» CFA 1 – 25 questions

Which of the following transactions do not offset each other?

'Provision for doubtful debts' and 'trade receivables'

'Accumulated depreciation' and 'property, plant and equipment'

'Dividends paid to shareholders' and 'dividends received from an investment in equity'

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:

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

disseminate the contents of the program to all personnel.

respond promptly to all violations.

An investor purchases a 1-month out-of-the-money American call option on a stock. A week later, the stock price is less than the call option strike price. The time value of the option is most likely:

Zero.

A positive amount.

A negative amount.

Flavo Inc. is reporting under IFRS and has outstanding bonds amounting to $150 million with 5 years to maturity. The company decides to redeem the bonds at the call price of $144 million. The correct accounting treatment for the loss on redemption is:

$6 million to be recorded as an expense in the income statement.

$6 million to be recorded as a deferred expenditure in the balance sheet. This will be amortized over 5 years.

$6 million to be adjusted from opening retained earnings.

Under IFRS the definitional criteria for identifiable intangible assets most likely includes:

the cost of the asset can be reliably measured.

the asset must be identifiable, under the control of company and expected to generate future economic benefits.

it is probable that the expected future economic benefits of the asset will flow to the company.

Which of the following is least likely a characteristic of open-ended mutual funds?

Open-end funds accept new investment money and issue additional shares to existing or new investors. Therefore, the number of outstanding shares changes after every new investment.

In open-end funds, new shares are created and sold at a premium or a discount to net assets values depending on the demand for the shares.

An open-end structure makes it easy to grow in size but creates pressure on the portfolio manager to manage the cash inflows and outflows.

A recently issued sovereign bond for a given maturity is also referred to as:

floating issue.

of the run issue.

benchmark issue.

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

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

prepare their financial statements using internationally acceptable accounting standards.

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

Which of the following statements is/are accurate? I. Differences in laws across countries determine different behavior between CFA members and candidates. II. Within the investment industry, a CFA member or candidate will always understand ethical behavior by strictly adhering to the laws of the country in which he/she operates.

I only

I & II

II only

Gloria Inc. ships 5 machines to a customer at $5,550 per machine. The total cost for Gloria Inc. is $26,250 and payment is due in 60 days. No cash changes hands at delivery. The accounting treatment related to this transaction at the time of shipment most likely includes:

accounts receivable and revenue increased by $27,750 and inventory and cost of goods sold decreased by $26,250.

accounts receivable and revenue increased by $27,750 and inventory decreased by $26,250.

revenue increased by $5,550, cost of goods sold decreased by $26,250 and cash remains unchanged.

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

expenses

liabilities

capital maintenance adjustments.

Which of the following statements is most likely correct regarding the audit of financial statements?

Auditors can provide absolute assurance about the accuracy and precision of financial statements if the opinion is unqualified.

When an auditor has concerns regarding some unreported pending contingent liabilities he might issue a qualified opinion.

Disclaimer of opinion occurs when an auditor issues an opinion despite scope limitations.

For a normal random variable approximately 68% of all outcomes fall within:

two standard deviations of the mean.

one standard deviation of the mean.

three standard deviation of the mean.

The value, at 6% interest, of a bond paying 8% annual coupon payments, redeemable at par in 5 years, with a $25,000 face amount is closest to:

$27,600

$27,100

$25,600

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?

NPV

IRR

There is no preference between NPV and IRR

An auction in which each bidder submits a price or bid to the auctioneer simultaneously and independently is categorized as:

Sealed bid auction.

Dutch auction.

English auction.

Determine the impact on domestic exports of a country through its transmission mechanism if its interest rates decrease?

Exports will decrease.

Exports will increase.

Exports will remain unaffected.

On 1 January 2014, Neway Construction entered into a contract to lay pipes for a factory. The project will take an estimated two years to complete. As stated in the contract, total revenue for the project is an estimated $2,500,000. Total cost is expected to be 70% of revenue. Neway incurred $800,000 of costs in 2014. Assuming Neway estimates percentage complete based on costs incurred as a percentage of total estimated costs. Under the percentage-of-completion method, the revenue that will be reported in 2014 is closest to:

$1,150,000.

$1,250,000.

$560,000.

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.

When an increase in interest rate leads to a decline in savings, it implies that:

income effect of a higher interest rate is greater than substitution effect.

individuals substitute future consumption for present consumption.

savings and interest rate patterns cannot be determined in terms of the income and substitution effect.

All things being equal, inflation in a country leads to:

no effect on real exchange rates.

depreciation in its own currency.

appreciation in its own currency.

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?

Backwardation

Contango

Inverted

To deal with short-run stabilization, as compared to monetary policy, fiscal policy is most likely:

less effective as it is very time consuming.

equally effective as both policies work well in combination.

more effective as it is easy to implement.

Eleanor Chavez, CFA is a senior analyst at W&W Securities (W&WS) and is responsible for managing the High Beta Mutual Fund (HBMF). Curtis Fowler, aged 56 and dependent on his portfolio returns, is W&WS’s client. His portfolio will now be managed by Chavez, who has been asked to invest 20% of his portfolio funds in HBMF. Chavez fills the request forms and immediately purchases shares of HBMF for Fowler. Is Chavez in compliance with codes and standards, and if not, what should be the recommended course of action for Chavez?

No, she should make reasonable inquiry about Fowler’s risk and return objectives and financial constraints prior to taking investment action requested by Fowler.

No, she should consult Fowler’s existing investment policy statement (IPS) and should judge the suitability of his investments in the context of his total portfolio.

Yes, she is in compliance with codes and standards.

CFA 1 - 25 Questions