Mock Exam 4
Mock Exam 4
A) Legal standards typically set a higher standard of behavior than ethical standards.
Personal traits are the most important determinant of the ethical quality of one’s
B)
behavior.
Unethical behavior in the investment industry increases the cost of capital for
C)
businesses.
A) fair dealing.
B) diligence and reasonable basis.
C) material nonpublic information.
Allen Winkler, CFA, recently had lunch with Kim Thompson, a former professor of his,
who told him of a new valuation model she had developed. Winkler recreated
Thompson's model with some revisions and back-tested it using data provided by
Standard & Poor's (S&P) with impressive results. Winkler's firm launches a mutual
fund based on the revised model, and Winkler provides a discussion of the principles
underlying the model and the test results. Is Winkler required to credit Thompson for
having developed the model and S&P as the source of the data?
Donald Smith, CFA, has been assigned by his employer to write a report for clients on
Braden Corporation. Smith has 1,000 shares of Braden that he bought three years ago
and has been discussing a consulting contract with Braden to write guidelines for
their investor relations department. If Smith writes the report on Braden Corporation,
he must disclose within the report:
A) both his ownership of Braden shares and his prospective consulting work.
and to his employer his prospective consulting work but not his ownership of
B)
Braden shares.
his ownership of Braden shares but need only disclose his prospective consulting
C)
work to his employer.
Betty Cantor, CFA, has been finishing a report on high-tech firm HLC Corporation and
intends to give it a "market perform" rating. Before releasing the report, she speaks
with Donald Watson, her former manager and mentor, who is now with another
investment firm and is well known for his great calls on high-tech companies. Watson
is bullish on HLC and tells Cantor that "HLC is going to increase for sure over the next
year, and we have it as a buy." Cantor changes her rating on HLC to "outperform"
based on Watson's comments. Cantor has:
A) not violated the Standards because she knows the high quality of Watson’s analysis.
violated the Standards because she based her rating on material nonpublic
B)
information.
violated the Standards because she does not have a reasonable basis for her
C)
recommendation.
Tom Hayes, CFA, changed firms recently, becoming the senior analyst at Balcom
Management. He had earned a great reputation at his old firm with his analysis of
Selldex, which doubled in value after his recommendation. Because he still likes
Selldex, Hayes recreates from public sources the records and analysis he did at his
previous employer and issues a report on Selldex with a "buy" rating. Hayes has:
The CFA Institute Code of Ethics most likely requires members and candidates to:
Craig Boone, CFA, a fixed-income trader, observes that one of the salesmen on the
desk has been allocating his trades at the end of the day, giving better execution to
large clients, a practice Boone suspects is illegal. The salesman tells Boone this is a
common practice and that the firm's senior management is aware of it. If Boone
makes a personal record of the activity, takes it home for his personal files, and
subsequently reveals it to regulatory authorities, he would:
Mary Walters, CFA, is a bank trust officer who has entered into a referral agreement
with Bob Sear, a tax attorney. Sear has told Walters that he will do her tax work in
return for referrals. According to the CFA Institute Code and Standards, Walters must
disclose:
only the fact that she compensated for referrals, to any clients or prospects she
A)
refers to Sear.
only the fact that she is compensated for referrals, to her employer and any clients
B)
or prospects she refers to Sear.
the fact that she is compensated for the referrals and the nature of the
C) compensation she is to receive, to her employer and any clients or prospects she
refers to Sear.
Ronaldo Jenkins, CFA, chief investment officer for Windwatch Advisors, has been
helping his local municipality find an investment bank for a bond issue. Jenkins was
told in confidence that one investment bank, which is a subsidiary of a commercial
bank held in Windwatch client portfolios, is experiencing financial difficulties and will
be shut down soon. According to the CFA Institute Standards of Professional Conduct,
Jenkins is least likely permitted to:
share the information received about the investment bank with his compliance
A)
officer.
share the information received about the investment bank with Windwatch’s head
B)
of equity investments.
approach the investment bank about making public disclosure of the financial
C)
difficulties and pending closure.
Morton Crane, CFA, is a portfolio manager. Crane has just been informed by his
compliance officer that a new law will require additional disclosures of personal client
information to regulators for two of Crane's former clients and one of his current
clients. Crane decides to comply with the new law and provide the required client
information. Has Crane violated CFA Institute Standards of Professional Conduct?
A) No.
B) Yes, because he disclosed confidential information about a former client.
C) Yes, because he disclosed confidential information about a current client.
While visiting Cassori Company, Mark Ramsey, CFA, overhears management make
comments that are not public information but are not really meaningful by
themselves. Combining this information with his own analysis and other outside
sources, Ramsey decides to change his recommendation on Cassori from "Buy" to
"Sell." According to the CFA Institute Standards of Professional Conduct, Ramsey:
A) must not issue his report until Cassori’s management makes their comments public.
may issue his “Sell” report because the facts are nonmaterial, but should maintain a
B)
file of the facts and documents leading to this conclusion.
must report these events to his immediate supervisor and legal counsel, since they
C)
have become material in combination with his analysis.
When a member or candidate knows that a client and coworker are violating
regulatory rules and local law, the member or candidate is:
not violated the Standard because he has not acted on the information, but the
A)
traders and salesmen have violated the Standard.
violated the Standard because he should have taken steps to prevent the
B)
dissemination of the information.
violated the Standard by not making the information public when he realized others
C)
had overheard the call.
Peter Wellington has changed his status in marketing materials to "Level III CFA
candidate." Wellington passed the Level II CFA exam and just received his results. He
intends to register for the next Level III CFA examination that is offered the following
June. Wellington has:
When he assumed the job of compliance officer two years ago, Ed Michaels, CFA,
issued written compliance procedures and made all covered employees aware of the
procedures. A report by an external auditor found that on several occasions over the
past two years, two different employees traded in recommended securities ahead of
trades made in managed client accounts. Michaels fires both employees and
recirculates the written compliance procedures that explain clearly which activities are
prohibited. Michaels has violated the Standard concerning:
Responsibilities of Supervisors by firing the employees instead of restricting their
A)
activities.
Responsibilities of Supervisors by failing to implement reasonable procedures to
B)
detect violations.
Misconduct because, as the compliance officer, he is associated with, and ultimately
C)
responsible for, the unethical activity.
Ralph Malone, CFA, has many clients, including a trust account that benefits three of
his immediate family members. His firm changes its recommendation on a stock from
"hold" to "buy" on a security that is suitable for many clients, including the trust.
Which of the following would be considered a violation of the Standard concerning
priority of transactions?
Malone waits until after the firm purchases the security to buy it for the family trust
A)
account.
Malone trades on the family account shortly after his firm’s clients have been
B)
informed of the buy recommendation.
The firm gives clients time to act on the new recommendation and then buys
C) 100,000 shares for its own account prior to publicly disclosing the new
recommendation.
Patricia Nelson, CFA, is informed by one of her clients that if she can get the
performance of the client firm's pension portfolio above that of the Standard & Poor's
average by year-end, the client will give her a free trip to Singapore to visit the firm's
offices. If Nelson agrees to this arrangement, which of the following actions complies
with CFA Institute Standards of Professional Conduct? Nelson:
A) must inform her employer of this agreement but does not need consent.
B) must inform her employer of this agreement and may accept it with verbal consent.
may inform her employer by email of this agreement and must receive written
C)
consent.
John Anderson, CFA, follows Radley Manufacturing for his employer, Atlas Brokers.
Radley has announced a takeover bid for Palmer Industries, a company that Atlas
does not follow. To get out a research note about the potential effects of the
acquisition on Radley, Anderson purchases a report on Palmer from a research firm
Atlas regularly uses. Anderson incorporates projections and analysis from the
purchased report into his research note on what a post-acquisition Radley would look
like but does not cite the source. Anderson has violated the Standard on:
A) misrepresentation.
B) independence and objectivity.
C) diligence and reasonable basis.
A) fee-paying accounts.
B) discretionary accounts.
C) discretionary accounts that are fee-paying.
Tony Roberts, CFA, is part of a team that manages equities accounts. He believes that
a teammate, who is not a CFA Institute member or candidate, takes actions that, while
not illegal under local law, violate CFA Institute Standards of Professional Conduct.
According to the CFA Institute Standards of Professional Conduct, Roberts:
Judy Blush is a CFA candidate and is recommending the purchase of a mutual fund
that invests solely in long-term U.S. Treasury bonds (T-bonds) to one of her clients.
She states: "Because the U.S. government guarantees payment of both principal and
interest on its bonds, risk of loss from investing in this fund is virtually zero." Blush's
actions violated:
The Code of Ethics least likely states that members and candidates are required to:
According to the Standard concerning suitability, it is most likely that members and
candidates in advisory relationships with clients should:
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.
Byron Bell, CFA, tells his assistant that Mary Mitchel, a client of his, confided to him
that she is suffering from the early stages of Alzheimer's disease and that she is
planning to leave almost all of her sizable estate to Prather House, a support facility
for Alzheimer's patients. Bell directs his assistant to keep this information
confidential. With respect to the Standard on preservation of confidentiality, Bell has:
relative changes in the dependent variable and relative changes in the independent
A)
variable.
relative changes in the dependent variable and absolute changes in the
B)
independent variable.
absolute changes in the dependent variable and relative changes in the
C)
independent variable.
an entity should recognize revenues only when received and expenses only when
A)
they are paid.
transactions and events producing cash flows are allocated only to time periods in
B)
which the cash flows occur.
expenses incurred to generate revenue are recognized in the same time period as
C)
the revenue.
Listed equity securities held as assets that do not convey significant influence in the
investee company must be reported at fair value through profit and loss under:
A) IFRS only.
B) U.S. GAAP only.
C) both IFRS and U.S. GAAP.
A) 0.0.
B) 7.5.
C) 13.3.
The independent auditors of Shadydells, Inc., have determined that the company
recorded operating leases that should have been capitalized. This is considered to be
a material instance of noncompliance with applicable GAAP, but the financial
statements are otherwise fairly presented. Which opinion are the auditors most likely
to issue?
A) Adverse opinion.
B) Qualified opinion.
C) Unqualified opinion.
Based on the above information, the company's cash flow from operations under U.S.
GAAP is:
A) $155.
B) $165.
C) $182.
The J-curve, in the context of trade between two countries, refers to the fact that
when the domestic country has a trade deficit:
appreciation of the domestic currency initially leads to a decrease in the trade deficit
A)
but will increase the trade deficit in the long term.
an increase in domestic inflation will initially increase the trade deficit but will
B)
decrease the trade deficit in the long term.
appreciation of the foreign currency will initially increase the trade deficit but will
C)
decrease the trade deficit in the long term.
Question #39 of 180 Question ID: 1420271
A) World Bank.
B) World Trade Organization.
C) International Monetary Fund.
The quantity theory of money states that in a full employment economy, any increase
in the supply of money in excess of the rate of growth of real GDP will lead to a
proportional increase in:
According to Roy's Safety-First criterion, the portfolio she would prefer is:
A) Portfolio 1.
B) Portfolio 2.
C) Portfolio 3.
A lessor will recognize a lease receivable asset if the lease is classified as:
A) an operating lease.
B) a finance lease.
C) either an operating or a finance lease.
An investor would like to purchase a 20-year annuity that will pay $45,000 each year
beginning when she retires 15 years from now. The amount she would need to invest
today to fund this annuity, assuming an annual return of 5%, in order fund this
annuity, is closest to:
A) $269,750.
B) $274,340.
C) $283,240.
Adam Farman has been asked to estimate the volatility of a technology stock index.
He has identified a statistic which has an expected value equal to the population
volatility and has determined that increasing his sample size will decrease the
sampling error for this statistic. Based only on these properties, his statistic can best
be described as:
A plant manager observes the following relationship between hours of labor and units
of output:
At what quantity of labor hours does this plant first experience diminishing marginal
returns to labor?
Which of the following types of items are least likely included in other comprehensive
income?
A researcher has investigated the returns over the last five years to a long-short
strategy based on mean reversion in equity returns volatility. His hypothesis test led
to rejection of the hypothesis that abnormal (risk-adjusted) returns to the strategy
over the period were less than or equal to zero at the 1% level of significance. He
would most appropriately decide that:
his firm should employ the strategy for client accounts because the abnormal
A)
returns are positive and statistically significant.
while the abnormal returns are highly significant statistically, they may not be
B)
economically meaningful.
as long as the estimated statistical returns are greater than the transactions costs of
C)
the strategy, his firm should employ the strategy for client accounts.
During a period when net income is unexpectedly weak, managers who attempt to
smooth earnings are most likely to:
A) capitalize an expense.
B) decrease the estimated lives of assets.
C) classify a nonrecurring gain as recurring income.
Which of the following pairs of general categories are least likely to be considered in
the formulas used by credit rating agencies to determine the capacity of a borrower
to repay a debt?
Under what conditions is inflation most likely to shift wealth from lenders to
borrowers?
Which of the following definitions used in accounting for income taxes is least
accurate?
Income tax expense is current period taxes payable adjusted for any changes in
A)
deferred tax assets and liabilities.
A valuation allowance is a reserve against deferred tax assets based on the
B)
likelihood that those assets will not be realized.
A deferred tax liability is created when tax expense is less than taxes payable and
C)
the difference is expected to reverse in future years.
What is the probability that a randomly selected individual from this group will be
either an analyst or someone who thinks this legislation will have a positive impact on
the economy?
A) 0.75.
B) 0.80.
C) 0.85.
Which of the following objectives would a national government most likely pursue by
placing restrictions on inflows of foreign capital?
Under U.S. GAAP, which of the following statements about the financial statement
effects of issuing bonds is least accurate?
A client plans to retire in 15 years and will need to withdraw $50,000 from his
retirement account each year for 10 years, beginning on the day he retires. After that,
he will need to withdraw $20,000 per year for 25 years. The account returns 4%
annually. The amount he needs to have in the account on the day he retires is closest
to:
A) $580,000.
B) $640,000.
C) $655,000.
If investors' expected future incomes increase and the demand for financial capital
increases, other things equal:
Selected year-end values for Able, Inc., are presented in the following tables:
Based only on the data in the tables, 20X2 cash flow for operations for Able, Inc., is:
A) $43 million.
B) $44 million.
C) $45 million.
Which of the following items affects owners' equity but is not included as a
component of net income?
A) Depreciation.
B) Dividends received on shares of another company classified as available for sale.
C) Foreign currency translation gains and losses.
A) decreasing demand.
B) decreasing prices.
C) a LIFO liquidation.
Student's t-Distribution
Cumulative z-Table
A) 0.19% to 2.21%.
B) –0.15% to 2.55%.
C) –5.92% to 8.32%.
Question #67 of 180 Question ID: 1420253
Which of the following statements regarding the significance level of a hypothesis test
is most accurate?
Given a significance level of 5%, a test will reject a true null hypothesis 5% of the
A)
time.
If the significance level of a test is 5%, it will yield the correct decision about the null
B)
hypothesis 95% of the time.
If the significance level of a test is 95%, it will yield the correct decision about the null
C)
hypothesis 95% of the time.
The country of Hokah can produce 35 units of cheese or 30 units of leather with one
hour of labor. The country of Ymer can produce 20 units of cheese or 25 units of
leather with one hour of labor. Which of the following statements is most accurate?
The best estimate of the company's cost of goods sold on a FIFO basis would be:
A) $21,300.
B) $26,800.
C) $27,500.
Question #70 of 180 Question ID: 1420263
If the convertible bonds are considered dilutive, the number of shares of common
stock that the analyst should use to calculate diluted earnings per share is:
A) 1,000,000.
B) 1,100,000.
C) 1,266,667.
Question #73 of 180 Question ID: 1420291
Degen, Inc., owns a trademark which it originally valued at €15 million on its balance
sheet but currently values at €10 million. In the country where Degen is incorporated,
trademarks are protected by law for as long as their owner remains a going concern.
Degen has most likely:
If the government regulates a natural monopoly and enforces an average cost pricing,
what are the effects on output quantity and price compared to an unregulated natural
monopoly?
Assume that one year ago, the exchange rate between the Japanese yen and the euro
was 100 JPY/EUR, and the exchange rate between the Japanese yen and the U.S. dollar
was 80 JPY/USD. Current exchange rates are 104.2 JPY/EUR and 76.6 JPY/USD. Which
of the following statements is most accurate?
The company's free cash flow to the firm (FCFF) is closest to:
A) $840.
B) $870.
C) $940.
An analyst is testing the hypothesis that the variance of monthly returns for Index L
equals the variance of monthly returns for Index M based on samples of 50 monthly
observations. The sample variance of Index L returns is 0.085, whereas the sample
variance of Index M returns is 0.084. Assuming the samples are independent and the
returns are normally distributed, which of the following represents the most
appropriate test statistic?
If market interest rates have changed materially since a firm issued a bond, and the
firm uses the effective interest rate method, how is a change in the market value of
the firm's debt most likely to be reported in the firm's financial statements?
The gain or loss in market value must be calculated and disclosed in the footnotes
A)
to the financial statements.
Net income and equity are unaffected, but the change may be discussed in
B)
management’s commentary.
Net income is unaffected, but the change in market value is recorded in other
C)
comprehensive income.
If the probability of event J multiplied by the probability of event K is not equal to the
joint probability of events J and K, then events J and K are most likely:
A) dependent events.
B) independent events.
C) mutually exclusive events.
A) 3.50.
B) 3.75.
C) 4.00.
If the inflation rate was –4% in 20X1, –2% in 20X2, and –1% in 20X3, the economy is
most accurately described as experiencing:
A) deflation.
B) contraction.
C) disinflation.
An individual sees her income rise from $80,000 to $88,000, and along with it, her
consumption of Good X has decreased from eight dozen packages per year to six
dozen packages per year. Good X should be classified as:
A) a normal good.
B) a Veblen good.
C) an inferior good.
Jordan Loney, CFA, issues a "sell" recommendation on Sullivan Company because she
believes its financial reporting quality is low. Loney writes, "Rapid turnover of key
employees in its information systems and accounting units have made Sullivan's
internal monitoring controls ineffective." Which condition that may lead to low-quality
financial reporting has Loney detected at Sullivan?
A) Opportunity.
B) Motivation.
C) Rationalization.
The Keynesian view suggests that the government can reduce aggregate demand by
using:
restrictive fiscal policy to shift the government budget toward a surplus (or smaller
A)
deficit).
restrictive fiscal policy to shift the government budget toward a deficit (or a smaller
B)
surplus).
expansionary fiscal policy to shift the government budget toward a surplus (or a
C)
smaller deficit).
At the beginning of the year, a firm securitizes half of its accounts receivable and uses
the proceeds to pay down principal on a long-term bank loan. These transactions will:
A) U.S. GAAP, but may be reported as a financing cash flow under IFRS.
B) IFRS, but may be reported as an investing cash flow under U.S. GAAP.
U.S. GAAP, but must be reported as either an investing or financing cash flow under
C)
IFRS.
A researcher needs to choose a probability distribution for the price of an asset that is
quite volatile in order to simulate returns outcomes. She has a program that will
generate random variables from any of a variety of distributions. The most
appropriate distribution for her to select to generate the asset price distribution is a:
A) normal distribution.
B) lognormal distribution.
C) Student’s t-distribution.
Question #91 of 180 Question ID: 1420310
Which of the following statements about the component costs of capital is least
accurate?
A) The cost of common equity is the required rate of return on common stock.
The cost of preferred stock is the preferred dividend divided by the preferred’s par
B)
value.
The after-tax cost of debt is based on the expected yield to maturity on newly issued
C)
debt.
An investment advisor constructs a portfolio that plots on the capital market line but
has less risk and a lower return than the market portfolio. This portfolio is most
accurately described as:
A) a lending portfolio.
B) a leveraged portfolio.
C) an inefficient portfolio.
A stock has a beta of 0.9 and an estimated return of 10%. The risk-free rate is 7%, and
the expected return on the market is 11%. According to the CAPM, this stock:
A) is overvalued.
B) is undervalued.
C) is properly valued.
Which of the following most accurately characterizes a company in the mature stage
of the industry life cycle?
With respect to firms in the financial services industry, a conflict between the interests
of shareholders and regulators is best illustrated by a shareholder preference for:
Which of the following is most likely a violation of a pension fund's fiduciary duty?
A) Analysis step.
B) Feedback step.
C) Execution step.
Which of the following is most likely to improve a company's cash position, other
things equal?
A model that concludes there are optimal amounts of both debt and equity in a
company's capital structure least likely requires an assumption that:
Greenbaum, Inc. stock pays no dividend and currently trades at $54. Based on the
CAPM and assuming an expected return on the market of 12% and a risk-free rate of
8%, the expected price for Greenbaum one year from now is $62. The beta of
Greenbaum shares is closest to:
A) 1.5.
B) 1.6.
C) 1.7.
Which of the following possible portfolios cannot lie on the efficient frontier?
A) Portfolio 3 only.
B) Portfolios 1 and 4.
C) Portfolios 2 and 3.
Question #104 of 180 Question ID: 1420388
A) takes personal credit for gains and blames others for losses.
B) favors small gains in the short term over larger gains in the long term.
C) experiences greater pain from a loss than pleasure from an equal-sized gain.
For a project with an initial cost of 1,000 and cash flows of 5,000 for the first year and
–6,000 for the second year, a researcher calculates two IRRs: 100% and 200%. If a
company's cost of capital is 18%, the company should:
In the context of the capital asset pricing model, an active manager would be most
likely to purchase a security that plots:
A) creditors.
B) regulators.
C) shareholders.
Inez Company has the following target capital structure: 35% debt, 55% common
stock, and 10% preferred stock. The company's before-tax cost of debt is 6%, its cost
of common stock is 10%, and its cost of preferred stock is 8%. The company's
marginal tax rate is 40%. What is Inez's weighted average cost of capital?
A) 7.14%.
B) 7.56%.
C) 8.40%.
A portfolio manager who tracks the industry weights of a benchmark index, but within
each industry selects stocks with favorable ESG factors, is said to be engaging in:
A) active ownership.
B) thematic investing.
C) best-in-class investing.
Over the last 12 months, M&N Company has been using its accounts payable as an
internal source of funds. This month, M&N's largest supplier changed its invoice terms
from 2/20 net 90 to 2/10 net 60. Going forward, this change is most likely to:
Using historical index returns for an equities market over a 20-year period, an analyst
has calculated the average annual return as 5.60% and the holding period return as
170%. The compound annual index return over the period is closest to:
A) 2.69%.
B) 5.09%.
C) 5.24%.
A) Audit committee.
B) Nominations committee.
C) Compensation committee.
Which portion of an investment policy statement is most likely to state any restriction
on portfolio leverage?
A) Procedures.
B) Investment guidelines.
C) Duties and responsibilities.
A) credit risk.
B) liquidity risk.
C) solvency risk.
Question #118 of 180 Question ID: 1420317
Under what conditions will the percentage change in a company's earnings per share
be larger than the percentage change in its earnings before interest and taxes (EBIT)?
The company's degree of:
A new project will require a company to issue both debt and common equity. In
estimating the project's net present value (NPV), an analyst increases the initial outlay
for this project by the flotation cost of the equity securities. Has the analyst treated
flotation costs correctly?
A) Yes.
B) No, because flotation costs are a sunk cost.
C) No, because the cost of capital should be adjusted for flotation costs.
If a stock's beta is equal to 1.2, its standard deviation of returns is 28%, and the
standard deviation of the returns on the market portfolio is 14%, the covariance of
the stock's returns with the returns on the market portfolio is closest to:
A) 0.168.
B) 0.024.
C) 0.600.
the price of a forward contract on the asset minus the present value of the option
A)
exercise price.
the present value of the price of a forward contract on the asset minus the option
B)
exercise price.
the present value of the difference between the option exercise price and the price
C)
of a forward contract on the asset.
A) –4.2.
B) 4.8.
C) 5.4.
A) Goodwill.
B) Trademarks.
C) Deferred tax assets.
In the current year, the fund's gross return is 20%. An investor's net-of-fees return for
the year is closest to:
A) 13.0%.
B) 15.6%.
C) 16.1%.
A) putable.
B) callable.
C) option-free.
A) $72.
B) $80.
C) $89.
If the risk-free rate of interest is 3%, the spot price of an asset is 35, and its net cost of
carry is –2, the no-arbitrage price of a one-year forward contract on units of the asset
is closest to:
A) 33.99.
B) 38.05.
C) 38.11.
If a bond has a convexity of 120 and a modified duration of 10, the convexity
adjustment (to a duration-based approximation) associated with a 25 basis point
interest rate decline is closest to:
A) –2.875%.
B) –2.125%.
C) +0.0375%.
A) $16.
B) $21.
C) $24.
Recent economic data suggest an increasing likelihood that the economy will soon
enter a recessionary phase. What is the most likely effect on the yields of lower-
quality corporate bonds and on credit spreads of lower-quality versus higher-quality
corporate bonds?
Which of the following statements for puts at expiration is least accurate? The:
The holder of the type of security that has a priority in liquidation less than that of
bonds or promissory notes issued by the company but ahead of that of common
stock is most likely to have:
A) no voting rights.
B) statutory voting rights.
C) cumulative voting rights.
Transactions costs incurred from portfolio rebalancing are most likely to be highest
for funds that track:
A) price-weighted indexes.
B) value-weighted indexes.
C) equal-weighted indexes.
A) greater diversification.
B) higher minimum investments.
C) a higher degree of investor involvement.
A hedge fund will honor redemption requests at any time within 30 days of the
request, but it will charge a significant fee for redemption requests received during
the first two years. These terms are most appropriately referred to as a two-year:
A) penalty period.
B) soft lockup period.
C) redemption restriction period.
A supranational bond:
If an investor wants only investment grade bonds in her portfolio, she would be least
likely to purchase a:
A stock that currently does not pay a dividend is expected to pay its first dividend of
$1.00 five years from today. Thereafter, the dividend is expected to grow at an annual
rate of 25% for the next three years and then grow at a constant rate of 5% per year
thereafter. The required rate of return is 10.3%. The value of the stock today is closest
to:
A) $20.65.
B) $22.72.
C) $23.87.
If, at expiration, the price of a stock is $43, the profit or loss to the writer of a put
option at $45 is:
A) a $2 loss.
B) a $2 profit.
C) no profit or loss.
Changes in a fixed-coupon bond's cash flows that result from changes in yield would
be reflected in the bond's:
A) effective duration.
B) modified duration.
C) Macaulay duration.
A) Sharpe ratios.
B) returns over time.
C) return correlations with other investments.
Roger Gould, CFA, is analyzing the stock of Zero Incorporated and trying to determine
which price multiple to use in his valuation. Zero, a start-up, had losses over the last
12 months and is projected to have a loss over the next 12 months. Zero has
significant internally generated intangible assets and human capital that Gould would
like to capture in his valuation. The price multiple that Gould should most
appropriately use is the:
A) price-to-sales ratio.
B) price-to-book value.
C) price-to-earnings ratio.
An American put option on a stock is most likely to have a higher value than an
otherwise identical European put option:
A) 5.0%.
B) 5.3%.
C) 9.3%.
A) statistical methods.
B) products and services.
C) sensitivity to the business cycle.
A) greater regulation.
B) less manager specialization.
C) more-concentrated portfolios.
Given only this information, the price of a 2-year, semiannual-pay, 10% coupon bond
with a face value of $1,000 is closest to:
A) $918.30.
B) $1,000.00.
C) $1,046.77.
A programming error resulted in the issuance of a forward contract that ignored the
convenience yield investors realize from holding the underlying asset. To gain an
arbitrage profit from this error, an arbitrageur's position would most likely include a
long position in the:
A) forward contract.
B) underlying asset.
C) risk-free asset.
Which of the following best describes the motivation for a corporation to issue
securitized bonds? Securitization of specific assets by a corporation enables the
corporation to:
To ensure the continuity of a value-weighted index when one of the stocks in the
index is split:
A) no adjustment is necessary.
B) only the denominator must be adjusted for the split.
C) both the numerator and the denominator must be adjusted for the split.
Management fees for hedge funds are most likely calculated as a percentage of:
A) committed capital.
B) gains above a hurdle rate.
C) assets under management.
A) Default risk.
B) Rollover risk.
C) Reinvestment risk.
A contract that requires one party to pay $100,000 each quarter to another company
that will make a variable quarterly payment based on the market value of an equities
portfolio is referred to as:
A) a swap.
B) an index option.
C) portfolio insurance.
Visser, Inc. is an unprofitable fishing enterprise. Visser rents most of its boats and
equipment but owns valuable transferable fishing quotas. If a competitor is interested
in acquiring Visser, the most appropriate equity valuation model to use is:
A credit analyst determines the following selected financial ratios for three firms in an
industry after making all appropriate adjustments:
In evaluating the creditworthiness of these firms, the analyst should conclude that:
Knight has the most favorable leverage and Johnson has the most favorable
A)
coverage.
Lawrence has the most favorable leverage and Knight has the most favorable
B)
coverage.
Johnson has the most favorable leverage and Lawrence has the most favorable
C)
coverage.
Market conditions have increased the storage costs and decreased the convenience
yield of a commodity. Other things equal, what effects will these changes have on the
value of a forward contract on that commodity? The forward contract value:
A) will increase.
B) will decrease.
C) may increase or decrease.
A provision that ensures that investors in a hedge fund will not pay twice for the same
gains is:
A) a clawback.
B) a hard hurdle rate.
C) a high-water mark.
Question #167 of 180 Question ID: 1420330
Archer Products is in an industry that has experienced low levels of price competition
but recently excess capacity has led to aggressive price cutting. An analyst would be
least likely to describe Archer's industry as:
For a 5-year pure discount bond that is callable at par after two years, which of the
following yield measures will be lowest?
A) Current yield.
B) Yield to first call.
C) Yield to maturity.
What is most likely to happen to the prepayment rate and the weighted average life of
a typical pass-through security if mortgage rates decrease?
Moore Company stock is currently trading at $40 per share. An investor attempting to
protect against losses of more than 10% on a short position in Moore should place a:
Which of the following statements most accurately represents the positions of the
parties to a derivatives contract?
Under which of the following conditions are market values of securities most likely to
be persistently greater than their intrinsic values?
A) dividend yield, and weights the country index returns by market capitalization.
B) dividend yield, and weights the country index returns by gross domestic product.
market capitalization, and weights the country index returns by gross domestic
C)
product.
A) More liquidity.
B) Higher income.
C) Better inflation hedge.
Given the put-call parity relationship, a synthetic underlying asset can be created by
forming a portfolio of a:
A) $19.45.
B) $22.89.
C) $26.74.