Question #1 of 180 Question ID: 1612244

Jerry Johnson, CFA, has been asked to write a research report on Luke's Lockers, a
leading shoe manufacturer. Johnson's wife owns 5,000 shares of Luke's stock. To
comply with the Code and Standards, Johnson's most appropriate action is to:

A) take no action since he does not own the stock directly.

B) disclose this ownership of the stock in the research report.
have his wife liquidate her holdings of the stock before the research report is
C)
released.

Question #2 of 180 Question ID: 1612175

An investor who wants to add equity securities to her portfolio that will be relatively
uncorrelated with changes in business cycles should most likely look for companies
that produce:

A) services.
B) durable goods.
C) nondurable goods.

Question #3 of 180 Question ID: 1612126

Which of the following statements is most accurate regarding the impact on a public
company and its stakeholders from issuing additional equity rather than debt?

A) The company must retire debt to fund the equity issuance.

B) The additional shares will have an initial negative impact on earnings per share.
The cost of capital for the new equity issuance will be lower than the cost of capital
C)
for debt.
Question #4 of 180 Question ID: 1612094

An investor observes that a 12-month United States Treasury bill has a quoted rate of
5.3%. If the inflation premium is 4.1%, the:

A) real-risk free rate is approximately 1.2%.

B) nominal risk-free rate is approximately 9.4%.
C) real-risk free rate of 5.3% incorporates the inflation premium.

Question #5 of 180 Question ID: 1612245

Among all analysts who cover Saris Corporation, the consensus earnings estimate for
the current period is $2.14. Lee Rutherford, CFA, believes that Saris will release
earnings above the consensus number but in his published research report he
estimates earnings for Saris to be $2.14 per share. In conversations with some clients
Rutherford mentions his reasons for believing that the $2.14 number may be on the
low side. With respect to the Code and Standards:

the conversations do not violate the Standards because the research report is the
A)
official document, and that is what Rutherford is supporting.
Rutherford is in violation of the Standards by failing to deal with clients fairly in
B)
disseminating material changes in investment recommendations.
Saris Corporation is in violation of the Standards by not disclosing material earnings
C)
information to the public.

Question #6 of 180 Question ID: 1612112

Because she has limited resources and time to devote, an economist who wishes to
study the impacts of geopolitical risks should focus her time on risks with a:

A) high probability and broad impact.

B) low probability and irreversible impact.
C) moderate probability and discrete impact.
Question #7 of 180 Question ID: 1612156

Beena, Inc. purchases equity securities of Bear Trading for €120,000 and designates
them as measured at fair value through other comprehensive income. By year-end,
the securities' market value is €150,000. At year-end:

A) a €30,000 gain will appear on Beena’s income statement.

B) the investment will be valued at €120,000 on Beena’s balance sheet.
C) Beena’s total asset turnover ratio will be lower as a result of the €30,000 gain.

Question #8 of 180 Question ID: 1612246

William Callahan, CFA, is an energy analyst. His supervisor, Nancy Dening, CFA, has
recently decided to let Callahan cover a few of the firms that Dening had been
covering previously. Dening gives Callahan specific instructions not to change her
prior recommendation on one of these firms, Mayfield Energy. Callahan's least
appropriate action is to:

A) tell Dening that he cannot cover Mayfield Energy under those restrictions.
perform his own independent analysis of Mayfield and reach an independent
B)
conclusion.
use ambiguous language in the report, in order to not mislead the investor while
C)
complying with his employer’s instructions.

Question #9 of 180 Question ID: 1612127

A company has an 11-member board of directors, an 18-member senior management

team, and 650 individual shareholders. The principal-agent relationship in the
company is between the:

A) management as the principals and the shareholders as the agents.

B) board of directors as the principals and the management team as the agents.
C) shareholders as the principals and the board and management as the agents.
Question #10 of 180 Question ID: 1612099

A probability tree shows that a company's expected earnings per share for the next
period is $2.75. If three of the four potential outcomes used to construct the tree
show a 20% probability of $2.00, a 25% probability of $2.60, and a 30% probability of
$2.80, the remaining possible outcome is:

A) $3.28.
B) $3.36.
C) $3.44.

Question #11 of 180 Question ID: 1612247

David Martin, CFA, recently joined Arc Financial as a portfolio manager of an emerging
markets mutual fund. For the past three years, he managed an emerging markets
mutual fund for Landmark Investments. Upon Martin's arrival, Arc Financial
announces to existing and prospective clients, "While at Landmark Investments,
Martin was the senior portfolio manager of Alpha Emerging Markets Fund. In Martin's
three years as manager, this fund outperformed its benchmark each year, as
documented in recent reports by Landmark." Does this statement violate the CFA
Institute Standard of Professional Conduct related to performance presentation?

A) No.
B) Yes, because the Standards prohibit showing past performance at a prior firm.
C) Yes, because Arc must present at least five years of Martin’s performance history.

Question #12 of 180 Question ID: 1612160

Which of the following is the most accurate definition of capital adequacy in the
context of financial analysis of banks?

A) The ratio of a bank’s liabilities to its central bank reserves.

B) A comparison of a bank’s liquid assets to certain named liabilities.
C) A monetary measure of a firm’s risk as a percentage of its equity capital.
Question #13 of 180 Question ID: 1612248

Harold Fitcher asks his account manager to direct trades to Foster Brokers. Foster
purchases goods and services for Fitcher at his direction. The account manager, to
comply with the Standards, should inform Fitcher that he:

A) cannot direct the trades to Foster because of the Standard regarding soft dollars.
cannot direct trades to Foster because of his duty to seek best execution for his
B)
trades.
can direct the trades to Foster if the client tells him the goods and services will
C)
benefit the account beneficiaries.

Question #14 of 180 Question ID: 1612102

If simple random sampling is used on a population with 20 data points, the probability
that any individual data point is selected first in a 10 data point sample is:

A) 0.05.
B) 0.10.
C) 0.50.

Question #15 of 180 Question ID: 1612128

The audit committee of a company's board of directors is most likely responsible for:

A) developing the internal audit workplan for the year.

B) determining the annual budget for the internal audit department.
C) evaluating the effectiveness of the company’s internal audit department.

Question #16 of 180 Question ID: 1612104

An analyst is evaluating sample correlation coefficients to test the hypothesis that a

population correlation coefficient is equal to zero. Which of the following independent
actions will increase the likelihood that she will reject the hypothesis?
A) Increasing the sample size.
B) Decreasing the sample correlation coefficient.
C) Decreasing the level of significance from 10% to 5%.

Question #17 of 180 Question ID: 1612130

The Baker Company is evaluating several projects brought forth by its management
team. One of the projects requires a $70,000 initial investment and has a forecast NPV
of $35,000. If the required rate of return for the project is 6.25%, Baker should:

A) accept the project because its IRR exceeds 6.25%.

B) reject the project because its forecast NPV is below the initial investment required.
reject the project because the initial investment will cause the IRR to be below
C)
6.25%.

Question #18 of 180 Question ID: 1612249

For the past five years, Rafael Garcia has served as a portfolio manager for Peak
Investments. Garcia accepts a position at a competing firm. Garcia is not subject to a
non-compete agreement. After beginning his new job, Garcia discovers files on his
home computer that contain client contact information about Peak's clients. Garcia
shares this information with his new employer with the hope of bringing some of
these clients over to his new firm. Garcia has:

violated the Standards because he has used information belonging to Peak

A)
Investments.
not violated any Standards because he is permitted to contact former clients after
B)
he begins the new position.
C) not violated any Standard because he is not subject to a non-compete agreement.

Question #19 of 180 Question ID: 1612250

Harriet Kedzie, CFA, manages a portfolio for a foundation. In a recent report to the
foundation's directors, Kedzie explained her rationale for investing in ZYX stock as
follows: "ZYX was chosen since it further diversifies the Foundation's holdings without
sacrificing expected returns. In fact, ZYX's low standard deviation and high expected
return ensure that the foundation will benefit from positive returns on this
investment." Kedzie has most likely:

A) not violated any Standards.

B) violated the Standard concerning suitability.
C) violated the Standard concerning misrepresentation.

Question #20 of 180 Question ID: 1612136

One of the primary reasons why issuing debt is challenging for a start-up company is
that its:

A) cash flow tends to be stable or growing slowly.

B) assets available to be used as collateral are limited.
C) sales and operating earnings are likely to be negative.

Question #21 of 180 Question ID: 1612101

With bootstrap resampling, what happens to the sampled observations with every
repeated draw?

A) They are removed and not used again.

B) They are purposefully included in future samples.
C) They are replaced so they may be redrawn in another sample.

Question #22 of 180 Question ID: 1612251

Robert White is a client of Song Investments, a full-service brokerage firm that
produces its own investment research. A firm analyst changes her recommendation
from "Buy" to "Sell" on one of the stocks that White holds in his portfolio and sends an
e-mail to all firm clients, including White, informing them of the investment
recommendation change. White phones John Smith, CFA, his broker at Song
Investments, and asks him to buy more of all stocks that White holds in his account
with the firm. Smith executes the order. With respect to fair dealing, Smith:

did not violate the Standards because his firm had already sent White an e-mail
A)
about the change in recommendation and the order is unsolicited.
did not violate the Standards because it is the analyst’s responsibility to
B)
communicate changes in her investment recommendations.
violated the Standards because he should have informed White of the change of
C)
investment recommendation from buy to sell prior to accepting the order.

Question #23 of 180 Question ID: 1612106

An ANOVA table shows an explained variation of 0.0135 and an unexplained variation

of 0.0640. The sum of squares regression is:

A) 0.0135.
B) 0.0640.
C) 0.0775.

Question #24 of 180 Question ID: 1612143

Gold Plc has recently purchased two other companies, calculating goodwill as follows:

Silver Ltd Bronze Ltd

Accounting goodwill £78,000 (£37,000)

Economic goodwill £74,000 £26,000

What total goodwill should Gold Plc record on its balance sheet from these two
acquisitions?

A) £41,000.
B) £78,000.
C) £100,000.

Question #25 of 180 Question ID: 1612114

In the context of a foreign exchange transaction, the "sell side" refers to the:

A) currency dealer.
B) party who sells the base currency.
C) party who sells the price currency.

Question #26 of 180 Question ID: 1612252

Which of the following statements is a proper reference to the CFA designation?

A) I expect to obtain the CFA designation after I pass the next Level III exam.
B) As a CFA charterholder, I am required to comply with high ethical standards.
As a CFA Level II, I hope to obtain the highest set of credentials in the investment
C)
industry.

Question #27 of 180 Question ID: 1612141

Assuming no tax effects of the capitalization decision, in the period when a firm makes
an expenditure, capitalizing the expenditure instead of recognizing it as an expense
will result in higher:

A) debt-to-equity and debt-to-assets ratios.

B) net income and have no effect on total cash flows.
C) cash flow from investing and lower cash flow from operations.

Question #28 of 180 Question ID: 1612157

For a company with a current ratio greater than one and a quick ratio less than one,
what will be the impact on the current ratio and the quick ratio of paying accrued
wages?

A) Both ratios will remain the same.

B) The current ratio will increase and the quick ratio will decrease.
C) The current ratio will decrease and the quick ratio will increase.

Question #29 of 180 Question ID: 1612253

Phillip Kevil, CFA, is an investment advisor for Sensible Investments Inc. One of Kevil's
clients, Alan Miller, has requested that Kevil purchase shares of LongShot Technology
through a broker that charges higher-than-average fees. Miller maintains a
nondiscretionary account and makes each investment decision himself. Even though
the account is not discretionary, Miller does allow Kevil to vote all proxies for his
account. Kevil generally votes the proxies with management since most of the stocks
in Miller's account are high-tech companies in which the managers are the largest
shareholders. Has Kevil violated any Standards?

A) Kevil has not violated any Standards.

Using Miller’s choice of broker is not a violation, but Kevil’s proxy voting policy is a
B)
violation.
C) Both using Miller’s choice of broker and Kevil’s proxy voting policy are violations.

Question #30 of 180 Question ID: 1612254

The Standard on performance presentation least likely requires or recommends that

Members and Candidates:

A) disclose whether performance is gross or net of fees.

B) support any forecast of future performance with actual data on past performance.
C) include terminated accounts in performance history.

Question #31 of 180 Question ID: 1612146

For a U.S. GAAP reporting firm, an analyst should add interest expense net of tax to
cash flow from operations when calculating free cash flow:

A) to equity and free cash flow to the firm.

B) to equity, but not free cash flow to the firm.
C) to the firm, but not free cash flow to equity.

Question #32 of 180 Question ID: 1612129

Other things equal, a company will have a shorter cash conversion cycle if its:

A) payables turnover increases.

B) inventory turnover decreases.
C) receivables turnover increases.

Question #33 of 180 Question ID: 1612095

Jon Pelker plans to retire in six years and will require $950,000. Today, Pelker will
deposit $100,000 into an interest bearing account and will deposit an additional
$100,000 at the end of each of the next six years. What annual percentage return
must Pelker earn to achieve his goal of $950,000 for his retirement?

A) 8%.
B) 10%.
C) 18%.

Question #34 of 180 Question ID: 1612255

Rob Carter, CFA, is preparing a research report on Clean Bright, a company that
manufactures cleaning products. After reviewing industry statistics and consulting
with several suppliers of Clean Bright, Carter discovers that Clean Bright has become
alarmingly slow in meeting its accounts payable. Carter believes that the company
may soon face bankruptcy. Before Carter can issue a sell recommendation in his
research report, Carter is required to:
A) take no additional action, and can freely issue the report.
B) wait until suppliers contact other analysts about Clean Bright.
make full disclosure of the conversations with the suppliers to a compliance officer
C)
at his firm.

Question #35 of 180 Question ID: 1612145

Under U.S. GAAP, which of the following statements about classifying cash flows is
most accurate?

Cash received from issuing long-term debt or stock is considered a financing cash
A)
flow.
Income taxes paid are considered financing or investing cash flows if they arise from
B)
financing or investing activities.
Dividend payments made are financing cash flows, while interest payments received
C)
are investing cash flows.

Question #36 of 180 Question ID: 1612098

A sample of 250 observations has the following properties:

Mean 8.6

Standard deviation 4.9

Sample kurtosis 3.0

Median 8.3

Mode 8.1

This sample most likely has:

A) positive excess kurtosis.

B) sample skewness greater than zero.
C) at least one observation equal to 8.3.
Question #37 of 180 Question ID: 1612256

Rene Green, CFA, uses a statistical model to estimate the intrinsic value of potential
investments. Clients are aware of the general model but not its details. Green recently
changed the model in an attempt to more accurately price assets. In an e-mail to all of
his prospects and clients, Green describes the new model and states that more
accurate asset valuations are expected from the new model. Has Green violated the
CFA Institute Standards of Professional Conduct?

A) No, Green’s actions are consistent with CFA Institute Standards.

B) Yes, because he should have notified existing clients before notifying prospects.
Yes, because he suggested that the new model will generate more accurate asset
C)
valuations.

Question #38 of 180 Question ID: 1612257

Sue Seros, CFA, is reviewing the performance of Arithmatics, Inc., which she has
placed in several client accounts. Based on her firm's research, Seros believes a recent
decrease in its price may present a buying opportunity and that industry conditions
suggest Arithmatics may be an attractive acquisition for a larger company. Seros
increases her clients' holdings in Arithmatics. Seros has:

A) not violated the Standards of Practice.

B) violated the Standard on material nonpublic information.
C) violated the Standard on diligence and reasonable basis.

Question #39 of 180 Question ID: 1612131

A project has an initial cash outflow of $100,000. The sum of the present values of its
after-tax cash inflows is $105,000. Which of the following statements is most accurate
regarding this project?

A) It has a positive NPV at the discount rate used.

B) Increasing the discount rate would increase its NPV.
C) Net cash flows expected from this project are $5,000.
Question #40 of 180 Question ID: 1612153

GreenCo, a U.S.-based manufacturing firm, reports a deferred tax liability on its

balance sheet. The deferred tax liability most likely results from GreenCo's:

A) use of the last-in-first-out inventory accounting method for its financial statements.
use of straight line depreciation for financial reporting and accelerated depreciation
B)
for tax purposes.
decision to expense restructuring costs on its income statement even though the
C)
funds have not been paid.

Question #41 of 180 Question ID: 1612159

A profitable company can increase its return on equity (other things equal) by:

A) decreasing its asset turnover.

B) increasing its financial leverage.
C) decreasing its ratio of EBT to EBIT.

Question #42 of 180 Question ID: 1612258

Ron Welch, CFA, manages trust accounts at a regional U.S. bank. Welch was hired four
years ago to manage the Craig Family Trust. The investment policy statement for the
trust specifies a passive investment strategy matching the risk of the S&P 500 Index.
Over the past year, Welch over-weighted technology stocks, which allowed the trust
portfolio to earn a return 200 basis points above the S&P 500 return. With respect to
the Standards concerning Loyalty, Prudence, and Care and Suitability, Welch violated:

A) both of these Standards.

B) neither of these Standards.
C) only one of these Standards.

Question #43 of 180 Question ID: 1612259

Laura Smith, CFA, is an analyst with the trust department of Bright Star Bank. The
department's portfolio managers use a proprietary model to select stocks. Bright Star
has been purchased by Mega Bank, which does not plan to use Bright Star's model
after completing the purchase. A few weeks before the Bright Star/Mega Bank merger
date, Smith downloads the model to her laptop and modifies the model for her own
use. Do Smith's actions violate the Standards of Professional Conduct?

A) No, because Smith modified the model.

B) Yes, because the model is the property of Mega Bank.
C) No, because Mega Bank has discontinued use of the model.

Question #44 of 180 Question ID: 1612132

Which of the following types of capital budgeting projects would typically require the
most detailed analysis?

A) Purchase of a new machine to increase production.

B) Replacing a machine with a new one to maintain production.
C) Purchase of a new machine to reduce materials waste and production costs.

Question #45 of 180 Question ID: 1612260

Wendy Johnson, CFA, has recently been hired as a portfolio manager for Smith
Brothers, an investment firm that caters to institutional clients. For the past five years,
Johnson has provided investment advice to a local university endowment fund and
received football tickets and parking in return. Johnson does not disclose this
arrangement to her supervisor at Smith Brothers because the time involved will in no
way interfere with her duties in her new position. Johnson has most likely:

A) not violated any Standards.

B) violated the Standards by not obtaining permission from her employer.
C) violated the Standards by failing to disclose a conflict of interest to her employer.

Question #46 of 180 Question ID: 1612105

A simple linear regression model assumes that the model's residuals:

A) are positively correlated.

B) have a constant variance.
C) are distributed lognormally.

Question #47 of 180 Question ID: 1612261

Rob Tegger, CFA, manages the investment account of The Knox Trust. The trustees tell
Tegger they are pleased the account has outperformed its benchmark for the first
three quarters of the year and that if he can outperform the benchmark over the final
quarter, the trust will pay all the expenses for a week's vacation for Tegger and his
wife at a trust property on Maui. To comply with the Code and Standards, Tegger
must:

A) obtain permission from his employer before accepting the offer.

B) reject the offer because it creates a conflict of interest with his other clients.
inform his employer of the offer, but he is not required to obtain permission before
C)
accepting it.

Question #48 of 180 Question ID: 1612262

Brian Lewis, CFA, is a sales associate for Kite Brothers. Kite Brothers compensates
sales associates for referring clients to other units of the company. Lewis
recommends that a client transfer his personal accounts to the retail area of Kite
Brothers. He gives the client supporting documentation that Kite Brothers is a leader
in the retail brokerage industry with a competitive fee structure. The client reviews the
material and decides to move his personal accounts to Kite Brothers. Has Lewis
violated the Standards of Professional Conduct?

No, because Lewis was participating in a legitimate incentive program established by

A)
his employer.
Yes, because Lewis is required to refuse any compensation arrangement that
B)
creates a conflict of interest with his clients.
Yes, because Lewis did not disclose the compensation he earned for the referral to
C)
another department within Kite Brothers.
Question #49 of 180 Question ID: 1612154

Which of the following is most likely an example of conservative accounting?

Decreasing the:

A) bad debt provision from 10% of receivables to 7%.

B) valuation allowance on deferred tax assets from $100,000 to $70,000.
estimated salvage value from $10,000 to $7,000 for an asset that is depreciated
C)
straight-line.

Question #50 of 180 Question ID: 1612116

When forward currency exchange-rate contracts are available, the difference between
the spot and forward exchange rates for a pair of currencies is most likely to reflect
the difference between the two countries':

A) economic growth rates.

B) risk-free interest rates.
C) annual inflation rates.

Question #51 of 180 Question ID: 1612107

StarCaps, a manufacturer of promotional caps, has a lease expense of $100,000 each

period. The labor and materials cost for each cap is $2.00 and StarCaps faces a market
price of $4.50. If StarCaps expects to sell 30,000 caps each period, its most
appropriate action is to:

A) shut down now.

B) continue to operate and renew the lease.
C) continue to operate until the lease expires, then shut down.

Question #52 of 180 Question ID: 1612263

Giselle Holt, CFA, is a portfolio manager in the trust department of State Bank. Holt
recently inherited a substantial amount of stock of Brown & Company and accepted a
position on the board of directors for TVC Plastics, Inc. Many of the trust clients at the
bank hold positions in Brown & Company and in TVC Plastics. According to CFA
Institute Standards of Professional Conduct, Holt must disclose:

A) both the stock ownership and board position to her clients.

B) the board membership to her clients and the stock ownership to State Bank.
C) both the stock ownership and board position to her clients and State Bank.

Question #53 of 180 Question ID: 1612151

A company has a deferred tax liability (DTL) and a deferred tax asset (DTA) on its
balance sheet. The government enacts a decrease in the income tax rate that will take
effect next year. This will:

A) decrease the values of both the DTL and DTA.

B) decrease the value of the DTL and increase the value of the DTA.
C) increase the value of the DTL and decrease the value of the DTA.

Question #54 of 180 Question ID: 1612134

A company is considering whether to allocate capital to a new product line. They

estimate the project will require an initial cash outflow of $3 million. If the new
product succeeds, they foresee a profitable opportunity to expand the project in three
years, which would require a $3 million cash outflow. In evaluating the opportunity to
introduce the new product line, how should the company most appropriately consider
the opportunity to expand the project in the future?

A) Include it and assign it a positive value.

B) Not consider it in the capital allocation decision.
C) Include a probability-weighted negative value for the possible future cash outflow.

Question #55 of 180 Question ID: 1612108

The kinked demand curve oligopoly model is based on a belief that:

A) competing firms that collude to restrict output each have an incentive to cheat.
B) a firm’s competitors will follow a price decrease but will not follow a price increase.
a firm can increase profits by charging different prices to distinct groups of
C)
consumers.

Question #56 of 180 Question ID: 1612264

Amy Liu, CFA, and Tom Yang, a CFA candidate, are preparing a research report on
Tello Industries. Liu includes quotations about the company's earnings prospects,
which she attributes to "investment experts." Yang includes earnings data and balance
sheet ratios he obtained from a Standard & Poor's database without citing their
source. According to the Standards of Practice:

A) both analysts have violated the Standards.

B) neither analyst has violated the Standards.
C) only one of the analysts has violated the Standards.

Question #57 of 180 Question ID: 1612149

A firm recognizes the impairment of a tangible asset in the year 20X1. In the year
20X2, the most likely effect is to decrease:

A) operating cash flow.

B) depreciation expense.
C) taxes due to the government.

Question #58 of 180 Question ID: 1612139

In which step of the financial statement analysis framework should an analyst create
adjusted financial statements?

A) Collect data.
B) Process data.
C) Analyze and interpret data.

Question #59 of 180 Question ID: 1612110

If the inflation rate is higher than the central bank's target rate, an appropriate
monetary policy response is to:

A) decrease the required reserve ratio.

B) increase the interest rate for borrowed reserves.
C) purchase government securities in the open market.

Question #60 of 180 Question ID: 1612265

Wally Manaugh, CFA, rates BriteCo as a "hold." He meets with other analysts in a social
context and overhears a group talking favorably about BriteCo. He believes one of the
group members is a former employee of BriteCo. Upon returning to his office, he
second-guesses his initial analysis and tilts his report to be a bit more favorable.
Manaugh has most likely violated the Standards because he:

A) failed to distinguish fact from opinion.

B) does not have a reasonable and adequate basis.
C) may not act or cause others to act on this information.

Question #61 of 180 Question ID: 1612266

Martin Remy, CFA, has a client who says she expects a large inheritance soon that she
will need to invest. Remy contacts Johan Walker, who handles the fixed-income
portion of the client's portfolio, and informs him about the inheritance. Walker tells
Remy that based on suspicious activity in the client's account, he suspects the
inheritance is actually part of a money laundering scheme. After reviewing Walker's
evidence, Remy is not convinced that illegal activity has occurred, so he consults his
firm's legal counsel and shares the client information pointed out by Walker. Did Remy
violate the Standard related to client confidentiality?
A) Remy’s actions comply with the Standard.
Consulting with the firm’s legal counsel was appropriate, but Remy violated the
B)
Standard by sharing client information with Walker.
Sharing client information with Walker was appropriate, but Remy violated the
C)
Standard by sharing client information with the firm’s legal counsel.

Question #62 of 180 Question ID: 1612150

Lewis Equipment Company manufactured a construction crane with an estimated

useful life of 20 years and market value of $1 million. Valley Builders leases the crane
from Lewis for five years with payments of $100,000 per year. The lease includes an
option to buy the crane at the end of the lease. Both parties expect that Valley will
exercise the purchase option at the end of the lease term. This lease will be reported
on the companies' financial statements as:

A) a finance lease by Valley and Lewis.

B) an operating lease by Valley and Lewis.
C) an operating lease by Valley and a finance lease by Lewis.

Question #63 of 180 Question ID: 1612267

Upon completing investment reports on equity securities, Shannon Mason, CFA,

routinely shreds all documents used in preparing the reports. In a report on UltraTech
Software, Mason provides detailed explanations of the upside and downside risks
associated with UltraTech, but provides no information on a sharp decrease in insider
buying over the last 12 months. Mason has most likely violated:

A) CFA Institute Standards by failing to maintain adequate records.

CFA Institute Standards by neglecting to include the insider buying information in
B)
the investment report.
C) none of the Standards.

Question #64 of 180 Question ID: 1612117

The currency of Xyzia (XYZ) has an exchange rate with the euro (EUR) of 2.50 XYZ/EUR
on July 31 and 2.60 XYZ/EUR on August 31. The euro exchange rate with the U.S. dollar
(USD) is 1.10 USD/EUR on July 31 and 1.20 USD/EUR on August 31. The XYZ has:

A) appreciated relative to the U.S. dollar.

B) depreciated relative to the U.S. dollar.
C) remained unchanged relative to the U.S. dollar.

Question #65 of 180 Question ID: 1612147

Joe's Supermarket has been experiencing rising product prices, while quantities sold
have remained stable. The company uses the LIFO method to account for its
inventory. If the company had used the FIFO method, what impact would it have had
on the company's working capital?

A) No impact on working capital.

B) Lower working capital.
C) Higher working capital.

Question #66 of 180 Question ID: 1612140

Information about the operating profits of a company's various business segments

can be found in the:

A) income statement.
B) auditor’s report.
C) supplementary schedules.

Question #67 of 180 Question ID: 1612144

Investing cash flows most likely reflect changes in which of the firm's balance sheet
items?

A) Noncurrent assets.
B) Noncurrent liabilities and equity.
C) Current assets and current liabilities.

Question #68 of 180 Question ID: 1612268

Mark Hanning, CFA, is writing a research report on a firm. Hanning's supervisor, Rob
Jannsen, sees a draft which includes favorable earnings projections. A few days later,
Hanning obtains additional data that causes him to revise the projections downward.
Right before public distribution of this report, Hanning learns that Jannsen has
substituted the earlier, more favorable earnings projections into the report without
Hanning's knowledge. Hanning should most appropriately:

consult with internal counsel and insist that this matter be reported to the
A)
regulators immediately.
B) insist that either the report be corrected, or his name be removed from the report.
permit publication of this report, but issue a follow-up report correcting the earnings
C)
projections.

Question #69 of 180 Question ID: 1612103

Which of the following statistics is used to test a hypothesis concerning the difference
between the variances of two normally distributed populations?

A) Z-statistic.
B) F-statistic.
C) Chi-square statistic.

Question #70 of 180 Question ID: 1612113

John Bobson states: "By imposing a tariff on a good, a country can increase its own
economic welfare and, when the tariff revenue is included in the calculation, increase
global economic welfare as well." Bobson's statement is:

A) incorrect.
B) correct, if the country is a large importer of the good.
C) correct, if the country is a large exporter of the good.

Question #71 of 180 Question ID: 1612152

JiffyCo's tax rate is 40%. JiffyCo purchases a $200 asset with no salvage value which is
depreciated on a straight-line basis for four years for tax purposes and five years for
financial reporting. At the end of the second year:

A) JiffyCo’s effective tax rate has decreased.

B) the asset’s carrying value is greater than its tax base.
C) the deferred tax liability has a balance of $20.

Question #72 of 180 Question ID: 1612243

To be compliant with GIPS, a firm must:

A) use specified return calculation methods.

B) have their performance presentation verified.
C) omit accounts managed to match a specific stock index.

Question #73 of 180 Question ID: 1612269

To comply with the Standard on material nonpublic information, is it permissible for a

research analyst for a large, multiservice firm, who has responsibility for issuing
investment recommendations on a company, to assist the investment banking side
during a transaction with that company?

A) This is never permitted under CFA Institute Standards.

B) The Member or Candidate may provide limited assistance under tight controls.
This would be allowed only if the Member or Candidate is making a permanent
C)
move to the investment banking side of the firm.
Question #74 of 180 Question ID: 1612148

For a firm that reports under IFRS, required disclosures related to inventories most
likely include:

A) effects on income from liquidating inventory.

B) circumstances of any reversals of inventory writedowns.
C) the difference between inventory values under LIFO and FIFO.

Question #75 of 180 Question ID: 1612111

In the chain of events by which monetary policy affects the economy, which is most
likely to have limitations that make a policy action less effective in achieving its desired
outcome?

A) Changes in interbank lending rates are reflected in other short-term interest rates.
B) Long-term interest rates change in response to changes in short-term interest rates.
Central bank purchases or sales of securities change the amount of excess reserves
C)
in the banking system.

Question #76 of 180 Question ID: 1612138

A higher debt-to equity ratio may lead to a higher weighted average cost of capital
because:

A) adding debt increases the risk of financial distress.

B) the cost of debt is typically greater than the cost of equity.
C) interest payments are only tax deductible up to a threshold.

Question #77 of 180 Question ID: 1612270

Vanessa Richards, CFA, believes MegaRx, a pharmaceutical manufacturer, is likely to
require a goodwill writedown in the upcoming year. Richards writes an investment
recommendation report with the following statement:

"A short strategy is recommended for MegaRx based on the lack of new
prescription drugs in the pipeline and the fact that the company will write
down goodwill sometime in the near future."

Richards's supervisor, James Swanson, CFA, reviews the investment recommendation

report and approves it for public dissemination. Did Richards or Swanson violate any
CFA Institute Standards of Professional Conduct?

A) No violations by Richards or Swanson occurred.

B) Richards has violated the Standards, but Swanson has not.
C) Both Richards and Swanson are in violation of the Standards.

Question #78 of 180 Question ID: 1612142

McLoone Company's basic earnings per share are £1.20. McLoone has £10 million par
value of 5% preference shares outstanding that can be converted into 400,000
common shares. Is McLoone required to report diluted earnings per share?

A) Yes, because the preference shares are dilutive to EPS.

B) No, because the preference shares are not dilutive to EPS.
C) Yes, because the preference shares are potentially dilutive to EPS.

Question #79 of 180 Question ID: 1612096

A 5.8% preferred stock with a par value of $1,000 has an annual yield of 5.4%. A zero-
coupon bond with a face value of $1,000 will mature in 3 years and has a yield of 4.7%
on a semiannual-bond basis. Which security has a higher price today?

A) The preferred stock.

B) The zero-coupon bond.
C) Their prices today are equal.
Question #80 of 180 Question ID: 1612271

Juan Perez, CFA, is an airline industry analyst. Perez does not currently cover New Jet,
a relatively new airline. New Jet believes its new service is unique and has offered first
class tickets to research analysts in the hopes of receiving increased coverage. Perez
believes he can more fully understand the airline's new concept if he is a passenger,
so he accepts a ticket and takes a weekend trip. Perez does not see any differentiation
between New Jet and other airlines, and decides the company is too small to warrant
analytical coverage. According to the Code and Standards, Perez is:

A) required to reject the offer of airline tickets.

permitted to accept the airline tickets, but is required to obtain written permission
B)
from his employer.
permitted to accept the airline tickets, and is not required to obtain written
C)
permission from his employer.

Question #81 of 180 Question ID: 1612109

An economist finds the following characteristics for the market for two products, S
and T:

Product Firm's Pricing Power Concentration Ratio

S Considerable High

T Some Low

Based on the above characteristics, the economist could conclude that the industry
for Product S is:

A) an oligopoly, and the industry for Product T is also an oligopoly.

B) an oligopoly, and the industry for Product T is monopolistic competition.
C) monopolistic competition, and the industry for product T is perfect competition.

Question #82 of 180 Question ID: 1612137

Summit Industries targets a debt-to-equity ratio of 0.33. Its after-tax cost of equity is
13% and its after-tax cost of debt is 5%. The most appropriate estimate for Summit's
WACC is:

A) 10.2%.
B) 10.7%.
C) 11.0%.

Question #83 of 180 Question ID: 1612272

Jack Wilson, CFA, a hedge fund manager, takes a large short position in Bonner, Inc.
stock. After Wilson establishes his short position, Bonner shares trade down 1.15%.
One week later, Bonner shares are trading 3.84% below the initial short price, and
Wilson reverses the short position and establishes a short position in shares of the
company's competitor, Hatch Company. On a well-known investor message board,
Wilson posts a highly critical message about Hatch, which grossly exaggerates
problems with a crucial supplier to Hatch. The day after Wilson's message post, Hatch
shares fall 0.97% and Wilson reverses the short position. Did Wilson's actions related
to Bonner stock and/or Hatch stock violate the CFA Institute Standards of Professional
Conduct?

A) Yes, in both cases.

B) Only in the case of Hatch stock.
C) Only in the case of Bonner stock.

Question #84 of 180 Question ID: 1612155

A company that wants to increase its reported net income for the current period
would be least likely to:

A) decrease a valuation allowance.

B) slow down their payments to suppliers.
C) increase the expected useful life of a machine.
Question #85 of 180 Question ID: 1612115

Under which of the following exchange rate regimes do the actions of a country's
monetary authority keep the domestic currency closest to its stated target exchange
rate with another currency?

A) Fixed peg.
B) Dollarization.
C) Currency board.

Question #86 of 180 Question ID: 1612097

Zach Mann is examining stock performance after classifying stocks according to their
market capitalization (firm size) and P/E ratio. First, Mann ranks stocks based on
market capitalization by grouping stocks into deciles. Then, for each firm size decile,
he classifies stocks into P/E ratio quintiles. The total number of classifications created
by Mann equals:

A) 5.
B) 10.
C) 50.

Question #87 of 180 Question ID: 1612135

A manager is evaluating a potential capital investment project. Which of the following

statements is most accurate regarding the evaluation process?

A) Inflows are more valuable the later in the project’s life they are received.
B) The manager can acceptably use either net income or after-tax cash flows.
C) The focus should be on incremental cash flows rather than overall cash flows.

Question #88 of 180 Question ID: 1612133

A company has estimated the installed cost of a new machine to be $1.5 million. The
machine is expected to increase after-tax cash flows by $600,000 in each of the next
three years and by $300,000 for two years after that. After five years the machine will
be removed and disposed of at a cost of $200,000. If the firm uses a discount rate of
9% for evaluating capital projects, its estimate of the NPV of the proposed investment
will be closest to:

A) $283,000.
B) $296,000.
C) $307,000.

Question #89 of 180 Question ID: 1612158

Fiberfast Industries has an inventory turnover ratio of 5, days of receivables of 42, and
a payables turnover ratio of 3.5. Fiberfast's cash conversion cycle is closest to:

A) 11 days.
B) 73 days.
C) 115 days.

Question #90 of 180 Question ID: 1612100

An investor plans to divide her funds evenly between two assets. Assets 1 and 2 have
standard deviations of 10% and 30%, respectively. If the two assets are perfectly
positively correlated, the standard deviation of returns of the portfolio is closest to:

A) 10%.
B) 15%.
C) 20%.

Question #91 of 180 Question ID: 1612214

For European option prices, a replicating portfolio is required to establish:

A) both lower and upper bounds.

B) lower bounds, but not upper bounds.
C) upper bounds, but not lower bounds.

Question #92 of 180 Question ID: 1612223

A fair value hierarchy for grouping an alternative investment fund's assets is best
described as being based on the:

A) volatility of the assets’ fair values.

B) degree to which the assets’ fair values are observable.
proportion of the fund’s assets under management that each asset’s fair value
C)
represents.

Question #93 of 180 Question ID: 1612200

MDL Corporation's debt is rated B+ by S&P. Which of the following statements about
MDL's debt is most accurate?

A) MDL currently has the capacity to meet its financial obligations.

B) Default on the debt has not yet occurred, but is likely to occur shortly.
C) A one-notch upgrade would move the debt from high yield to investment grade.

Question #94 of 180 Question ID: 1612166

A portfolio manager creates an index for internal benchmarking, consisting of 1,000

shares of 20 different securities. This index is best characterized as a(n):

A) price-weighted index.
B) equal-weighted index.
C) market-capitalization-weighted index.
Question #95 of 180 Question ID: 1612121

Which of the following is an assumption of the Capital Asset Pricing Model?

A) Markets have transaction costs.

B) Investments are infinitely divisible.
C) Investors have heterogeneous expectations.

Question #96 of 180 Question ID: 1612183

For a given company, holding other things constant, the company's enterprise value
multiple would most likely be increased by:

A) lower taxes paid.

B) a lower market value of debt.
C) less cash on the balance sheet.

Question #97 of 180 Question ID: 1612228

An appropriate natural resource investment for an investor who is interested in price

appreciation, but does not require income stemming from outputs, is most likely to
be:

A) raw land.
B) farmland.
C) timberland.

Question #98 of 180 Question ID: 1612168

A fundamental-weighted index is most likely to have a:

A) price tilt.
B) value tilt.
C) momentum tilt.
Question #99 of 180 Question ID: 1612118

A risk averse investor is best described as an individual who:

A) only invests in risk-free investments.

B) will choose a relatively low-risk portfolio.
prefers investments with less risk to those with more risk if they have the same
C)
expected return.

Question #100 of 180 Question ID: 1612204

An important difference between a covered bond and an ABS backed by the same
bank loans is that:

A) principal is repaid sooner with covered bonds than with ABS.

B) covered bonds provide better credit protection to the buyer than ABS.
issuing covered bonds reduces the reserves a bank must hold to back its loans,
C)
compared to issuing ABS.

Question #101 of 180 Question ID: 1612177

An analyst performing a PESTLE analysis of a firm is most likely to describe the:

A) power of the firm’s suppliers.

B) economic factors that affect the firm.
C) threat of substitutes for the firm’s products.

Question #102 of 180 Question ID: 1612219

What features do alternative investments typically exhibit compared to traditional

investments?

A) Longer time horizons and larger investment size.

B) Longer time horizons and less specialized knowledge.
C) Larger investment size and less specialized knowledge.

Question #103 of 180 Question ID: 1612124

The monetary authority is pursuing an expansionary monetary policy and has

decreased the risk-free rate of return. If the market's expected return is unchanged,
the capital asset pricing model predicts that the expected return for a common stock
that has less systematic risk than the market portfolio will:

A) increase.
B) decrease.
C) be unchanged.

Question #104 of 180 Question ID: 1612237

The ESG investment approach that involves investing in companies in an attempt to

promote specific ESG-related goals is:

A) full integration.
B) positive screening.
C) thematic investing.

Question #105 of 180 Question ID: 1612198

Bond X is a 4% coupon, 5-year bond trading at par. Bond Y is identical to Bond X in all
respects except that Bond Y has an embedded put option. Bond Y will have a:

A) lower effective duration than Bond X and will have positive effective convexity.
B) lower effective duration than Bond X and will have negative effective convexity.
C) higher effective duration than Bond X and will have positive effective convexity.
Question #106 of 180 Question ID: 1612178

An analyst relies on summary forecasting measures including earnings per share and
free cash flow metrics in estimating a company's future financial data. Which of the
following features is an advantage of using this forecasting approach?

A) Efficiency.
B) Transparency.
C) Ease of auditing forecasts.

Question #107 of 180 Question ID: 1612220

An investment in a private equity fund that pursues a convertible arbitrage strategy is

most likely to require a management fee which is a percentage of:

A) committed capital.
B) capital drawn down for investment.
C) end-of-year assets under management.

Question #108 of 180 Question ID: 1612189

A 210-day certificate of deposit investment of $48.3 million will produce a redemption

amount at maturity of $50 million. The add-on yield of the certificate of deposit,
assuming a 365-day year, is closest to:

A) 3.5%.
B) 5.9%.
C) 6.1%.

Question #109 of 180 Question ID: 1612163

Yvette Rambeau has sold short 300 shares of Precision Instruments at $35. She enters
a good-til-cancelled buy order on 300 shares with a stop price of 40 and a limit of 42.
The maximum loss Rambeau will potentially realize on this strategy, if the price of
Precision Instruments rises above the stop price, is:

A) $1,500.
B) $2,100.
C) unlimited.

Question #110 of 180 Question ID: 1612233

An investor who already has commodity futures contracts in her investment portfolio
is considering adding cryptocurrency futures contracts. Relative to her current futures
holdings, she can expect cryptocurrency futures contracts to be less:

A) liquid.
B) volatile.
C) levered.

Question #111 of 180 Question ID: 1612125

An analyst predicts that the return on Royal Company stock will be 15%. The analyst is
provided with the following data for Royal and the broad market:

Royal Company beta 1.5

Risk-free rate 5%

Expected market return 11%

Based on these data, the analyst should conclude that Royal Company stock is:

A) overvalued.
B) undervalued.
C) correctly valued.
Question #112 of 180 Question ID: 1612195

Consider a 10-year a zero-coupon bond with a yield-to-maturity on a semiannual basis

of 6.5%. The money duration of this bond per 100 of face value is closest to:

A) 495.
B) 497.
C) 499.

Question #113 of 180 Question ID: 1612174

A highly competitive market with low pricing power is most likely to feature:

A) limited substitutes.
B) low barriers to entry.
C) differentiated products.

Question #114 of 180 Question ID: 1612231

Which of the following strategies is least likely to be pursued by a hedge fund?

A) Relative value.
B) Market neutral.
C) Management buyouts.

Question #115 of 180 Question ID: 1612186

The lowest-cost source of short-term funding for a large creditworthy company is:

A) factoring of receivables.
B) issuing commercial paper.
C) an uncommitted line of credit.
Question #116 of 180 Question ID: 1612241

The risk that extreme outcomes are more likely than an analyst has estimated is most
accurately described as:

A) tail risk.
B) asymmetric risk.
C) positive kurtosis.

Question #117 of 180 Question ID: 1612176

When performing an industry analysis, an analyst should use Porter's five forces to:

A) define the industry.

B) analyze the industry structure.
C) evaluate external influences on the industry.

Question #118 of 180 Question ID: 1612234

Which action is most likely to occur at the beginning of the portfolio management
process?

A) Asset allocation.
B) Security analysis.
C) Benchmark identification.

Question #119 of 180 Question ID: 1612201

Trudd Corporation recently issued a 4% fixed-coupon 10-year senior unsecured bond.

The bond currently has a credit spread of 70 bp relative to a 10-year benchmark bond.
A bond investor estimates the bond has a 4% probability of default and a loss given
default of 20%. Should the investor buy this bond?

A) No.
B) Yes, because the credit spread fairly compensates for assuming its credit risk.
 Yes, because the credit spread more than fairly compensates for assuming its credit
C)
risk.

Question #120 of 180 Question ID: 1612221

In the context of alternative investments, the most likely reason to pursue direct
investing is:

A) reduced need for due diligence.

B) greater control over the investments.
C) lower minimum investment amounts.

Question #121 of 180 Question ID: 1612180

Agriff Company paid a dividend of $1.90 per share last year. Dividends are expected to
grow at a constant rate of 6%. The risk-free rate is 5%, the market risk premium is 7%,
and the beta of the common shares is 1.3. The value of the Agriff Company's common
shares is closest to:

A) $22.15.
B) $23.45.
C) $24.85.

Question #122 of 180 Question ID: 1612242

A small bank has calculated a one-month Value at Risk (VaR) of $10 million with a
probability of 2.5%. This result is most appropriately interpreted as:

A) a maximum loss of $250,000 is expected in any given month.

B) in 2.5% of months, the bank will lose a maximum of $10 million.
C) a one-month loss of $10 million is expected to happen in 2.5% of months.
Question #123 of 180 Question ID: 1612215

For three otherwise identical bonds, which feature would result in the largest increase
in value during a period of rising interest rate volatility?

A) Put feature.
B) Call feature.
C) Floating rate coupon.

Question #124 of 180 Question ID: 1612206

Unlike the loans underlying agency mortgage-backed securities, the loans underlying
commercial mortgage-backed securities:

A) may be recourse loans.

B) often include call protection.
C) have maximum loan-to-value requirements.

Question #125 of 180 Question ID: 1612207

Natalia Coffey enters a forward contract to sell 10,000 shares of Drebin PLC for £120
per share. By entering this contract, Coffey most likely:

A) establishes a hedge.
B) takes on short exposure to the underlying.
C) agrees to deliver 10,000 shares on the settlement date.

Question #126 of 180 Question ID: 1612229

For investments in managed futures, a financial advisor would most appropriately

recommend a separately managed account to:

A) smaller investors who require more guidance.

B) smaller investors who need customized portfolios.
C) larger investors who need customized portfolios.
Question #127 of 180 Question ID: 1612164

A trader has a position in Atlas Semiconductor and wants to sell the shares if the price
falls to 72 or less. The order she should enter is a:

A) limit sell order 72.

B) stop sell order at 72.
C) stop sell order at 72 with a limit of 72.

Question #128 of 180 Question ID: 1612179

Jones Company declares a 10% stock dividend. Smith Company carries out a 1-for-2
reverse stock split. Other things equal and ignoring transactions costs, what effects
will these transactions have on shareholders' equity?

A) Both Jones and Smith will decrease their shareholders’ equity.

B) Neither Jones nor Smith will change their shareholders’ equity.
Jones will decrease its shareholders’ equity and Smith will increase its shareholders’
C)
equity.

Question #129 of 180 Question ID: 1612172

For a profitable and rapidly growing firm, holders of preference shares are least likely
to benefit from the firm's growth if the preference shares are:

A) convertible.
B) cumulative.
C) participating.

Question #130 of 180 Question ID: 1612199

An investor holds a high-yield bond during an economic contraction that decreases
the risk-free benchmark yield. Other things equal, in this scenario the bond's
analytical duration will most likely be:

A) less than an empirical duration estimate.

B) greater than an empirical duration estimate.
C) approximately equal to an empirical duration estimate.

Question #131 of 180 Question ID: 1612239

Which of the following behavioral biases is a financial advisor most likely to be able to
mitigate by educating the client?

A) Status quo.
B) Loss aversion.
C) Illusion of control.

Question #132 of 180 Question ID: 1612225

If a venture capital fund makes loans directly to a private company without involving
other parties, the debt is most likely to be:

A) senior secured debt.

B) senior unsecured debt.
C) junior unsecured debt.

Question #133 of 180 Question ID: 1612218

A one-period binomial model for pricing a call option with an exercise price of 30.0 has
a hedge ratio of 0.4. If the model assumes the underlying price is 33.0 after an up-
move, the value it assumes for the underlying after a down-move is closest to:

A) 25.5.
B) 28.8.
C) 31.1.
Question #134 of 180 Question ID: 1612193

Samuelson Company has two bond issues outstanding. One is a zero coupon bond.
The other has a 10% semiannual coupon. Both bonds have AA credit ratings, 10 years
to maturity, and yields to maturity of 7.5%. The zero coupon bond has:

A) less reinvestment risk and less interest rate risk than the coupon paying bond.
B) more reinvestment risk and less interest rate risk than the coupon paying bond.
C) less reinvestment risk and more interest rate risk than the coupon paying bond.

Question #135 of 180 Question ID: 1612170

Securities regulators determine that Pat Burowski gained $400,000 making consistent
abnormal profits over a period of five years by acting on material nonpublic
information. Based only on this, what can be concluded about the efficiency of the
market in which Burowski was acting?

A) It may be strong-form efficient.

B) It is not strong-form efficient or semi-strong-form efficient.
C) It is not strong-form efficient but it may be semi-strong-form efficient.

Question #136 of 180 Question ID: 1573290

An investor's wealth is approximately 50% in bonds and broad-based equities and

50% in shares of a company she founded. Which of the following measures of risk-
adjusted returns is least appropriate for this investor's portfolio?

A) M-squared.
B) Sharpe ratio.
C) Jensen’s alpha.

Question #137 of 180 Question ID: 1612209

A 30-day forward rate agreement on 90-day LIBOR is most likely to be used by:

A) a lender to lock in an interest rate on a loan it has made to a third party.

B) a borrower to lock in an interest rate on a loan it will take out in 30 days' time.
an investor to offset the risk of a long position in a zero coupon bond maturing in 90
C)
days.

Question #138 of 180 Question ID: 1612169

Which of the following security indexes requires the most frequent reconstitution?

A) Equal-weighted sector index of equity securities.

B) Fundamental-weighted style index of equity securities.
C) Value-weighted broad market index of fixed income securities.

Question #139 of 180 Question ID: 1612187

Recently issued government bonds that trade frequently are least likely referred to as:

A) benchmark bonds.
B) on-the-run bonds.
C) current yield bonds.

Question #140 of 180 Question ID: 1612120

A portfolio is 40% invested in Asset J and 60% invested in Asset K. Which of the
following correlations between Asset J and Asset K will result in the lowest portfolio
risk?

A) –0.4.
B) 0.0.
C) +0.7.
Question #141 of 180 Question ID: 1612194

An annual-pay bond with a modified duration of 7.61 is priced with a yield-to-maturity

of 7.5%. If an investor has an expected holding period for the bond of 8 years, an
investment in this bond will have reinvestment risk that:

A) is less than its price risk.

B) just offsets its price risk.
C) is greater than its price risk.

Question #142 of 180 Question ID: 1612212

The price of an existing fixed-for-floating interest rate swap will:

A) be unaffected by changes in the market reference rate after the swap is initiated.
increase if the market reference rate increases consistently between the first and
B)
last settlement date.
increase if the market reference rate decreases consistently between the first and
C)
last settlement date.

Question #143 of 180 Question ID: 1612184

Holding other factors constant, a stock's expected price-to-earnings ratio:

A) increases as the expected dividend payout ratio decreases.

B) decreases as the expected constant growth rate of dividends increases.
decreases as the difference widens between the required rate of return on the stock
C)
and the expected constant growth rate of dividends.

Question #144 of 180 Question ID: 1612161

A financial intermediary that offers to buy an asset at a bid price and to sell the same
asset at an ask price is best described as:
A) a dealer.
B) a broker.
C) an arbitrageur.

Question #145 of 180 Question ID: 1612188

A $50,000 10-year 7% bond with semi-annual coupon payments is issued on January 1,

20X0. The full price for a trade of this bond, with a 7% yield to maturity to settle on
April 30, 20X6, using the 30/360 day-count convention, is closest to:

A) $51,150.
B) $51,164.
C) $51,177.

Question #146 of 180 Question ID: 1612191

An annual-pay 5% coupon corporate bond with two years to maturity is trading with a
zero-volatility spread of 150 basis points. The 1-year government bond spot rate is
3.5%, and the 2-year government bond spot rate is 4.0%. The price of the corporate
bond (as a percent of par) is closest to:

A) 99.10.
B) 99.55.
C) 101.90.

Question #147 of 180 Question ID: 1612216

If put-call parity holds, a long asset position, combined with a long put option and
short call option on the same asset with the same exercise price and expiration date,
will have a payoff at the expiration date of the options equal to:

A) the asset price.

B) the exercise price of the options.
C) the exercise price of the options minus the asset price.
Question #148 of 180 Question ID: 1613473

Dr. Parker invested $2.5 million in Able Fund at the beginning of 20X1 and agreed to a
2-and-15 structure for fees with a hard hurdle rate of 5%. Management and incentive
fees are calculated independently based on year-end assets under management. If
the net asset value of Parker's investment before fees reached $3.5 million at the end
of 20X1, Parker's return after fees is closest to:

A) 30%.
B) 31%.
C) 32%.

Question #149 of 180 Question ID: 1612226

The stage of venture capital investing that involves product development and market
research is referred to as the:

A) seed stage.
B) early stage.
C) angel investing stage.

Question #150 of 180 Question ID: 1612235

Low risk tolerance and high liquidity needs are typical characteristics of which type of
investor?

A) Banks.
B) Foundations.
C) Defined benefit pension plans.

Question #151 of 180 Question ID: 1612162

An investor who sells a stock short is most likely required to:

A) lend the stock.

B) make dividend payments.
C) pay margin loan interest.

Question #152 of 180 Question ID: 1612208

A similarity between interest rate swaps and credit default swaps is that both:

A) are forward commitments.

B) specify a market reference rate.
C) have payments based on a notional principal.

Question #153 of 180 Question ID: 1612190

A floating-rate note that uses 6-month LIBOR as a reference rate has a quoted margin
of +25 basis points and a required margin of +15 basis points. At its next coupon reset
date, the note's price is most likely to be:

A) equal to par value.

B) less than par value.
C) greater than par value.

Question #154 of 180 Question ID: 1612232

A hedge fund that uses a market neutral strategy is most likely to have approximately
equal investments in:

A) long and short equities.

B) equities and fixed income.
C) domestic and international markets.
Question #155 of 180 Question ID: 1612236

The creation and redemption of shares by authorized participants, which keeps the
price of fund shares close to their net asset value, is a feature unique to which of the
following types of pooled investments?

A) Hedge funds.
B) Closed-end funds.
C) Exchange-traded funds.

Question #156 of 180 Question ID: 1612173

A market in which prices are unbiased estimators of the intrinsic value of securities is
said to be:

A) operationally efficient.
B) allocationally efficient.
C) informationally efficient.

Question #157 of 180 Question ID: 1612181

Jack George, CFA, is evaluating Dunger, Inc., a waste management firm. The company
has been experiencing a strong 15% growth rate, which is forecast to continue over
the next three years before growth slows to a sustainable rate of 8%. The company
recently paid a dividend of $0.50 per share. George has calculated a 10% weighted
average cost of capital for Dunger. The firm has no debt. The company's last reported
trade was $35 per share. Based on the multi-stage dividend discount model, George
should:

A) not buy the stock.

B) buy the stock because its intrinsic value is $38 per share.
C) buy the stock because its intrinsic value is $41 per share.
Question #158 of 180 Question ID: 1612217

When put-call-forward parity for European options holds, the present value of the
price of a forward contract on an asset:

plus the value of a put option is equal to the value of a long call option on the same
A) underlying asset plus a long zero coupon risk-free bond with face value equal to the
exercise price of the options.
plus the value of a call option is equal to the value of a long call option on the same
B) underlying asset plus a long zero coupon risk-free bond with face value equal to the
exercise price of the options.
less the value of a put option is equal to the value of a long call option on the same
C) underlying asset plus a long zero coupon risk-free bond with face value equal to the
exercise price of the options.

Question #159 of 180 Question ID: 1612122

An analyst uses a multifactor model to estimate the sensitivity of returns to a range of

factors, including research expenditures of the firm. This factor is most accurately
classified as:

A) statistical.
B) fundamental.
C) macroeconomic.

Question #160 of 180 Question ID: 1612205

A bond for which the holder has a legal claim on specific financial assets as well as the
overall assets of the issuing corporation is most appropriately termed:

A) a secured bond.
B) a covered bond.
C) an asset-backed security.
Question #161 of 180 Question ID: 1612123

Capital market theory implies that all investors:

A) hold at least some of the risk-free asset.

B) who hold risky assets will invest in the market portfolio.
C) will select portfolios that lie on the Markowitz efficient frontier.

Question #162 of 180 Question ID: 1612240

A stock price recently peaked at $45 per share, after which it has declined to its
current value of $38. If an investor believes that $45 was a rational price even without
fundamental evidence to support it, this is best viewed as an example of:

A) anchoring.
B) overconfidence.
C) confirmation bias.

Question #163 of 180 Question ID: 1612192

A three-year annual-pay euro-denominated bond pays an annual coupon of 3%.

Current euro spot rates are:

1 yr. 2.5%

2 yr. 3.0%

3 yr. 4.0%

The value of the bond per €100 of face value is closest to:

A) 95.6.
B) 97.3
C) 99.6.

Question #164 of 180 Question ID: 1612227

Bob Johnson, a technology consultant, is a high net worth investor. He wants to
passively invest up to 20% of his net worth in real estate as a diversified part of his
investment portfolio. Johnson should most appropriately invest in:

A) a real estate investment trust.

B) a long-term net leased property.
C) several residential rental properties.

Question #165 of 180 Question ID: 1612196

Rob Ealey purchases an option-free bond with a 6.5% coupon that is currently selling
at 94.73 to yield 7.25%. If yields increase by 50 basis points, the new price of the
bonds would be 91.41, and if yields decrease by 50 basis points, the new price of the
bond would be 98.20. If yields decrease by 75 basis points, the price of the bond
would be closest to:

A) 89.64.
B) 99.82.
C) 104.92.

Question #166 of 180 Question ID: 1612211

An investor takes a long position in a commodity forward contract at a forward price

of 105 when the spot price is 102. One month later the spot price has increased to
110. At that time, the forward price of the contract is:

A) 105.
B) Greater than 110.
C) Between 105 and 110.

Question #167 of 180 Question ID: 1612182

An analyst is most likely to use a free cash flow model to value an equity security of a
firm that is:
A) expected to grow at a constant rate.
B) not expected to pay a dividend in the near future.
C) in a period of rapid growth that is not expected to persist.

Question #168 of 180 Question ID: 1612165

Shares of Mitchell Company trade on an exchange. Mitchell wants to raise equity

capital by issuing additional shares. An investment bank buys the new shares from
Mitchell and sells them to interested buyers. This transaction is most accurately
described as:

A) underwriting an IPO.
B) a best-efforts offering.
C) a secondary issue of shares.

Question #169 of 180 Question ID: 1612171

Active portfolio management is unlikely to outperform passive portfolio management

over time:

A) if markets are weak-form efficient.

B) if markets are semi-strong-form efficient.
C) even if markets are not weak-form efficient.

Question #170 of 180 Question ID: 1612202

For a corporate bond, it is most likely that a decrease in its bond rating will:

A) be preceded by a decrease in price.

B) increase expected loss severity.
C) be followed by a decrease in the bond’s credit spread.
Question #171 of 180 Question ID: 1612197

A bond currently trading at a yield-to-maturity of 7.8% is priced at 101.7 per $100 of

face value. If the yield falls to 7.5% the bond will trade at 104.4 and if the yield
increases to 8.1% the bond will trade at 99.1. The approximate convexity of this bond
is:

A) 98.25.
B) 109.25
C) 112.25.

Question #172 of 180 Question ID: 1612238

A portfolio manager and a client are developing an investment policy statement (IPS).
The client works as an auditor for a public accounting firm that has a policy prohibiting
its employees from investing in companies the firm audits. This restriction is most
appropriately:

A) not included in the IPS.

B) listed in the IPS as a constraint.
C) listed in an appendix to the IPS.

Question #173 of 180 Question ID: 1612230

When a commodity has very little or no convenience yield, the futures market is said
to be in:

A) contango.
B) backwardation.
C) no-arbitrage equilibrium.

Question #174 of 180 Question ID: 1612185

Which of the following statements about an inverted bond yield curve of an issuer is
most accurate?

A) Investors perceive longer-maturity bonds to have greater risk.

B) The shorter the bond maturity, the lower the YTM.
An investor who wants the highest YTM bond should purchase the shortest maturity
C)
bond.

Question #175 of 180 Question ID: 1612213

Which of the following statements regarding the differences between interest rate
swaps and forward rate agreements is most accurate?

Forward rate agreements are commitments, whereas interest rate swaps are
A)
contingent claims.
Forward rate agreements have a single settlement date, whereas interest rate swaps
B)
have several settlement dates.
Ignoring transactions costs, forward rate agreements require no upfront payment,
C)
whereas interest rate swaps require the payment of an upfront premium.

Question #176 of 180 Question ID: 1612119

The covariance of monthly returns for two stocks is 0.91. Based on the covariance, it is
most accurate to conclude that the monthly returns on these two stocks have:

A) no linear relationship.
B) a strong linear relationship.
C) a positive linear relationship.

Question #177 of 180 Question ID: 1612203

In securitization, the party that purchases the loans is least likely:

A) the issuer.
B) the servicer.
C) a special purpose entity.

Question #178 of 180 Question ID: 1612222

A clawback provision is most likely to be included in the partnership agreement of an

alternative investment fund that has:

A) a catch-up clause.
B) a high-water mark.
C) a deal-by-deal waterfall.

Question #179 of 180 Question ID: 1612210

Consider an investor who writes a put on a share at X for premium of $5 and an

investor who takes a long forward position at X in the same asset for the same period.
If ST is the asset price at settlement, both investors will have the same profit at
settlement only if:

A) ST – X = $5.
B) ST – X ≤ 0.
C) X – ST = $5.

Question #180 of 180 Question ID: 1612167

An index is composed of the following three stocks:

December 31, 20X1 December 31, 20X2

Stock Price Shares Price Shares

Perez $140 1,000,000 $154 1,000,000

Quinton $70 1,500,000 $70 2,000,000

Ranovich $90 2,000,000 $81 2,000,000

An equal-weighted index of the three stocks has a value on December 31, 20X1 = 100.
The index value on December 31, 20X2 is closest to:

A) 100.
B) 102.
C) 107.