Q1. Which of the following statements is most accurate?

Cryptocurrencies:

A. exhibit low volatility.

B. have no limits on the total amount of currency that may be issued.
C. allow transactions between parties without the need for an intermediary.

Q2. Private equity funds invest:

A. in privately held companies only.

B. in publicly traded companies only.
C. both in privately held and in publicly traded companies.

Q3. If a bond has a modified duration of 7.1 and convexity of 49.2, the percentage
change in price for a 50 basis point increase in yield is closest to:
A. -3.61%.
B. -3.49%.
C. -1.65%.

Q4. Which of the following hedge fund strategies emphasizes a top-down approach?

A. Macro
B. Equity hedge
C. Event-driven

Q5. Which of the following most likely exhibits negative convexity?

A. A callable bond
B. A putable bond
C. An option-free bond

Q6. The risk-free rate is 5%, and the market risk premium is 8%. If the beta of TRL
Corp. is 1.5, based on the capital asset pricing model (CAPM), the expected return of
TRL's stock is closest to:
A. 9.5%.
B. 15.5%.
C. 17.0%.
Q7. Using the Gordon growth model, the stock's intrinsic value is closest to:
A. $24.96.
B. $42.55.
C. $44.79.

Q8. A security's market value and intrinsic value are most likely the same if:

A. the market is efficient.

B. active investment is profitable.
C. the security's cash flows are complex.

Q9. All else being equal, which of the following indexes requires frequent rebalancing
to adjust for price changes in the underlying securities?

A. Price-weighted index
B. Equal-weighted index
C. Market-capitalization-weighted index

Q10. If the required rate of return is 7% and the company's marginal tax rate is 30%,
the preferred shares are most likely:

A. undervalued.
 B. fairly valued.
C. overvalued.

Q11. Compared to a European waterfall, an American waterfall is:

A. less advantageous to the general partner.

B. equally advantageous to the general partner.
C. more advantageous to the general partner.

Q12. Which of the following is most likely a factor that results in different credit
ratings for debt issued by a subsidiary and debt issued by its parent company?

A. Differences in duration
B. Structural subordination
C. Cross-default provisions

Q13. Which of the following types of investors most likely has a long-term investment
time horizon and high liquidity needs?

A. Endowments
B. Life insurance companies
C. Defined benefit pension plans

Q14. In a semi-strong-form efficient market, which of the following is reflected in

prices?

A. Past market data only

B. Private information only
C. Both past market data and private information

Q15. With respect to securitization, time tranching is best described as the

redistribution of:

A. default risk.
B. inflation risk.
C. prepayment risk.

Q16. The mental discomfort that occurs when new information conflicts with
previously held beliefs is best described as:

A. regret aversion.
B. mental accounting.
C. cognitive dissonance.
Q17. According to behavioral finance, observed overreaction in securities markets
most likely occurs because of:

A. loss aversion.
B. disposition effect.
C. gambler's fallacy.

Q18. If the risk-free rate is 3%, Jensen's alpha for the portfolio is:
A. -4.0%.
B. -0.4%.
C. 0.4%.

Q19. Which of the following is least likely a component of yield spread?

A. Taxation
B. Credit risk
C. Expected inflation rate

Q20. In comparison to the makeup of fixed-income indexes, the constituent securities

of equity indexes are best described as:

A. more liquid.
B. harder to price.
C. drawn from a larger universe.
Q21. If the dividend payout ratio is 45%, the sustainable growth rate is closest to:
A. 7%.
B. 9%.
C. 11%.

Q22. Which of the following is most accurate? A derivative:

A. transforms risk of the underlying.
B. derives its value from an underlying.
C. derives its value based on the principle that arbitrage opportunities exist in the
market.

Q23. According to put-call-forward parity, the price of a 9-month fiduciary call is

closest to:
A. $12.89.
B. $13.00.
C. $13.11.

Q24. Compared to trading an underlying directly, trading a derivative on the

underlying most likely involves:

A. higher transaction costs.

B. a lower degree of leverage.
C. a smaller amount of required of recapital.

Q25. During its life, the value of a forward contract is most likely equal to the price of
the underlying minus the price of the:

A. forward.
B. forward, discounted over the original term of the contract.
C. forward, discounted over the remaining term of the contract.

Q26. All else being equal, a bond issuer is most likely to be evaluated as less
creditworthy than its peers if it has a:
 A. lower debt/EBITDA and a lower EBITDA/interest expense.
B. lower debt/EBITDA and a higher EBITDA/interest expense.
C. higher debt/EBITDA and a lower EBITDA/interest expense.

Q27. Which of the following is most likely considered an investor constraint in an

investment policy statement?

A. Time horizon
B. Risk tolerance
C. Return requirement

Q28. A lifecycle fund will most likely:

A. maintain a fixed asset allocation of stocks and bonds.

B. use tactical asset allocation to capture market opportunities.
C. change the asset allocation as the fund nears its target date.

Q29. Measuring the duration of a bond portfolio as a weighted average of the

individual bond durations:

A. is difficult to use as a measure of interest rate risk.

B. assumes the yield curve shifts in a parallel manner.
C. assumes the yield curve shifts in a non-parallel manner.

Q30. Analytical duration:

A. assumes that government bond yields and spreads are independent variables.
B. is lower than empirical duration for high-yield bonds under market stress
scenarios.
C. uses statistical methods and historical bond prices to derive the price-yield
relationship for bond portfolios.

Q31. Which of the following best describes the process of changing the distribution of
risk outcomes by using derivatives?

A. Risk shifting
B. Risk transfer
C. Risk avoidance

Q32. All else being equal, for option-free bonds, the percentage price change for a
given yield change is most likely greater for a bond:

A. with a high coupon than for a bond with a low coupon.

B. with a short time-to-maturity than for a bond with a long time-to-maturity.
 C. when the market discount rate goes down than when the market discount rate
goes up.

Q33. A swap is similar to a series of implicit forward contracts with each contract
created at a price that corresponds to the:

A. floating rate on the swap at each payment date.

B. net cash flows on the swap at each payment date.
C. fixed price of the swap with payments made at the same dates as the series of
forward contracts.

Q34. The capital asset pricing model (CAPM) is based on the assumption that
investors are risk:

A. averse.
B. neutral.
C. seeking.

Q35. Based on put-call parity, an investor holding a long position in an underlying

asset most likely creates a risk-free position by:

A. only selling a call.

B. selling a put and buying a call.
C. selling a call and buying a put.

Q36. All else being equal, which of the following bonds most likely has the lowest
price?

A. Putable bond
B. Callable bond
C. Option-free bond
Q37. If the portfolio's standard deviation of returns is 20.4%, the correlation between
the securities is closest to:
A. -1.
B. 0.
C. 1.

Q38. Industry classification systems are developed by:

A. commercial entities only.

B. governmental agencies only.
C. both commercial entities and government agencies.

Q39. Using the one-period binomial option pricing model, the value of an option will
be affected by:

A. the volatility of the underlying.

B. a measure of investor risk aversion.
C. the probabilities of up and down moves in the underlying.

Q40. An analyst uses a valuation model to estimate the value of an option-free bond at
92.733 to yield 11%. If the value is 94.474 for a 60 bps decrease in yield and 91.041
for a 60 bps increase in yield, the approximate modified duration of the bond is closest
to:
A. 1.85.
B. 3.09.
C. 6.17.

Q41. For an option-free bond, effective duration:

A. will be equal to modified duration if the yield curve is absolutely flat.

B. measures interest rate risk for both parallel and non-parallel benchmark yield
curve shifts.
C. is an estimate of the percentage change in bond price given a change in the
bond's yield to maturity.

Q42. Securities dealers most likely:

A. arrange IPOs.
B. provide liquidity.
C. securitize assets.
Q43. The price of a three-year, 5% annual-pay bond is closest to:
A. 107.42.
B. 109.18.
C. 111.73.

Q44. A company's cost of equity is a proxy for the:

A. company's intrinsic value.

B. company's accounting return on equity.
C. minimum required rate of return of investors in the company's equity.

Q45. At initiation, the price of a forward contract is most likely:

A. less than the value of the forward contract.

B. equal to the value of the forward contract.
C. greater than the value of the forward contract.

Q46. Which of the following statements about private debt is most accurate?
Mezzanine debt is:

A. funding provided to start-up or early-stage companies generating negative cash

flow.
B. subordinated to senior secured debt but senior to equity in the borrower's
capital structure.
C. a hybrid loan structure that combines different tranches of secured and
unsecured debt into a single loan.

Q47. Enterprise value is most useful when:

A. determining a measure of dividend-paying capacity.

B. no market quotations for the company's debt are available.
C. comparing companies with significant differences in capital structure.
Q48. Which real estate sector is the largest globally by market value?

A. Industrial
B. Residential
C. Commercial

Q49. Management fees for private equity funds are most likely based on:

A. invested capital.
B. committed capital
C. assets under management.

Q50. If the number of constituent shares is constant, the weighting method that results
in the highest return is:

A. price weighting.
B. equal weighting.
C. value weighting.

Q51. A greenfield infrastructure investment is best described as an asset that has:

A. yet to be constructed.
B. already been constructed.
C. reached the end of its useful life.

Q52. Which of the following drivers of timberland returns is not applicable to

farmland?

A. Land prices
B. Commodity prices
C. Harvesting flexibility
Q53. An investor buys a stock for $108 on margin by posting 40% of the initial stock
price as equity. If the maintenance margin requirement for the position is 20%, a
margin call first occurs when the price falls below:
A. $64.80.
B. $81.00.
C. $86.40.

Q54. All else being equal, the bond with the greatest reinvestment risk is most likely:

A. Bond 1.
B. Bond 2.
C. Bond 3.

Q55. Which of the following statements regarding alternative asset co-investing is

correct?

○ Statement 1: The investor invests in assets indirectly through a fund.

○ Statement 2: The investor possesses rights to invest directly in the same assets.
A. Statement 1 only
B. Statement 2 only
C. Both Statement 1 and Statement 2

Q56. A European call option has an exercise price of $80 and an option premium of
$12. The price of the underlying is $75. The intrinsic value of the option is:

A. 0
B. 5
C. 7

Q57. The free-cash-flow-to-equity model:

A. excludes net borrowings.

 B. can be used to value non-dividend paying stocks.
C. requires an estimate of future dividend payments.

Q58. If an investor buys a 5-year, 8% annual-pay bond for 96.11, the bond's
yield-to-maturity is closest to:
A. 7.33%.
B. 8.32%.
C. 9.00%.

Q59. In an investment policy statement, which of the following investment constraints

most likely outlines a client's preference for environmentally sustainable investments?

A. Time horizon
B. Unique circumstances
C. Legal and regulatory factors

Q60. If the current share price is $60, a trader who wants to purchase the share at $58
or less will most likely place a:

A. limit order.
B. market order.
C. stop-buy order.

Q61. Sponsored depository receipts are most likely subject to:

A. less reporting requirements than unsponsored ones.

B. the same level of reporting requirements as unsponsored ones.
C. greater reporting requirements than unsponsored ones.

Q62. Which of the following is best classified as a nonsystematic risk?

A. Political uncertainty
B. Widespread natural disasters
C. Bankruptcy of a major automobile producer

Q63. Four years ago, a 5% coupon, annual-pay bond with a 10-year maturity was
issued at par. If the current market discount rate is 7%, the price of the bond per 100 of
par value is closest to:
A. 90.34.
B. 90.47.
C. 93.23.
 Q64. The price of a fixed-rate corporate bond with an annual modified duration of
7.15 increases from 92 to 97 per 100 of par value. If the government benchmark yield
increases by 5 bps, the estimated decline in the spread over the benchmark yield is
closest to:
A. 71 bps.
B. 76 bps.
C. 81 bps.
Q65. Commercial paper with a face value of $25,000,000 and a term of 120 days was
issued 55 days ago. If the current market value is $24,855,000, the implied discount
rate assuming a 360-day year is closest to:
A. 3.21%.
B. 3.23%.
C. 3.80%.

Q66. If incentive fees are based on returns in excess of the hurdle rate and are
calculated independent of management fees, the investor's net return for the year is:
A. 17.30%.
B. 17.80%.
C. 18.35%.

Q67. The capital allocation line is best described as combinations of a risky portfolio
and the:

A. risk-free asset.
B. market portfolio.
C. minimum variance portfolio.

Q68. Which of the following most likely provides the greatest redemption flexibility?
 A. Hedge funds
B. Private equity funds
C. Funds of hedge funds

Q69. The cumulative fee (in $ millions) earned by the hedge fund manager for the two
years is closest to:
A. 5.2
B. 7.2
C. 9.2

Q70. All else being equal, if a company declares a dividend of $1 per share, the
company's share price is most likely to decrease by $1 on the:

A. declaration date.
B. ex-dividend date.
C. holder-of-record date.

Q71. A call option with an exercise price of $38 was bought for $3. The price of the
underlying increases from $42 to $47.
At expiration, the payoff to the call buyer is equal to:
A. $4.
B. $6.
C. $9.

Q72. Arbitrage is best described as an opportunity to earn:

A. risk-free returns with no investment capital.

B. risk-free returns with large amounts of investment capital.
C. abnormal returns applying an absolute valuation methodology.
Q73. In the event of a default, which of the following mortgage structures exposes a
lender to the greatest risk of loss?

A. Interest-only, recourse loan

B. Fully amortizing, recourse loan
C. Balloon payment, non-recourse loan

Q74. Contracts entered into at one point in time that require both parties to engage in a
transaction at a later point in time on terms agreed upon at the start are called:

A. options contracts.
B. contingent claims.
C. forward commitments.

Q75. A holder of a put option is best described as having a:

A. short exposure to the option contract.

B. long exposure to the underlying instrument.
C. short exposure to the underlying instrument.

Q76. A risk-neutral investor most likely seeks to maximize:

A. both risk and return.

B. return irrespective of risk.
C. return for a given level of risk.

Q77. Pricing power is most likely lowest in markets characterized by:

A. strong customer loyalty.

B. high barriers to firm entry.
C. low switching costs for customers.

Q78. The value of a European call option is inversely related:

A. only to the risk-free interest rate.

B. only to the dividends paid by the underlying stock.
C. both to the risk-free interest rate and to the dividends paid by the underlying
stock.

Q79. In which of the following stages of the enterprise risk management process will
a company's board most likely identify shortfalls within the company that would cause
it to fail to achieve critical goals? When:

A. monitoring and mitigating risk

 B. making the risk tolerance decision
C. allocating capital to risky activities

Q80. The underlying assets of an asset-backed security are directly owned by the:

A. originator.
B. special purpose vehicle.
C. investors in the asset-backed securities.

Q81. The earnings multiplier for a stock increases with a decrease in the:

A. expected dividend growth rate.

B. expected dividend payout ratio.
C. estimated required rate of return on equity.

Q82. With respect to portfolio construction, combining long-term capital market

expectations with the objectives and constraints from the investment policy statement
determines a portfolio's:

A. security selection.
B. tactical asset allocation.
C. strategic asset allocation.

Q83. The central bank funds market is most likely used by:

A. central banks looking to obtain short-term funding.

B. lenders of last resort to transfer funds between each other.
C. banks to manage the imbalances in their required reserves.

Q84. Consider a put option selling for $4 in which the exercise price is $58. What is
the profit for a put buyer if the price of the underlying at expiration is $57?
A. -$3
B. $1
C. $3

Q85. In an equally weighted portfolio of many assets, an increase in the correlation

between the assets' returns most likely decreases the portfolio's:

A. overall risk.
B. expected return.
C. diversification benefit.

Q86. Which of the following is most likely considered an affirmative covenant?

 A. A minimum interest coverage ratio
B. A limit on the level of share buybacks
C. What the issuer will do with the proceeds of a bond issue

Q87. An investor purchased shares on margin at €50 per share using a leverage ratio
of 2.0. If the shares are sold for €70 per share, the return on the investor's equity
investment is:
A. 40%.
B. 80%.
C. 180%.

Q88. She receives an order to sell 9,000 shares with a limit price of CHF 42.52. The
average price (in CHF) at which the trades will be executed is closest to:
A. 42.52.
B. 42.50.
C. 42.53.

Q89. The two-fund separation theorem states that all investors will hold a combination
of the:

● risk-free asset and the optimal risky portfolio.

● risk-free asset and the global minimum-variance portfolio.
● optimal risky portfolio and the global minimum-variance portfolio.
Q90. With respect to an investment policy statement, a maximum acceptable level of
tracking risk is best described as a(n):
A. relative risk objective.
B. absolute risk objective.
C. systematic risk objective.