» CFA 1 – 10 questions

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

depreciation in its own currency.

no effect on real exchange rates.

appreciation in its own currency.

Which of the following is impacted by inflation in the case of capital-indexed bonds?

The interests

The principal

Both A and B

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.

Which statement most accurately describes risk transfer and risk shifting?

Risk transfer occurs when the insurer sells many policies with risks that have high correlations, while risk shifting involves derivatives so that the firm may adjust its probability distribution of returns.

Risk shifting and risk transfer are the same – both involve insurance, and can cover all of the insured risk.

Risk transfer is handled through an insurance policy, while risk shifting involves derivatives to modify a firm’s risk levels.

Assuming the correlation between an asset and market is 0.67 and the asset and market have standard deviations of 0.34 and 0.19 respectively, the market beta would be closest to:

1.00.

1.20.

0.09.

Which of the following is considered to be best practice from shareowners’ perspective?

Acquiring entity is required to deal directly with management and board.

Under change-in-control provisions, executives should not be granted severance packages to leave the company.

Board and management should be able to use cash or available credit lines to pay hostile bidders to forgo takeover.

Howard Walton, CFA, is a member of a team working on a heating oil price forecast. There are some specific portions of the forecast with which Walton does not agree, but he is generally confident of the group’s decision-making processes. Which of the following statements is most accurate? Walton:

should dissociate from the group.

must have his name be removed as one of the forecast's authors and submit his own independent research.

may allow his name to be included in the forecast.

In which of the following circumstances can a producer of agricultural products value the product at the net realizable value (NRV)?

The cost is higher than NRV

The cost is less than NRV

In all cases

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’.

violated standard III-D ‘Performance Presentation’.

did not violate any standard.

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

Social economics school

Austrian school

Neoclassical school

CFA 1 - 10 Questions