulated
depreciation of the machinery was $80,000. Ignoring taxes, the machinery sale will
produce a:

A) $15,000 inflow from investing activities.

B) $20,000 inflow from operating activities.
C) $35,000 inflow from investing activities.

Question #76 of 180 Question ID: 1614830

With regard to independent practice by Members and Candidates who are employed,
the Code and Standards specify that:

A) undertaking independent practice includes preparations to begin such practice.

written consent must be obtained from both the employer and clients who may be
B)
affected.
members and candidates contemplating independent competitive business must
C) notify their current employer of the types of services to be rendered, duration, and
compensation.

Question #77 of 180 Question ID: 1614708

For the last few years, firms in an expanding industry have found it more difficult to
keep up with consumer demand despite steadily increasing inventory levels. The
Consumer Price Index (CPI) has been at a level of 1050, 1060, and 1087 in the last
three years. Given this situation, a firm in this industry that seeks to report higher net
income would most likely prefer which inventory accounting method?

A) LIFO.
B) FIFO.
C) Average cost.

Question #78 of 180 Question ID: 1614714

Jo Evans analyzes the financial statements of Shubert Company and writes, "Shubert's
earnings, while sustainable, provide an inadequate return to shareholders." Evans has
expressed a concern with Shubert's:

A) quality of reported results only.

B) financial reporting quality only.
C) quality of reported results and financial reporting quality.

Question #79 of 180 Question ID: 1614831

Isaac Jones, CFA, is a portfolio manager for a major brokerage firm. Jones wishes to
buy Maxima common stock for some of his clients' accounts. Jones also wishes to
purchase Maxima for his personal account. In accordance with CFA Institute
Standards, Jones may purchase Maxima for his personal account:

A) only after completing the transactions for his clients.

along with the purchases for his clients, as long as this is disclosed in advance to his
B)
clients and employer.
at any time, as long as the execution price is not more favorable than the execution
C)
price received by the clients.

Question #80 of 180 Question ID: 1614662

A method of estimating the standard error of the sample mean that involves
calculating the means of repeated samples, each with one observation omitted from
the initial samples, is most appropriately termed the:

A) jackknife method.
B) bootstrap method.
C) sample reduction method.

Question #81 of 180 Question ID: 1614832

With respect to the responsibilities of supervisors, the Code and Standards state that
those with supervisory responsibility:

A) may not delegate supervisory responsibility.

B) are in violation if an employee under their supervision commits securities fraud.
must institute procedures to prevent and detect violations of rules and regulations
C)
by those subject to their supervision.

Question #82 of 180 Question ID: 1614696

A firm has one actively traded bond issue outstanding, with a 6% coupon and a yield
to maturity of 5%. When estimating the firm's weighted average cost of capital (WACC),
the appropriate after-tax cost of debt capital is:

A) between 5% and 6%.

B) less than 5%.
C) equal to 6%.

Question #83 of 180 Question ID: 1614709

A decrease in accumulated depreciation is most likely to result from:

A) selling or disposing of a long-lived asset.

B) increasing the salvage value of a long-lived asset.
C) decreasing the estimated useful life of a long-lived asset.

Question #84 of 180 Question ID: 1614833

The Standard concerning suitability recommends that the objectives and constraints
of an investment policy statement should be reviewed at least:

A) annually.
B) twice each year.
C) every two years.

Question #85 of 180 Question ID: 1614657

The continuously compounded annual rate of return that would increase the value of
an investment by 20% in three years is closest to:

A) 5.7%.
B) 6.1%.
C) 6.7%.
Question #86 of 180 Question ID: 1614664

For a test with sample size n of whether two variables are correlated, the critical
values are based on:

A) n degrees of freedom.
B) n – 1 degrees of freedom.
C) n – 2 degrees of freedom.

Question #87 of 180 Question ID: 1614834

A member or candidate who changes his recommendation on a stock can comply with
the Standards by communicating this change to clients according to:

A) size of the client.

B) known interest of the client in the stock.
C) number of shares of the stock owned by the client.

Question #88 of 180 Question ID: 1614698

Under Modigliani and Miller's assumptions, if taxes exist and interest costs are tax-
deductible, the optimal proportion of debt in a firm's capital structure:

A) is 100%.
B) increases linearly with the tax rate.
C) depends on the costs of financial distress.

Question #89 of 180 Question ID: 1614677

An advantage of a common market, relative to a customs union or a free trade area, is

that a common market:

A) adopts a single currency.

B) removes barriers to movement of labor and capital.
C) establishes common institutions and economic policy.

Question #90 of 180 Question ID: 1614717

Hazel Edwards, CFA, is analyzing Collins Footwear, Inc. and obtains the following data
for the company's major geographic segments:

Asia Europe North America

Sales (U.S. dollars) $200 million $300 million $500 million

Net profit margin 4.5% 3.0% 1.5%

Asset turnover 1.5× 2.5× 4.0×

Based on these data, Edwards should conclude that Collins's:

A) smallest segment by assets is Asia.

B) most profitable segment by return on assets is Europe.
C) most profitable segment by net income is North America.

Question #91 of 180 Question ID: 1572673

An investor buys a non-dividend paying stock for $100 at the beginning of the year
with 50% initial margin. At the end of the year, the stock price is $95. Deflation of 2%
occurred during the year. Which of the following return measures for this investment
will be greatest?

A) Real return.
B) Nominal return.
C) Leveraged return.

Question #92 of 180 Question ID: 1614692

While analyzing HMS Inc., Fred Browne notes that the company's liquidity as
measured by its quick ratio has decreased over time while its current liabilities have
remained constant. This could be explained by:

A) a decrease in inventory.
B) an increase in marketable securities.
C) a decrease in accounts receivable.

Question #93 of 180 Question ID: 1614685

Stephanie Dell is evaluating two stocks (X and Y) using the capital asset pricing model.
Dell predicts that the betas for the two stocks will be identical but that the
unsystematic risk for Stock X will be much higher than for Stock Y. According to the
capital asset pricing model, in equilibrium:

Stock X will have a higher expected return than Stock Y but a standard deviation
A)
equal to Stock Y.
Stock X will have a higher standard deviation than Stock Y but an expected return
B)
equal to Stock Y.
both the expected return and standard deviation for Stock X will be higher than
C)
Stock Y.

Question #94 of 180 Question ID: 1614790

A hedge fund's lockup period is the time during which:

A) the fund is closed to new investors.

B) an investor may not redeem shares in the fund.
C) the fund must return cash to an investor who has requested a redemption.

Question #95 of 180 Question ID: 1614728

Joe Leoni is an institutional equity trader. He believes that stock price and volume
information can help him consistently generate excess returns on his stock picks.
Based on this information, Leoni most likely believes that the market:

A) is not strong-form efficient.

B) may be semi-strong or strong-form efficient.
C) is not weak-form efficient, but may be semi-strong efficient.

Question #96 of 180 Question ID: 1614792

Which of the following fintech applications is most likely to use distributed ledger
technology?

A) Real-time clearing and settlement of securities trades.

B) High-frequency trading to take advantage of intraday price discrepancies.
C) Automated review of employees’ voice communications to detect misconduct.

Question #97 of 180 Question ID: 1614767

A central clearing mandate for derivatives is most likely to result in:

A) increased disclosure of trades.

B) dispersion of counterparty risk.
C) standardization of derivatives contracts.

Question #98 of 180 Question ID: 1614680

Compared to a normal distribution, historical returns on major asset classes in

developed markets have exhibited:

A) less frequent large positive deviations.

B) more frequent large negative deviations.
C) the expected frequency of large deviations.
Question #99 of 180 Question ID: 1614745

A fixed-income investor who is most concerned about high rebalancing fees would
prefer to track an index that includes bonds characterized by:

A) shorter maturities and frequent new issuances.

B) longer maturities and frequent new issuances.
C) longer maturities and infrequent new issuances.

Question #100 of 180 Question ID: 1614737

If a company's revenues and cost of goods sold both increase by the same money
amount, the company's gross margin will most likely:

A) increase.
B) decrease.
C) remain the same.

Question #101 of 180 Question ID: 1614753

An investor buys a five-year bond with a coupon of 2% and expects to sell it in four
years. The investor will be most concerned with decreasing interest rates if the bond's
Macaulay duration is:

A) equal to 4.
B) less than 4.
C) greater than 4.

Question #102 of 180 Question ID: 1614784

In the context of private debt, a single loan that combines secured and unsecured
classes of debt is best described as:

A) mezzanine debt.
B) unitranche debt.
C) a leveraged loan.

Question #103 of 180 Question ID: 1614796

Which of the following statements about the asset management industry is most
accurate?

A) Smart beta is a blend of active and passive management.

B) The market share for active management has been growing over time.
C) Passive management represents about half of assets under management.

Question #104 of 180 Question ID: 1614681

Boswell is less risk-averse than Johnson. Using the same capital allocation line for
Boswell and Johnson, Boswell will have:

A) a higher risk aversion coefficient than Johnson.

B) steeper risk-return indifference curves than Johnson.
C) an optimal portfolio with a higher expected return than Johnson.

Question #105 of 180 Question ID: 1614777

In a one-period binomial model for option pricing based on risk neutrality, the
probabilities of an up-move or a down-move are:

A) equal.
B) assumed by the modeler.
C) calculated from the model inputs.

Question #106 of 180 Question ID: 1614785

A leveraged buyout fund is best described as a private equity fund that acquires:

A) public companies, with the purchase price is largely funded by debt.

B) public companies, with the purchase price is largely funded by equity.
C) private companies, with the purchase price is largely funded by equity.

Question #107 of 180 Question ID: 1614748

The following data refer to a corporate bond:

Par value: $1,000

Maturity: 10 years

Coupon rate: 5%

Coupon frequency: Semiannual

Yield-to-maturity: 6.25%

The market value of this bond is closest to:

A) $908.
B) $988.
C) $1,098.

Question #108 of 180 Question ID: 1614802

An organization is concerned it will be unable to continue to operate because it has

run out of cash. This is an example of:

A) credit risk.
B) liquidity risk.
C) solvency risk.

Question #109 of 180 Question ID: 1614735

In assessing the pricing power of companies in an industry using Porter's five forces,
an analyst will most likely determine that companies have less pricing power when:

A) barriers to entry are low.

B) the threat of substitute products is low.
C) switching costs for consumers are high.

Question #110 of 180 Question ID: 1614791

The portion of a hedge fund's return that is attributable to its exposure to specific
sectors is its:

A) alpha.
B) market beta.
C) strategy beta.

Question #111 of 180 Question ID: 1614682

The standard deviation of returns for a portfolio of risky assets is:

A) less than the standard deviation of the least risky asset.

B) greater than the standard deviation of the least risky asset.
C) less than or equal to the standard deviation of the most risky asset.

Question #112 of 180 Question ID: 1614787

A real estate fund manager that specializes in property development is most likely to
structure itself as a(n):

A) finite-life, closed-end fund.

B) indefinite-life, open-end fund.
C) indefinite-life, closed-end fund.
Question #113 of 180 Question ID: 1614725

An equal-weighted index has a value of 100 at the beginning of a period. The five
securities that make up the index have the following prices for the period:

Security Beginning price Ending price

1 20 22

2 80 72

3 130 143

4 250 225

5 320 352

The index value at the end of the period is:

A) 101.40.
B) 101.75.
C) 102.00.

Question #114 of 180 Question ID: 1614778

Institutional investors in alternative assets are most likely to progress from:

A) direct investing to co-investing to fund investing.

B) direct investing to fund investing to co-investing.
C) fund investing to co-investing to direct investing.

Question #115 of 180 Question ID: 1614794

Which of the following investors typically have the lowest need for liquidity?

A) Banks.
B) Mutual funds.
C) Defined benefit pension plans.

Question #116 of 180 Question ID: 1614721

Multilateral trading facilities (MTFs) are most accurately described as:

A) exchanges.
B) block brokers.
C) alternative trading systems.

Question #117 of 180 Question ID: 1614754

An investor holds a bond with a duration gap of +1. If the investor expects interest
rates to immediately rise, selling the bond at the end of the investor's investment
horizon would result in a:

A) loss, because price risk dominates.

B) loss, because reinvestment risk dominates.
C) gain, because reinvestment risk dominates.

Question #118 of 180 Question ID: 1614788

Infrastructure projects are most likely characterized by high:

A) barriers to entry.
B) business cycle sensitivity.
C) correlations of returns with public equities.
Question #119 of 180 Question ID: 1614683

Bearing unsystematic risk should provide no additional expected return:

A) under any circumstances.

B) if diversification is cost-free.
C) in a strong-form efficient market.

Question #120 of 180 Question ID: 1614734

An economist determines that Argove Industries is a low-cost producer in its industry.

As a result, the economist should expect that Argove can earn returns:

A) only at its cost of capital.

B) above its cost of capital both in the short run and long run.
C) above its cost of capital in the short run, but not in the long run.

Question #121 of 180 Question ID: 1614786

During which stage of a portfolio company's development does a venture capital fund
provide it with capital to prepare it for an initial public offering?

A) Later stage.
B) Formative stage.
C) Mezzanine stage.

Question #122 of 180 Question ID: 1614803

An organization's risk management process is least likely to:

A) measure its risks.

B) minimize all its risks.
C) identify its risk tolerance.
Question #123 of 180 Question ID: 1614686

A portfolio manager is reviewing the performance of a portfolio and calculates the

Treynor measure to be 4.29. The analyst should interpret this measure to mean that
the portfolio:

A) has more risk than the market.

B) outperformed the market based on systematic risk.
achieved 4.29% higher returns than a portfolio on the Security Market Line with the
C)
same level of systematic risk.

Question #124 of 180 Question ID: 1614729

Aros Funds manages a family of mutual funds and employs a team of fundamental
analysts, who research firms by analyzing financial statements and SEC filings. Under
which form(s) of the efficient market hypothesis (EMH) would Aros Funds have the
potential to achieve positive risk-adjusted returns consistently using fundamental
analysis?

A) Weak form only.

B) Semistrong form and weak form.
No form of the EMH is consistent with earning positive risk-adjusted returns using
C)
fundamental analysis.

Question #125 of 180 Question ID: 1614733

An investor in a sponsored depository receipt (DR):

A) holds the voting rights for the DR shares.

B) must obtain the foreign currency in which the DR is traded.
should be familiar with market procedures and regulations in the DR issuer’s
C)
country.
Question #126 of 180 Question ID: 1614765

Which of the following mortgage-backed securities is most likely to feature credit

tranching?

A) Sequential-pay collateralized mortgage obligations.

B) Commercial mortgage-backed securities.
C) Agency residential mortgage-backed securities.

Question #127 of 180 Question ID: 1614798

The Investment Constraints component of an IPS is least likely to state:

A) “No greater than a 3% probability of returns below –5% in any 12-month period.”
“Due to the high tax rate of the investor, capital gains are preferential to dividend
B)
payouts.”
“To comply with the investor’s religion, must not invest in securities which make
C)
explicit interest payments.”

Question #128 of 180 Question ID: 1614739

Ian Goode is analyzing the price of the preferred stock of MegaGym. Goode estimates
that MegaGym's earnings growth rate over the next five years will be 20%, and that
MegaGym's earnings will then grow at a sustainable rate of 5%. The most appropriate
method for Goode to value MegaGym's preferred stock is to:

A) use a justified price-to-earnings multiple.

use a multistage dividend discount model with 20% growth for five years and 5%
B)
thereafter.
divide the preferred dividend by the required rate of return on MegaGym’s preferred
C)
stock.

Question #129 of 180 Question ID: 1614766

A collateralized mortgage obligation with agency RMBS as the collateral is least likely
to be created to offer securities with less:

A) default risk than the underlying RMBS.

B) extension risk than the underlying RMBS.
C) prepayment risk than the underlying RMBS.

Question #130 of 180 Question ID: 1614770

Roland Carlson owns a portfolio of large capitalization stocks. Carlson has a positive
long-term outlook for the stock market, but would like to protect his portfolio from
any sudden declines in the stock market, without selling his holdings. The most likely
way for Carlson to achieve his objective of limiting the downside risk of his portfolio is
to:

A) sell put options on the S&P 500.

B) sell an S&P 500 futures contract.
C) buy an S&P 500 forward contract.

Question #131 of 180 Question ID: 1614750

Which of the following forward rates can be used to construct a forward yield curve?

A) 1-year and 2-year forward rates one year from now.

B) 1-year forward rates one year and two years from now.
C) 1-year forward rate one year from now and 2-year forward rate two years from now.

Question #132 of 180 Question ID: 1614799

Which of the following is the most likely reason for an investment manager to produce
an investment policy statement for a new client?

A) To minimize the risk level of the investments chosen.

To verify that the client understands and agrees with the policies and procedures of
B)
the investing firm.
 To ensure that the manager has a clear understanding of the client’s needs,
C)
circumstances, and constraints.

Question #133 of 180 Question ID: 1614779

An alternative investment partnership with a 2-and-20 fee structure has increased in

value each period and earned a return of 8% net of management fees in 20x7. Under
which of the following provisions would incentive fees for 20x7 be the highest?

A) 5% hard hurdle rate and a high water mark provision.

B) 6% soft hurdle rate and a high water mark provision.
C) 7% hard hurdle rate and no high water mark provision.

Question #134 of 180 Question ID: 1614744

Contingent convertible bonds are described most accurately as those which, if a

specified event occurs:

A) become convertible to equity.

B) convert automatically to equity.
C) increase the equity conversion ratio.

Question #135 of 180 Question ID: 1614731

Sacco, Inc., has nine directors on its board. Three seats are elected annually using a
cumulative voting system. An investor who owns 600 shares of Sacco common stock
may give a maximum of:

A) 600 votes to a single board candidate.

B) 1,800 votes to a single board candidate.
C) 600 votes to a candidate for each board seat.
Question #136 of 180 Question ID: 1614726

Which of the following types of index is least likely to require frequent reconstitution
of constituent securities?

A) Equity index.
B) Commodity index.
C) Fixed income index.

Question #137 of 180 Question ID: 1614684

Greenbaum, Inc. stock pays no dividend and currently trades at $54. Based on the
CAPM and assuming an expected return on the market of 12% and a risk-free rate of
8%, the expected price for Greenbaum one year from now is $62. The beta of
Greenbaum shares is closest to:

A) 1.5.
B) 1.6.
C) 1.7.

Question #138 of 180 Question ID: 1614774

The time value of a put option on an asset that provides no cash flows would most
likely be increased by:

A) an increase in the exercise price.

B) an increase in the asset’s price volatility.
C) a decrease in the value of the underlying asset.

Question #139 of 180 Question ID: 1614780

Compared to traditional investments, alternative investments are least likely to

exhibit:

A) higher fees.
B) less manager specialization.
C) more concentrated portfolios.

Question #140 of 180 Question ID: 1614738

An investor places a market order to buy a stock on the holder-of-record date for the
stock's next dividend. Is the investor entitled to receive this dividend?

A) No, because the order is placed after the declaration date.

B) No, because the order is settled after the holder-of-record date.
C) Yes, because the order is executed on the holder-of-record date.

Question #141 of 180 Question ID: 1614759

Ann Lloyd observes that a 3-year senior unsecured bond of Hawk, Inc. has a rating of
Baa3/BBB– and a 3-year senior unsecured bond of Osprey, Inc. has a rating of
Ba1/BB+. Based only on this information, Lloyd can most appropriately conclude that:

A) credit risk is greater for the Osprey bond than for the Hawk bond.
B) loss severity is greater for the Osprey bond than for the Hawk bond.
C) the Hawk bond is investment grade and the Osprey bond is non-investment grade.

Question #142 of 180 Question ID: 1614782

Because of biases in return measurements, hedge fund data are most likely to:

A) overstate returns and overstate risk.

B) overstate returns and understate risk.
C) understate returns and overstate risk.

Question #143 of 180 Question ID: 1614804

The sensitivity of a derivative's value to the price of the underlying asset is measured
by the derivative's:

A) beta.
B) delta.
C) gamma.

Question #144 of 180 Question ID: 1614741

An analyst develops the following information to value a common stock.

Last year's earnings per share = $4.00

Real risk-free rate = 4%
Inflation premium = 5%
Return on equity (ROE), expected to remain constant in the future = 10%
Dividend payout, expected to remain stable in the future = 30%
Stock's beta = 1.4
Expected market return = 14%

The value per share is closest to:

A) $14.39.
B) $21.28.
C) $31.39.

Question #145 of 180 Question ID: 1614749

Bond X and Bond Y were issued at a premium to par value three years ago. Bond X
matures in five years, and Bond Y matures in ten years. Both bonds carry the same
credit rating. Bond X has a coupon of 7.25%, and Bond Y has a coupon of 8.00%. If the
yield to maturity for both bonds is 7.60% today:

A) both bonds are priced at a premium.

B) Bond X is priced at a premium, and Bond Y is priced at a discount.
C) Bond X is priced at a discount, and Bond Y is priced at a premium.
Question #146 of 180 Question ID: 1614776

An investor uses options on a stock to create a synthetic short position in a risk-free

bond that will pay the exercise price at option expiration. To create this position, the
investor will buy:

A) a put option.
B) a call option.
C) the underlying stock.

Question #147 of 180 Question ID: 1614723

Kate Johnson owns shares of a stock that currently trades at $15. If Johnson wants to
buy more shares if the price increases to $17, she should enter a:

A) stop buy order at $17.

B) limit order to buy at $17.
C) market order to buy at $17.

Question #148 of 180 Question ID: 1614789

A commodity market is in contango if the spot price is:

A) higher than futures prices.

B) equal to futures prices.
C) lower than futures prices.

Question #149 of 180 Question ID: 1614764

A waterfall structure in a securitized bond issue:

A) is a form of external credit enhancement.

B) allows the entire issue to obtain a better credit rating.
C) gives some bondholders a higher priority of claims than others.
Question #150 of 180 Question ID: 1614768

A put option with an exercise price of $75 sells for a premium of $10. At expiration,
the put buyer may experience a loss:

A) of as much as $10.
B) of as much as $65.
C) that is theoretically unlimited.

Question #151 of 180 Question ID: 1614756

Chris Renburg owns the following portfolio of option-free bonds:

Par value Full price Duration

$3,000,000 $2,400,000 4.625

$3,500,000 $3,600,000 7.322

$1,500,000 $1,200,000 9.300

$8,000,000 $7,200,000

The duration of Renburg's bond portfolio is closest to:

A) 6.6.
B) 6.8.
C) 7.0.

Question #152 of 180 Question ID: 1614736

A firm attempts to gain market share from its competitors by improving its
manufacturing efficiency so that it can increase output and reduce the price of its
product. This firm's competitive strategy is most accurately described as:

A) an offensive differentiation strategy.

B) an offensive cost leadership strategy.
C) a defensive cost leadership strategy.
Question #153 of 180 Question ID: 1614746

Which of the following sources of short-term funding for banks is most likely to have
the lowest interest cost?

A) Interbank funds.
B) Checking deposits.
C) Central bank funds.

Question #154 of 180 Question ID: 1614771

The convenience yield associated with holding the underlying asset of a derivative is
most accurately described as:

A) the nonmonetary benefits of holding the asset.

B) the monetary and nonmonetary benefits of holding the asset.
the monetary and nonmonetary benefits of holding the asset, net of its holding
C)
costs.

Question #155 of 180 Question ID: 1614800

The problem of investment managers taking offsetting active positions is most likely
addressed by employing:

A) risk budgeting.
B) tactical asset allocation.
C) a core-satellite approach.

Question #156 of 180 Question ID: 1614757

Which of the following bonds is most likely to have the greatest convexity at a yield to
maturity of 3.5%?
A) 2-year, 3% coupon bond.
B) 5-year, 4% coupon bond.
C) 10-year, zero-coupon bond.

Question #157 of 180 Question ID: 1614760

Yield spreads are most likely to widen in a market environment that exhibits:

A) slowing economic growth.

B) high GDP growth rates.
C) lower-than-normal supply of new bond issuance.

Question #158 of 180 Question ID: 1614724

A securities exchange is structured as a call market. On that exchange, a stock would

trade at:

A) any time the market is open.

B) one negotiated price that clears the market.
C) prices set by auction or by dealer bid-ask quotes.

Question #159 of 180 Question ID: 1614742

Enterprise value is most accurately interpreted as the:

A) cost to take over a firm.

B) fair market value of a firm’s equity.
C) market value of a firm’s equity plus the market value of its debt.

Question #160 of 180 Question ID: 1614781

The period of time during which a private capital fund will select investments and
direct committed capital to them is best described as a:

A) notice period.
B) lockup period.
C) drawdown period.

Question #161 of 180 Question ID: 1614751

Kathy Hurst is valuing a 4-year zero coupon security and has acquired the following
information:

1-year spot rate 6.0%

4-year spot rate 7.5%

1-year forward rate 1 year from now 7.3%

1-year forward rate 3 years from now 8.9%

The 1-year forward rate 2 years from now is closest to:

A) 7.3%.
B) 7.8%.
C) 8.0%.

Question #162 of 180 Question ID: 1614775

An investor writes a put option that will expire in six months with an exercise price of
23 when the underlying price is 20. The investor will collect a premium that is:

A) equal to 3.
B) less than 3.
C) greater than 3.

Question #163 of 180 Question ID: 1614801

An investor who would only sell shares he owns for $58 or more, but would not buy
the same shares for more than $53, is exhibiting:

A) status quo bias.

B) endowment bias.
C) conservatism bias.

Question #164 of 180 Question ID: 1614730

Regulations are most likely to increase market efficiency if they:

A) increase the availability of information.

B) limit short-selling to qualified investors.
C) decrease the incidence of arbitrage trading.

Question #165 of 180 Question ID: 1614772

For an underlying asset with no holding costs or benefits, the no-arbitrage forward
price equals:

A) the spot price.

B) the future value of the spot price.
C) zero at initiation of a forward contract.

Question #166 of 180 Question ID: 1614758

Effective duration is the most appropriate measure of interest rate risk when:

A) a bond’s credit rating may change significantly.

B) the investor is seeking to minimize a duration gap.
C) the path of interest rate changes affects a bond’s cash flows.
Question #167 of 180 Question ID: 1614762

A bond indenture states that the source of funds for repayment will be tolls paid by
drivers using a highway constructed with the bond proceeds. This bond is most likely
a:

A) secured bond.
B) revenue bond.
C) quasi-government bond.

Question #168 of 180 Question ID: 1614743

Jim Boo is analyzing Justin Corp., a maker of home appliances. Boo's research provides
the following facts:

Justin's stock price is $60 per share.

Expected growth rate of dividends is 5%.
Expected retention rate is 60%.
Required rate of return is 10%.

Justin's expected price to earnings ratio (P0/E1) is closest to:

A) 8.0x.
B) 10.0x.
C) 12.0x.

Question #169 of 180 Question ID: 1614797

Which of the following pooled investments is likely to require the smallest minimum
investment amount?

A) Wrap fee account.

B) Market neutral fund.
C) Closed-end mutual fund.
Question #170 of 180 Question ID: 1614773

With regard to equivalent forward and futures contracts with an interest rate as the
underlying, convexity bias results in:

A) no significant differences between forward and futures prices in practice.

significant differences between forward and futures prices for long-term interest
B)
rates.
significant differences between forward and futures prices for short-term interest
C)
rates.

Question #171 of 180 Question ID: 1614727

A given percentage change in one of the 30 stocks in the Dow Jones Industrial Average
(DJIA) will have the greatest impact on the DJIA for which index stock?

A) The one whose total equity has the highest market value.
B) The one whose stock trades at the highest dollar price per share.
C) The one having the greatest amount of equity in its capital structure.

Question #172 of 180 Question ID: 1614761

Bond X carries a rating of BBB-/Baa3. Bond Y has a rating of B/B2. Both bonds mature
in 10 years. Which bond's value would be most affected by a ratings downgrade, and
which bond has the higher default risk?

Bond X would be more affected by a ratings downgrade, but Bond Y has higher
A)
default risk.
Bond Y would be more affected by a ratings downgrade, but Bond X has higher
B)
default risk.
Bond X has higher default risk, but both bonds would experience similar effects of a
C)
ratings downgrade.

Question #173 of 180 Question ID: 1614722

An investor purchased a stock for $60 a share using margin from his broker. If the
initial margin requirement is 40%, and the maintenance margin requirement is 20%, a
margin call will initially be triggered below a share price of:

A) $30.
B) $45.
C) $48.

Question #174 of 180 Question ID: 1614783

Arkex Funds is a hedge fund with a value of $100 million at the beginning of the year.
Arkex Funds charges a 2.0% management fee based on assets under management at
the beginning of the year and a 20.0% incentive fee with a 5.0% hard hurdle rate.
Incentive fees are calculated net of management fees. The value of the fund at the
end of the year before fees is $110 million. The net return to investors is closest to:

A) 6.8%.
B) 7.4%.
C) 8.0%.

Question #175 of 180 Question ID: 1614769

An investor buys an October 80 put option on a stock for a premium of $5. On the
expiration date the stock price is 78 per share. The investor's gain or loss on the
option is:

A) a loss of $2.
B) a loss of $3.
C) a gain of $2.

Question #176 of 180 Question ID: 1614755

An investor buys an annual pay, 4% coupon bond for 102. The trade will settle
immediately after the annual coupon payment and the bond has five years left to
maturity. The investor sells the bond two years later for 101.5. The investor's holding
period return on the bond includes:

A) a capital loss.
B) a capital gain.
C) neither a capital loss nor gain.

Question #177 of 180 Question ID: 1614752

Gerald Snow is a bond manager for Long Vision Investments. Snow is evaluating
potential arbitrage opportunities. He has the following list of bonds:

Bond X is a 1-year zero coupon bond selling at 950.

Bond Y is a 2-year zero coupon bond selling at 850.
Bond Z is a 2-year bond with an annual coupon of 8%.

All three bonds have a par value of $1,000. If no arbitrage opportunity exists, the price
of Bond Z is closest to:

A) $975.
B) $995.
C) $1,015.

Question #178 of 180 Question ID: 1614795

An equally weighted portfolio of five securities has a standard deviation of returns of

10%. The average standard deviation of returns of the five securities is 15%. If another
security with a standard deviation of returns of 15% is added to the portfolio, and the
weights are adjusted to restore equal weighting, the portfolio's diversification ratio is
most likely to:

A) increase.
B) decrease.
C) remain unchanged.
Question #179 of 180 Question ID: 1614740

Larry Rile is evaluating the investment merits of Bing Corp., a successful motorcycle
manufacturer. Rile is forecasting a dividend in year 1 of $1.50 per share, a dividend in
year 2 of $3.00 per share, and a dividend in year 3 of $4.50 per share. After year 3, Rile
expects dividends to grow at the rate of 6% per year. Rile calculates a beta of 1.3 for
Bing. Rile expects the S&P 500 index to return 8%. The U.S. Treasury bill is yielding 2%.
Using the multistage dividend discount model, Bing's intrinsic value is closest to:

A) $92 per share.

B) $102 per share.
C) $112 per share.

Question #180 of 180 Question ID: 1614763

Mountie Bank is a financial institution with a $300 million senior unsecured bond
outstanding. Mountie is considering setting up MB Trust as a bankruptcy remote
special purpose entity. If MB Trust issues a $500 million bond through a securitized
transaction secured by Mountie's customer receivables, the MB Trust bond would:

A) be senior to the Mountie bond.

B) rank pari passu with the Mountie bond.
C) not have a seniority ranking relative to the Mountie bond.