Q1.

When an otherwise honest person allows the promise of a bonus to negatively

influence her behavior, it is most likely an example of what type of ethical challenge?

A. Overconfidence bias
B. Situational influence
C. Compliance oversimplification

Q2. Priscilla Moab, CFA, is the director of marketing at Red Lantern Investments.
Red's investment approach uses technical and fundamental analysis as well as
portfolio construction to minimize risk. Moab plans to market an online investment
newsletter to retail clients. Moab decides to let prospective clients have access to
Red's buy and sell recommendation list by posting this information on a social media
site. The posting also provides information on Red's basic investment process and
logic. To avoid violating the CFA Institute Code of Ethics and Standards of
Professional Conduct, Moab should most likely:

A. describe the investment approach in detail.

B. update investment process changes annually.
C. indicate that additional information and analysis are available.

Q3. According to the Standards, members who plan to engage in independent practice
for compensation must notify their employers and describe which of the following
items regarding the services they will render to prospective independent clients?

○ Item 1: The types of services

○ Item 2: The expected duration of the services
○ Item 3: The compensation for the services
A. Only Item 1
B. Only Item 1 and Item 2
C. Item 1, Item 2, and Item 3

Q4. Ronda Jonat is a university student and candidate in the CFA Program. While
speaking to a recruiter to secure an internship, she states: "As a CFA Level I candidate
I have superior investment knowledge and skills compared to other university
graduates." Jonat says to a member: "I believe that the CFA Program curriculum
contains many unnecessary concepts." Jonat has violated the Standards:

A. only by making the statement to the member.

B. only by making the statement to the recruiter.
C. both by making the statement to the member and by making the statement to
the recruiter.
Q5. Sisse Brimberg, CFA, is responsible for performance presentations at her
investment firm. The presentation that Sisse uses states that when making
performance presentations her firm:

○ deducts all fees and taxes;

○ uses actual and simulated performance results; and
○ bases the performance on a representative individual account.

Based only on the this information, which of the following is the most appropriate
recommendation to help Brimberg meet the CFA Institute Standards of Professional
Conduct in her performance presentations? She should present
performance based on:

A. a gross of fee basis.

B. actual not simulated results.
C. a weighted composite for all similar discretionary portfolios.

Q6. A member makes two statements:

○ Statement 1: "Members are required to disclose referral fees paid to others."

○ Statement 2: "Members are required to disclose referral fees received from
others."

Are Statement 1 and Statement 2 correct?

A. Yes
B. No, only Statement 1 is correct
C. No, only Statement 2 is correct

Q7. Marcello Conterno, CFA, publishes and distributes a marketing brochure for his
research firm. In the brochure, Conterno writes: "I passed all three levels of the CFA
exams on my first try. As a consequence, you can expect superior analysis in my
reports." Conterno has most likely violated the Standards by writing:

A. only "I passed all three levels of the CFA exams on my first try."
B. only "As a consequence, you can expect superior analysis in my reports."
C. both "I passed all three levels of the CFA exams on my first try," and "As a
consequence, you can expect superior analysis in my reports."

Q8. According to the CFA Institute Code of Ethics and Standards of Professional
Conduct, trading on material nonpublic information is least likely to be prevented by
establishing:

A. firewalls.
 B. selective disclosure.
C. personal trading limitations.

Q9. Which of the following is a recommended procedure for compliance with the
Standard relating to priority of transactions?

○ Procedure 1: Members should disclose to investors their firm's policies

regarding personal investing.
○ Procedure 2: Firms should place strict limits on investment personnel acquiring
securities in private placements.
A. Procedure 1 only
B. Procedure 2 only
C. Both Procedure 1 and Procedure 2

Q10. Bailey Watson, CFA, manages 25 emerging market pension funds. He recently
had the opportunity to buy 100,000 shares in a publicly listed company whose
prospects are considered "above industry norm" by most analysts. The company's
shares rarely trade because most managers take a "buy and hold" strategy due to the
company's small free float. Before placing the order with his dealer, Watson allocated
the shares to be purchased according to the weighted value of each of his clients'
portfolios. When it came time to execute the trades, the dealer was only able to
purchase 50,000 shares. To prevent violating Standard IlI(B)-Fair Dealing, it would be
most appropriate for Watson to reallocate the 50,000 shares purchased by:

A. reducing each pension fund's allocation proportionately.

B. distributing them equally amongst all the pension fund portfolios.
C. allocating randomly but giving funds left out priority on the next similar type
trade.

Q11. Jessica Jayson, CFA, lives in a country without requirements to keep client
information confidential. Her firm requires only keeping information regarding
current clients confidential. Jayson discusses charity donations with one of her friends
and shares an email address of a former client who was involved in charity work. Has
Jayson most likely violated the Standards?

A. No
B. Yes, the Standard relating to fair dealing
C. Yes, the Standard relating to knowledge of the law

Q12. Renee Reed, CFA, is offered a promotion at her firm to Chief Compliance
Officer (CCO). Before accepting the position, Reed reviews the firm's compliance
system. Her review reveals the compliance system is in worse condition than she
originally thought and inadequate to discharge her responsibilities as CCO. She brings
her findings to the attention of the firm's managing partners. According to the
Standards, Reed should:

A. submit her letter of resignation to the managing partners.

B. refuse to accept the promotion until adequate procedures are in place.
C. accept the promotion and work to bring the compliance system up-to-date.

Q13. Soujit Ghosh, CFA, observes a price difference in a security that trades in two
different markets. Ghosh concludes the price difference is because of time delay in
factoring material information disseminated by the company. Ghosh immediately buys
large quantities of the security in one market and creates a dominant short position in
the derivative on the security in the other market with an intent to exploit the price
difference. Has Ghosh violated the Standards?

A. No
B. Yes, the Standard relating to market manipulation
C. Yes, the Standard relating to material nonpublic information

Q14. Which of the following is a requirement for compliance with the GIPS
standards?

A. The GIPS standards must be applied on a firm-wide basis

B. A firm must represent partial compliance by stating it is "in compliance with
the GIPS standards except for..."
C. A firm must refer to its performance calculation methodology as being "in
compliance" with the GIPS standards

Q15. According to the Standard relating to record retention, in the absence of

regulatory guidance or firm policies, CFA Institute recommends maintaining records
for at least:

A. 5 years.
B. 7 years.
C. 10 years.

Q16. In a client presentation regarding a potential equity investment, a member makes

the following statements:

○ Statement 1: "This investment will outperform the S&P 500 over a ten-year
period."
○ Statement 2: "This investment is likely to outperform the market over a
one-year period."
 ○ Statement 3: "With this product's 100% principal protection, our firm
guarantees you will not lose money."

The member has most likely violated the Standards by making:

A. Statement 1 only
B. Statement 1 and Statement 3 only
C. Statement 1, Statement 2, and Statement 3

Q17. Leng Bo, CFA, is a bond portfolio manager for individual investors. Last year, a
client whose portfolio is limited to investment-grade bonds approved Bo's purchase of
a below investment grade bond. Because yields in the high grade fixed-income
markets declined, Bo subsequently decides to enhance this client's portfolio by
investing in several additional bonds with ratings one or two notches below
investment grade. The investment strategy implemented by Bo most likely violated
which of the following CFA Institute Standards of Professional Conduct?

A. Suitability
B. Communications with clients
C. Independence and objectivity

Q18. A member's firm uses a third-party broker to execute trades. Commissions from
trades are used to purchase research which benefits the firm's clients. This practice is
disclosed to clients, along with the information that commissions are higher than
average because of the purchase of the research. Has the member most likely violated
the Standards?

A. No.
B. Yes, the Standard relating to fair dealing.
C. Yes, the Standard relating to loyalty, prudence, and care.

Q19. Which of the following Standards states that a member must not commit any act
that reflects adversely on their professional reputation, integrity, or competence? The
Standard relating to:

A. misconduct
B. loyalty, prudence, and care
C. conduct as participants in CFA Institute programs

Q20. According to the GIPS standards, verification:

A. is voluntary.
B. ensures the accuracy of a performance report.
 C. can be performed with respect to specific composites.

Q21. Noor Hussein, CFA, runs a financial advisory business, specializing in

retirement planning and investment management. One of her clients asks her to advise
the firm's pension fund trustees on available investments in the market including
Islamic products, even though she is unfamiliar with these products. On the day prior
to the meeting, Hussein spends an hour familiarizing herself with Islamic investment
products and getting updates on local market conditions. The next day, she
recommends Islamic investment products to the trustees based on her research and her
expertise in retirement planning and investments. The trustees subsequently
incorporate Islamic products into their investment allocation. Did Hussein's basis for
the recommendation most likely comply with the CFA Code of Ethics?

A. Yes
B. No, it did not comply with the Standard relating to misconduct
C. No, it did not comply with the Standard relating to diligence and reasonable
basis

Q22. According to the Standard relating to additional compensation arrangements, a

member must not accept a benefit offered by a third party that might create a conflict
of interest with his employer's interest unless he obtains written
consent:

A. only from his employer.

B. only from the third party offering the benefit.
C. both from his employer and from the third party offering the benefit.

Q23. Lewis McChord, CFA, a research analyst at an investment bank, covers the auto
industry. McChord recently read a report on an auto manufacturing company written
by Pierce Brown. Brown's report provided extensive coverage of the company's newly
launched products indicating that sales volume, not yet publicly available, would raise
future profits.
Intrigued by the report, McChord called a senior executive at the company whom she
has known personally for years.
The officer gave her specific details on new vehicle sales, indicating that profits would
double in the current quarter.
McChord added this data to Brown's report and then circulated it within her firm as
her own report. McChord least likely violated which of the following CFA Institute
Standards of Professional Conduct?

A. Misrepresentation
B. Preservation of Confidentiality
 C. Material Nonpublic Information

Q24. Ri Lin, CFA, is a Portfolio Manager with Dynasty Investment Management. Lin
is performing research on Titan Mining for potential inclusion in his fund.
Management at Titan is interested in having a well-known fund manager, such as Lin,
as a shareholder. Titan pays for Lin to fly to a company retreat in Tokyo, where a brief
introductory meeting is followed by attending a sporting event and then dinner at one
of the city's top restaurants. Lin participates after disclosing the activities to Dynasty's
compliance department. Which Standard did Lin's actions violate?

A. Avoid or Disclose Conflicts

B. Independence and Objectivity
C. Diligence and Reasonable Basis

Q25. The Standard relating to avoid or disclose conflicts:

A. requires that disclosures about conflicts of interest are prominent.

B. discusses disclosure of conflicts to clients and potential clients only.
C. prohibits members from owning securities recommended to clients even if
disclosed to clients.

Q26. Which of the following misleading practices led to the creation of the GIPS
standards?

A. Only selecting a top-performing portfolio to represent the firm's overall

investment results for a specific mandate
B. Only presenting an average performance history that excludes portfolios whose
poor performance was weak enough to result in termination of the firm
C. Both selecting a top-performing portfolio to represent the firm's overall
investment results for a specific mandate, and presenting an average
performance history that excludes portfolios whose poor performance was
weak enough to result in termination of the firm

Q27. The GIPS standards describe a composite as an aggregation of all:

A. portfolios managed by a firm.

B. discretionary and non-discretionary portfolios managed by a firm.
C. fee-paying discretionary portfolios managed by a firm according to a similar
investment mandate.
Q28. If the NPV of Project 1 is $0, the NPV of Project 2 is:

A. negative.
B. zero.
C. positive.

Q29. Which of the following combinations of actions is most likely expansionary? A

government:

A. increases spending and decreases taxes.

B. decreases spending and increases taxes.
C. decreases spending and decreases taxes.

Q30. All else being equal, in an environment of rising inventory unit costs and
constant inventory quantities, the LIFO inventory valuation method most likely results
in a higher:

A. ending inventory than under the FIFO method.

B. gross profit margin than under the FIFO method.
C. inventory turnover ratio than under the FIFO method.

Q31. Which of the following components of a defined benefit pension plan is included
in net income?

A. Remeasurements only
B. Employees' service costs only
C. Both remeasurements and employees' service costs

Q32. Which of the following return measures is equivalent to the internal rate of
return of an investment?

A. Time-weighted return
B. Geometric mean return
C. Money-weighted return
Q33. Costs incurred related to the search of alternative materials to use in a production
process:

A. must be expensed.
B. must be capitalized.
C. may be capitalized if certain criteria are met.

Q34. During the slowdown phase of the business cycle, inflation most likely:

A. remains moderate.
B. further accelerates.
C. decelerates but with a lag.

Q35. The predicted value of NPM for a forecasted RDR of 7% is closest to:
A. 4.20%.
B. 13.18%.
C. 21.58%.

Q36. Which of the following measures best expresses the amount of a portfolio's risk
per unit of mean return?

A. Sharpe ratio
B. Standard deviation
C. Coefficient of variation

Q37. Based on good corporate governance practices, it is most appropriate for a

company's compensation committee to:

A. include some company executives.

B. develop director remuneration policies.
C. recommend remuneration for the external auditors.
Q38. If a stock priced at $100 experiences a 45% decline in price over a 1-year
holding period, the continuously compounded return is closest to:
A. -60%.
B. -45%.
C. -36%.

Q39. For a company reporting under IFRS, which of the following events most likely
represents low financial reporting quality? The company:

A. reported an increase in EPS as a result of the sale of a subsidiary.

B. included gains from foreign exchange rate changes in its cost of goods sold.
C. entered a long-term lease for a customized piece of equipment and classified it
as a finance lease.

Q40. The international organization most likely to provide funds to create basic
economic infrastructure in developing countries is the:

A. World Bank.
B. World Trade Organization.
C. International Monetary Fund.

Q41. In a simple linear regression model, the residual for an observation of Y is

computed as:

A. the observed value of Y divided by the expected value of Y.

B. the unexplained variation in Y divided by the explained variation in Y.
C. the difference between the observed value of Y and the estimated value of Y.

Q42. Which of the following expense recognition choices is least consistent with
conservative accounting of reported net income?

A. Recognizing expenses later rather than earlier

B. Reflecting lower warranty expenses due to improved product quality
C. Estimating lower uncollectible accounts due to stricter credit policies

Q43. A sample of 240 managed portfolios has a mean annual return of 0.11 and a
standard deviation of returns of 0.23.
The standard error of the sample mean is closest to:
A. 0.00096.
B. 0.00710.
C. 0.01485.
Q44. Assuming a marginal tax rate of 20% and that interest expense is tax deductible,
the company's WACC is closest to:
A. 9.2%.
B. 10.9%.
C. 11.2%.

Q45. With respect to fiscal policy, which of the following is an automatic stabilizer?

A. Tax rate changes

B. Infrastructure spending
C. Payment of unemployment benefits

Q46. A company depreciates its asset base at 8% per year for accounting purposes and
12% per year for tax purposes.
No prior period deferred taxes have been reported. If it is doubtful that future
economic benefits will be realized from the temporary difference, the company
should:

A. recognize a deferred tax asset.

B. recognize a deferred tax liability.
C. not recognize a deferred tax item.
Q47. As a result of the second revaluation, the revaluation surplus increases (in €
millions) by:
A. 2.
B. 3.
C. 5.

Q48. The six-month JPY/USD forward exchange rate is closest to:

A. 107.980.
B. 109.314.
C. 112.064.

Q49. Net profit margin is:

A. 4.0%.
B. 4.8%.
C. 6.0%.

Q50. Which of the following statements about evaluating a project with a real option
is most accurate?

A. The cost of the real option should be ignored as it represents a sunk cost
B. The value of the real option less the incremental cost should be included in the
project NPV
C. If the project NP V is negative before considering the real option, management
should not undertake the project

Q51. An investor plans to contribute $10,000 each year into an account that earns an
annual interest rate of 5%. If the first contribution is made one year from today, the
value of the account immediately after the 10* contribution is closest to:
A. $125,779.
B. $132,068.
C. $142,068.

Q52. Monetary policy is most likely:

A. contractionary.
B. neutral.
C. expansionary.

Q53. Working capital turnover is most likely a(n):

A. liquidity ratio.
B. solvency ratio.
C. operating efficiency ratio.

Q54. Assuming interest deductibility is allowed, an increase in the tax rate will cause
a company's cost of capital to:

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

Q55. The interquartile range of the Sharpe ratios is closest to:

A. 0.6.
B. 0.8.
C. 1.4.

Q56. The primary responsibility of a corporation's directors is to act in the best

interest of the:

A. creditors.
B. managers.
C. shareholders.

Q57. The creditors of a company most likely:

A. hold voting power.

B. have similar risk tolerance to shareholders.
C. have the ability to restrict the activities of the company.
Q58. The estimated target weight of debt for the subject company is closest to:
A. 0.37.
B. 0.58.
C. 0.64.

Q59. According to Modigliani and Miller's Proposition Il without taxes, a higher

proportion of debt in the capital structure of a company results in:

A. a lower cost of equity.

B. the same WACC.
C. a greater company value.

Q60. If the bonds are convertible into 2,000,000 common shares and there are no
other potentially dilutive securities outstanding, reported diluted EPS is closest to:
A. £2.93.
B. £3.07.
C. £3.43.
Q61. Which of the following is a common source of financing for an early-stage
start-up with minimal revenue?

A. Debt
B. Equity through public markets
C. Equity through venture capital

Q62. The cash flow debt coverage ratio for the year is closest to:
A. 20.6%.
B. 23.7%.
C. 27.4%.

Q63. Real exchange rates:

A. reflect changes in relative purchasing power.

B. are quoted in global foreign exchange markets.
C. have a strong track record as a predictor of future nominal exchange rates.

Q64. Management's commentary (also known as management's discussion and

analysis) most likely includes:

A. an auditor's opinion as to the fair presentation of the financial statements.

B. supplementary information about accounting policies, methods, and estimates.
C. a discussion of significant trends, events, and uncertainties that affect the
operating results.

Q65. If the scale of a single producer is small relative to the demand for an
undifferentiated good, the market structure of the producer is best described as being:

A. an oligopoly.
 B. monopolistic competition.
C. perfect competition.

Q66. Which of the following most accurately describes a distribution that is more
peaked than normal?

A. Leptokurtic
B. Mesokurtic
C. Platykurtic

Q67. In a small country, an export subsidy for a good most likely results in a decrease
in the good's domestic:

A. price.
B. production.
C. consumption.

Q68. Compared with Year 1, which of the following ratios most likely indicates an
improvement in the creditworthiness of the company? The change in the company's:

A. operating ROA.
B. interest coverage.
C. debt-to-total assets.

Q69. Ignoring income taxes, recognizing an impairment loss on equipment most likely
reduces:
 A. net investing cash flow.
B. net operating cash flow.
C. neither net investing nor net operating cash flows.

Q70. The geometric mean annual return is closest to:

A. 1.45%.
B. 1.78%.
C. 5.93%.

Q71. The investor wants to withdraw $25,000 at year end without withdrawing any of
their initial $500,000 capital.
According to Roy's safety-first criterion, the optimal portfolio is:

A. Portfolio 1.
B. Portfolio 2.
C. Portfolio 3.

Q72. The supply curve for a specific good shows the highest:
 A. quantity sellers are willing to offer at each price.
B. price buyers are willing to pay for each quantity.
C. price sellers are willing to accept for each quantity.

Q73. The company with the highest gross profit margin is:

A. Company A.
B. Company B.
C. Company C.

Q74. The overarching objective of a central bank is most likely to maintain:

A. price stability.
B. full employment.
C. the stability of the financial system.

Q75. In machine learning, overfitting can most likely be mitigated by using:

A. higher computing power.

B. a simpler machine-learning model.
C. an unsupervised machine-learning model.
Q76. Cash flow from operating activities (in € millions) for the year is:
A. 300.
B. 320.
C. 370.

Q77. Normalized earnings are best defined as the:

A. average level of achieved earnings over a long-term historical period.

B. estimated going-concern value of the company after the explicit forecast
period.
C. expected level of mid-cycle earnings in the absence of any unusual or
temporary factors.

Q78. All else being equal, an inventory write-down by an electronics manufacturing

company results in a lower:

A. cost of sales than if the write-down had not occurred.

B. inventory turnover ratio than if the write-down had not occurred.
C. days of inventory on hand than if the write-down had not occurred.

Q79. Which of the following correlation coefficients is most appropriate to use in a

hypothesis test concerning the correlation between two non-normally distributed
variables?

A. Pearson correlation
B. Bivariate correlation
C. Spearman rank correlation

Q80. Which of the following tools is available to implement monetary policy?

A. Indirect tax rates

B. Corporate tax rates
C. Open market operations
Q81. Accounting goodwill is created when an acquisition's purchase price:

A. results in a "bargain purchase."

B. exceeds the value of acquired net identifiable assets.
C. is attributed solely to separately identifiable assets and liabilities.

Q82. When considering ESG factors, energy efficiency is best described as a(n):

A. environmental factor.
B. social factor.
C. governance factor.

Q83. Under a franchise model, the franchisee:

A. earns a royalty on sales.

B. is responsible for product development and advertising.
C. operates under a specific brand with proprietary products and processes.

Q84. Along the cooperative continuum, which of the following ranks geopolitical
systems from the lowest to the highest level of globalization?

A. Bilateralism, regionalism, multilateralism

B. Multilateralism, regionalism, bilateralism
C. Regionalism, multilateralism, bilateralism

Q85. Insurance and utilities are the only two components of other operating expenses.
The cash the company paid in other operating expenses in Year 2 is:
A. €76,330.
B. €79,370.
C. €80,730.

Q86. A disadvantage of using the concentration ratio to measure market power is that
it:

A. is difficult to compute.
 B. does not directly quantify market power.
C. is affected by mergers among market participants.

Q87. Which action is most likely considered a secondary source of liquidity?

A. Increasing the availability of bank lines of credit

B. Increasing the efficiency of cash flow management
C. Renegotiating current debt contracts to lower interest payments

Q88. In company analysis, which of the following is most likely a solvency ratio?

A. Quick ratio
B. Current ratio
C. Interest coverage ratio

Q89. When analyzing differences between the variances of two normally distributed
populations, the most appropriate test is a(n):

A. F-test.
B. chi-square test.
C. paired comparisons test.

Q90. For a manufacturing company, the reversal of an inventory write-down from

prior periods is:

A. prohibited.
B. recognized as an increase in cost of sales.
C. limited to the amount of the original write-down.