» CFA 1 – 50 questions

Roberto Vargas, CFA, is in charge of the compliance program at his investment firm. According to the Standards of Practice Handbook, as a supervisor, Vargas is least likely required to:

respond promptly to all violations.

disseminate the contents of the program to all personnel.

incorporate a professional conduct evaluation as part of an employee’s performance review.

If the yield curve rises uniformly, how would the price of a 8.5% coupon bond yielding 2.75% most likely change in a year?

It will decrease.

It will increase.

It will not change.

What would be a recommended action for a firm that has disclosed material non-public information in an analyst meeting?

The firm should not act on the information for at least 5 working days.

The firm should promptly issue a press release.

The firm should promptly issue a notification to the analysts for not taking any action until the information is disseminated.

Comel Systems, Inc. is exploring entering a new product line. This particular line is significantly riskier (both generally and systematically) than the other lines. If Comel's weighted average cost of capital is 8.0%, the rate it should use in assessing the new product line is most likely:

equal to 8.0%

greater than 8.0%

less than 8.0%

Which of the following situations least likely constitutes a violation of CFA Institute Code and Standards?

A portfolio manager allocates oversubscribed IPO shares to suitable non-family client accounts prior to family client accounts to avoid the appearance of a conflict of interest.

A senior research analyst obtained information concerning a potential merger deal pertaining to an issuer company he covers, which is yet to be publically released. The researcher disclosed this information to his supervisor and compliance department.

Mark Greer recently passed the CFA Level ll exam of the CFA Program and does not intend to appear for the CFA Level lll examination for at least three years. Greer identifies himself as an active candidate of the CFA Program.

In the event of bankruptcy, which of the following is most accurate?

Junior subordinated loans are subordinate to senior subordinated loans.

Senior secured loans are subordinate to subordinated loans.

Senior subordinated loans are subordinate to junior subordinated loans.

Generating higher returns from security selection most likely depends upon:

lower index turnover and passive management.

higher informational efficiency and lower index turnover.

lower informational efficiency and higher skills of investment managers.

Which of the following is considered to be best practice from shareowners’ perspective?

Board and management should be able to use cash or available credit lines to pay hostile bidders to forgo takeover.

Acquiring entity is required to deal directly with management and board.

Under change-in-control provisions, executives should not be granted severance packages to leave the company.

Leading economic indicators (LEI) are variables that:

change before nominal GDP of economy changes.

provide information regarding economy’s past condition.

are useful for predicting economy’s near-term future state.

Which of the following is most accurate regarding a futures contract but not a forward contract?

A futures contract is subject to more default risk

A futures contract is standardized and sold on an exchange

A futures contract is not marked to market.

An analyst is conducting a market liquidity study. After studying a stratified sample of dividend-paying stocks, the analyst concludes that the economy is sufficiently liquid and that the stock market may be undervalued. What trap has this analyst most likely fallen into?

Data mining bias

Look-ahead bias

Sample selection bias

A lognormal distribution:

may well describe a stock price whose continuously compounded returns do not follow a normal distribution.

is bounded below by 1 and has a long right tail.

is not completely described by two parameters i.e. the mean and the variance.

A high-tech industry only has 3 large firms operating in it. This is most likely a:

concentrated industry.

low-cost industry.

fragmented industry.

A hypothetical futures contract has a current market price of $19 and initial margin requirement of $9. The maintenance margin requirement is $4. For 15 short contracts, the price at which a margin call will trigger is:

$24.

$14.

$10.

A stock index representing U.S. manufacturing would most accurately be described as a:

Examining investor biases

Data mining

sector index.

The elements directly related to measurement of financial performance least likely include:

capital maintenance adjustments.

expenses

liabilities

Which of the following orders would most likely go unexecuted?

A marketable limit order

A market order

A short sale order above the market price

Under which of the following situations would a nonparametric test be more appropriate than a parametric test?

When comparing population means

When the sample size is small and significantly not normally distributed

When studying population variance

Investor N agrees to pay Investor R $18,000 in 3 months for 5000 bushels of corn. Investor N and Investor R most likely entered into a(n):

Forward contract

Swaps contract

Options contract

A corporation’s board of directors typically has several committees that serve various functions. The committees furthermore report to the board regularly. Which of the following board committees is most likely responsible for monitoring the financial reporting process?

Governance Committee

Audit Committee

Investment Committee

Which of the following is least likely an (International Organization of Securities Commissions) (IOSCO) principle for issuers? Issuers should:

prepare their financial statements using internationally acceptable accounting standards.

timely, fully and accurately disclose financial results, risks and other material information to investors.

make consistent choices with respect to accounting standards and their financial statements should be comparable.

Of the following, which represent the most significant advantage of real estate?

Markets are homogeneous across types and geography

Properties can be an inflation hedge

Little work required to hold properties long-term

Reginald Fuller manages institutional portfolios on behalf of BDY Advisors. Fuller also manages an account of a trust company named SOTO Trust. The trust offered Fuller a $50,000 cash gift if he succeeded in achieving a 20% return this year. The best practice for Fuller includes:

accepting the offer and achieving the target without compromising his objectivity towards other clients.

refusing the offer of SOTO trust to avoid a conflict of interest with his employer.

making an immediate written report to his employer specifying the$50,000 cash offer proposed by the trust

Bonds issued by special purpose vehicles most likely have a higher credit ratings than their sponsor's unsecured bonds because they:

are backed by collateral.

have a shorter maturity.

pay a higher coupon rate.

Under which measurement scale is data categorized, but not ranked?

An interval scale.

A nominal scale.

An ordinal scale.

You are testing the hypothesis that the equity risk premium is equal to 2.5%. Which of the following is the most appropriate alternative hypothesis?

The equity risk premium is not equal to 2.5%

The equity risk premium is equal to 2.5%

The equity risk premium is less than 2.5%

The debt-to-assets ratio is most accurately classified as a:

solvency ratio.

valuation ratio.

liquidity ratio.

Earth, Sun, Moon, and Star firms have market shares of 28%, 22%, 15%, and 10% respectively. The 4-firm Herfindahl-Hirschman Index is closest to:

0.1609.

0.1593.

0.1871.

The distinction between items listed as current assets on a balance sheet and those listed as non-current assets is most likely based on differences in:

solvency

liquidity

growth

In conversation with a prospective client, a portfolio manager stated “I cannot guarantee that you will earn 18% on equities this year but I can provide you a range within which your return will lie. My range is quite popular among my clients and has a history of ten years. Each year, I develop the range by using financial models, economic forecasts and accredited reports. Based on the CFA Institute Standards, the portfolio manager:

violated standard III-D ‘Performance Presentation’.

violated standard I-C ‘Misrepresentation’.

did not violate any standard.

Which of the following is least likely a macroeconomic influence that affects an industry’s growth? Changes in:

technologies.

interest rates.

inflation.

Which of these characteristics best describe commodity goods?

High competition and low profitability.

High competition and high profitability.

Low competition and high profitability.

Which type of financing is required for a leveraged buyout?

Internal financing

Equity financing

Debt financing

Which of the following statements is most likely correct regarding the fundamental weighting method?

It is similar to momentum investment strategy where securities’ weights are reduced when their relative investment values are increased.

It is biased towards highest priced stocks as they receive highest weights in the index.

It is not biased towards shares of firms with largest market capitalization.

Regarding business segments, companies are not required to provide:

factors used to identify reportable segments.

disclose segment information under both IFRS and U.S, GAAP.

full financial statements for segments.

A portfolio manager's small cap portfolio has a beta of 1.2 and standard deviation of 40%. Over the past year, the portfolio returned 10%, the market returned 7%, and the risk-free rate was 2%. The Sharpe ratio is closest to:

0.4

0.3

0.2

Anita Vizquel, CFA, is a sole practitioner providing investment advisory services. Based on extensive and ongoing research, Vizquel believes that Viatex Brokerage provides the best execution at a competitive price and she uses the firm for the majority of her clients' trades. In recognition of her loyalty, Viatex provides Vizquel with soft dollar commissions in the form of research reports that Vizquel finds very relevant for some, but not all, of her clients. Has Vizquel violated the CFA Standards?

Yes, by accepting research reports that do not benefit all of her clients

No

Yes, by using Viatex for the majority of her client's trades

A trader is analyzing the impact of a recent increase in the volatility of a particular stock on the value of European call and put options on that underlying. Increase in the volatility will most likely lead to:

An increase in the value of the call option and a decrease in the value of the put option.

An increase in the value of the put option and a decrease in the value of the call option.

An increase in the value of both call and put options.

A real exchange rate is different from a nominal exchange rate in that the real exchange rate:

Is measured in the local currency

Considers changes in purchasing power

Is easier to calculate than the nominal rate

lf a firm is unwilling to permit dissemination of adverse opinions about a corporate client, members or candidates should least likely:

put it on a restricted list so that firm disseminates only factual information about the company.

encourage the firm to disseminate the adverse opinions in a press release or in oral presentation.

encourage the firm to remove the controversial company from the research universe.

The joint probability of events A and B is 32 percent with the probability of event A being 60 percent and the probability of event B being 50 percent. Based on this information, the conditional probability of event A given event B has occurred is closest to:

64.0%.

53.3%.

30.0%.

In April, a farmer goes to the local co-op and puts together a contract agreeing to sell 10,000 bushels of corn at $6.50 a bushel on November 1. This type of an agreement is best described as a:

Swap

Futures contract

Forward contract

Venture capital most commonly refers to:

Minority investing in mature capital

Financing for start-ups

Privatizing public firms

Investor A has a lower risk aversion than Investor B, and Investor C has a lower risk tolerance than Investor B. Which investor's optimal portfolio will most likely have the highest expected return on the capital allocation line?

Investor B's optimal portfolio

Investor C's optimal portfolio

Investor A's optimal portfolio

Given callable common shares:

the shareholder has the right to buy more shares at a pre-established price.

the company has the right to buy back the shares at a pre-established price.

the shareholder has the right to sell back the shares at a pre-established price.

When choosing one of two mutually exclusive projects, which is the preferred method?

IRR

There is no preference between NPV and IRR

NPV

You are given: Price of corn today: $7.00 per bushel 1-year corn future: $8.00 per bushel Which of the following terms most accurately describes this environment?

Contango

Inverted

Backwardation

Which of the following statements is least likely accurate?

Management actions can directly influence book value.

Management actions do not influence book value or market value.

Management actions have an indirect impact on market value.

A consumer with a steeper indifference curve most likely indicates that his marginal rate of substitution (MRSXY) is:

lower and he can give up more of good X to get an additional unit of good Y.

greater and he cannot gain from voluntary exchange with the consumer whose MRSXY is lower.

greater and he can give up more of good Y to get an additional unit of good X.

For venture capital investing, later stage financing is the capital provided for a company:

to plan for major expansion.

to prepare for an IPO.

to initiate commercial manufacturing and sales.

CFA 1 - 50 Questions