» CFA 1 – 25 questions

Which of the following are most likely to be an exchange-traded transaction?

Forwards

Futures

Swaps

Russell Bellamy, CFA, a manager with a regional bank, sends out a regular newsletter to clients on a monthly basis. Independent of his position, Bellamy has been appointed to the Board of a local nonprofit organization that provides grants to local artists. In his latest newsletter to clients, Bellamy mentions his appointment as well as the fact that the organization recently announced the start of a fundraising campaign. Has Bellamy most likely violated the Standards?

Yes, with respect to loyalty

Yes, with respect to preservation of confidentiality

No

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

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

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

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

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

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

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.

Which of the following schools of economists applies the utility theory and argues that the government should not counteract business cycles?

Neoclassical school

Social economics school

Austrian school

A type of credit derivative in which credit protection buyer makes a series of regularly scheduled payments to credit protection seller while the seller makes no payment until a credit event occurs is categorized as a:

credit linked note.

credit default swap.

total return swap.

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 I-C ‘Misrepresentation’.

did not violate any standard.

violated standard III-D ‘Performance Presentation’.

Which of the following statements is most likely correct regarding the depreciation of property, plant and equipment under IFRS and U.S. GAAP?

Unlike IFRS, U.S. GAAP requires an annual review of residual value and useful life.

Unlike U.S. GAAP, under IFRS each component of an asset must be depreciated separately.

Both IFRS and U.S. GAAP require an annual review of residual value and useful life.

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.

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

disseminate the contents of the program to all personnel.

A company recorded a depreciation expense of $5,000,000 for tax purposes and $3,500,000 for accounting purposes. Which of the following is the correct accounting treatment if the tax rate is 30%?

The firm reverse of a deferred tax liability of $450,000.

The firm should create a deferred tax liability of $450,000.

The firm should a deferred tax asset of $450,000.

The probability that the Eurozone economy will grow this year is 18%, and the probability that the European Central Bank (ECB) will loosen its monetary policy is 52%. Assuming that the joint probability that the Eurozone economy will grow and the ECB will loosen its monetary policy is 45%, then the probability that either the Eurozone economy will grow or the ECB will loosen its the monetary policy is closest to:

42.12%.

11%.

25%.

Which of the following is the highest ranked unsecured debt?

Senior unsecured.

First lien loan.

Senior subordinated.

Which of the following statements is most likely correct regarding the major sections of GIPS standards?

According to Section 4 ‘Disclosures’, firms are required to make negative assurance disclosures.

According to section 5 ‘Presentation and Reporting’, firms cannot include in GIPS-compliant presentations information not addressed by the GIPS standards.

According to Section 3’Composite Construction’, a composite return is the asset weighted average of the performance of all portfolios in the composite.

When a reliable current market price for a firm’s debt is not available, the cost of debt can be estimated using the:

coupon rate of the same bonds.

interest expense of the firm’s income statement.

matrix pricing model.

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

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.

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

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 using Viatex for the majority of her client's trades

No

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

Which of the following best describes the reason for choosing the NPV rule over the IRR rule when dealing with mutually exclusive projects?

The reinvestment rates used by NPV are more conservative and therefore are economically more relevant.

IRR ranking assumes reinvestment at opportunity cost of capital that is less realistic and economically less relevant.

NPV rankings are affected by external interest rates or discount rates.

Alonzo Myers manages accounts at GRTY Securities. Jerry Reed, one of his clients, e-mailed Myers to buy 300 shares in the IPO of JJKS Corp’s stock. Few days later, despite being a hot issue, Myers succeeded prorating 500 shares of JJKS Corp. for his clients. After purchasing 500 shares for his clients and 300 shares for Reed as per request, he purchased remaining 200 shares for his wife. Myers:

did not violate the standards by purchasing 200 shares for his wife and 300 shares for Reed.

violated the standards by purchasing 200 shares for his wife but is in compliance for purchasing 300 shares for Reed as per his request.

violated the standards by purchasing 200 shares for his wife and only 300 shares for Reed.

Under which of the following cases is the capitalization of development cost most likely prohibited?

In the case of a company following IFRS.

In the case of the development of a lifesaving drug by a company following US GAAP.

In the case of software development by a company following US GAAP.

The auditors were not provided with the supporting documents for the majority of the transactions (including material transactions) selected for the audit. Which type of audit opinion should most likely be issued in such case?

A disclaimer of opinion

A qualified opinion

An adverse opinion

Which of the following characteristics is unique to the fee structure of private equity funds? 2

The Genral Partner earns an incentive fee at the same time as investors receive their initial investment back.

Management fees are paid on invested capital.

The clawback provision ensures the safe return of an investor's initial investment as well as his/her right to receive profit.

The production process of a calculator involves several steps. Suppose the pieces of the chain add the following value to the process: Raw materials supplier: $4 Factory: $3 Retailer: $2 The price that the retailer buys the calculator from the factory will be closest to:

$3

$7

$2

Which of the following statements is most likely correct regarding parametric and non-parametric tests?

Parametric tests are relatively unaffected by violations of assumptions.

Nonparametric tests are considered distribution-free methods because they do not rely on any underlying distribution assumption.

In a parametric test observations are converted into ranks according to their magnitude.

Turkey is the strongest importer of Russian oil products. Which of the following will be the outcome if Turkey places tariffs on imported products?

Russian exporters will gain.

Imports from Russia will increase.

Prices of domestic products will increase.

After 5-years of service with Jacob Securities as a financial planner, Shane Alvarado planned to start his own practice in his hometown. He informed his employer through email three days before starting his independent practice. The employer was on a business trip for a week and on his return he accepted his resignation. Alvarado always maintained his personal records related to training programs that he conducted at Jacob Securities, and he used that material in his new project. Alvarado:

violated the standards by rendering services without receiving consent from his employer and by using records.

is in compliance with standards regarding timely notification and using his own personal records.

violated the standards by using records but is in compliance with standards in notifying his employer regarding his independent practice.

CFA 1 - 25 Questions