» CFA 1 – 10 questions

Michael recently purchased a new sedan. He then acquired insurance to protect against loss due to accident, nature, failure, or theft. Because the vehicle was insured, Michael didn't bother locking the doors, and the car was soon stolen. This is an example of what insurance problem?

Adverse selection

Fraud

Moral hazard

When a monopolist charges each customer the highest price he/she is willing to pay, this is most accurately described as:

Second-degree price discrimination

Third-degree price discrimination

First-degree price discrimination

The implied volatility on S&P 500 options has decreased over the past month. An analyst would most likely conclude that:

the value of the broad market has decreased.

the level of market uncertainty has decreased.

interest rates have decreased.

What is the most likely result of a decrease in the risk-free rate of return on put and call option prices?

Put option prices will increase and call option prices will decrease.

Put and call prices will increase.

Put option prices will decrease and call option prices will increase.

You have been given the following probabilities: P(A) = 35% P(B) = 65% P(B | A) = 65% What is the probability that Event A and Event B occur?

22.75%

65%

35%

Craig Adams, CFA, is in charge of managing the portfolio of ABC’s pension plan. Currently, the funds in the pension plan’s trust are invested traditionally: 80% in stocks and 20% in fixed income. The committee in charge of ABC’s pension fund wants to diversify its asset mix to include investments in hedge funds specializing in real estate. Which of the following is least likely to be a precaution of investing in hedge funds?

Hedge fund performance fees are typically higher than those of traditional investments.

Hedge funds often adopt strategies that magnify possible losses to their investors, including the use of leverage and choice of illiquid positions.

Hedge funds cannot diversify the pension trust as intended because analysts measure their performance relative to equity indices.

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

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.

the cost of the asset can be reliably measured.

Jack purchased a bond which pays 5% per year in the first four years, 6% per year during the next five years, and 7% per year during the six years after that. What type of bond has Jack just purchased?

Step-up

Floater

Deferred coupon

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.

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

individuals substitute future consumption for present consumption.

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

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

CFA 1 - 10 Questions