» CFA 1 – 10 questions

A publishing firm contributed $250,000 to support some philanthropic projects. The firm immediately expensed that amount in its income statement for the current fiscal year. According to applicable tax legislation such contributions are not tax-deductible.

The treatment of $250,000 for accounting and tax purposes represents a permanent difference.

A deferred tax asset arises, as taxable income is greater than accounting profit.

A temporary difference of $250,000 gives rise to a deferred tax liability.

Which of the following is most likely common among the assumptions of the Ricardian model and Heckscher-Ohlin model?

Labor is a variable factor of production.

Capital is not a variable factor of production.

There are homogenous products and homogenous inputs.

A portfolio manager is evaluating investments in mortgage securities as part of a portfolio to fund long term liabilities. If she wants to minimize prepayment risk in her portfolio she is most likely to invest in:

collateralized mortgage obligations.

mortgage loans.

mortgage pass through securities.

Survivorship and backfill biases most likely cause hedge fund indices to be:

Understated

Overstated

Neither understated nor overstated.

You are presented with 2 investment opportunities and must choose the one with the greater present value: A lump-sum of $2 million or an annuity with 25 payments of $250,000 a year with the first payment starting today. The interest rate is 9% per year compounded annually. Which one will you choose?

The annuity

The lump-sum

There's no difference between the two options

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

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

individuals substitute future consumption for present consumption.

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

Which of the following would most appropriately describe an investor's liquidity constraint?

No less than a 1% loss in capital

Fund should return 5% per year

10% of assets must be available immediately, 50% available within 2 days

When the price of the underlying is above the exercise price, a call option is:

In-the-money

At-the-money

Out-of-the-money

Which of the following is least likely a characteristic of open-ended mutual funds?

Open-end funds accept new investment money and issue additional shares to existing or new investors. Therefore, the number of outstanding shares changes after every new investment.

In open-end funds, new shares are created and sold at a premium or a discount to net assets values depending on the demand for the shares.

An open-end structure makes it easy to grow in size but creates pressure on the portfolio manager to manage the cash inflows and outflows.

To deal with short-run stabilization, as compared to monetary policy, fiscal policy is most likely:

more effective as it is easy to implement.

equally effective as both policies work well in combination.

less effective as it is very time consuming.

CFA 1 - 10 Questions