» CFA 1 – 25 questions

Which of the following statements is/are accurate? I. Differences in laws across countries determine different behavior between CFA members and candidates. II. Within the investment industry, a CFA member or candidate will always understand ethical behavior by strictly adhering to the laws of the country in which he/she operates.

II only

I & II

I only

Which of the following statements is most likely correct regarding verification?

Verification ensures the accuracy of a composite presentation.

In order to claim compliance with the GIPS standards, firms must seek verification.

Verification tests the soundness of a firm's policies and procedures to calculate performance in accordance with the GIPS standards.

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

Put and call prices will increase.

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

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

A tariff directly benefits which of the following entities:

Consumers and local producers

Consumers and the government

Local producers and the government

A hypothetical futures contract has a current market price of $19 and initial margin requirement of $9. The maintenance margin requirement is $4. For 15 short contracts, the price at which a margin call will trigger is:

$14.

$24.

$10.

lf a firm is unwilling to permit dissemination of adverse opinions about a corporate client, members or candidates should least likely:

put it on a restricted list so that firm disseminates only factual information about the company.

encourage the firm to disseminate the adverse opinions in a press release or in oral presentation.

encourage the firm to remove the controversial company from the research universe.

Which statement most accurately describes risk transfer and risk shifting?

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.

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.

Lauren Sims, marketing director of Karma Advisors, planned a brief performance presentation in five different U.S states where majority of the firm’s clients are located, in celebration of Karma’s five years of success. In his presentation, Sims clearly includes references to the information presented and also prepared a detailed information report to support his brief presentation. At the conclusion, Sims provided the report only to the clients who requested it. By failing to provide the report to all the clients who attended the session, Sims:

violated Standard III-B ‘Fair Dealing’

violated Standard III-D ‘Performance Presentation’.

did not violate any CFA Institute codes and standards.

The short in a currency forward most likely:

hedges the risk of rise in value of foreign currency.

hedges the risk of change in value of foreign currency.

gains when foreign currency appreciates.

Which of the following statements least likely represents the correct treatment of impairment loss?

It reduces investing cash flow in the year loss is reported.

It is considered a non-cash item and thus does not affect the cash flow statement.

It reduces the net income and carrying amount of assets.

Which of the following situations least likely constitutes a violation of CFA Institute Code and Standards?

A senior research analyst obtained information concerning a potential merger deal pertaining to an issuer company he covers, which is yet to be publically released. The researcher disclosed this information to his supervisor and compliance department.

A portfolio manager allocates oversubscribed IPO shares to suitable non-family client accounts prior to family client accounts to avoid the appearance of a conflict of interest.

Mark Greer recently passed the CFA Level ll exam of the CFA Program and does not intend to appear for the CFA Level lll examination for at least three years. Greer identifies himself as an active candidate of the CFA Program.

Investors have the tendency to be:

more risk averse when faced with potential gains.

less risk averse when faced with potential gains.

less risk averse when faced with potential losses.

As compared to firms with high degree of financial leverage, firms with high degree of operating leverage:

do not lead to major dislocations in the rights and privileges of owners, lenders and management.

can easily emerge as a going concern by using bankruptcy laws and protection.

are less flexible in making changes and bankruptcy protection help little to reduce operating costs.

Under which measurement scale is data categorized, but not ranked?

An interval scale.

An ordinal scale.

A nominal scale.

A U.S. based firm has a position in a European bond for a par value of €50 million. For a 1 basis point increase in yield the market value of the investment changes to €49.85 million and for a 1 basis point decrease in yield investment value changes to €51.23 million. The price value of basis point for the investment is closest to:

0.027.

0.690.

0.013.

Which of the following two measures are based on the total risk and provide similar rankings?

Treynor ratio and Jensen’s alpha.

M2 and Sharpe ratio.

Sharpe and Treynor ratios.

When inventories start to accumulate, the inventories-to-sales ratio reaches its above-normal level. Which phase of the business cycle is associated with an increased inventories-to-sales ratio?

Expansion

Peak

Trough

Samantha Bjork, CFA, has been offered an equity analyst position at a firm that has not adopted a formal code of ethics. Which of the following statements is most likely correct? Bjork:

may accept the position and should encourage the firm to adopt a code of ethics if she does.

must refuse to accept a position with any firm that has not adopted the CFA Institute's Code of Ethics.

must refuse to accept a position with any firm that has not adopted a code of ethics.

The auditors were not provided with the supporting documents for the majority of the transactions (including material transactions) selected for the audit. Which type of audit opinion should most likely be issued in such case?

An adverse opinion

A qualified opinion

A disclaimer of opinion

Investor A has a lower risk aversion than Investor B, and Investor C has a lower risk tolerance than Investor B. Which investor's optimal portfolio will most likely have the highest expected return on the capital allocation line?

Investor B's optimal portfolio

Investor A's optimal portfolio

Investor C's optimal portfolio

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

more effective as it is easy to implement.

less effective as it is very time consuming.

equally effective as both policies work well in combination.

Gloria Inc. ships 5 machines to a customer at $5,550 per machine. The total cost for Gloria Inc. is $26,250 and payment is due in 60 days. No cash changes hands at delivery. The accounting treatment related to this transaction at the time of shipment most likely includes:

revenue increased by $5,550, cost of goods sold decreased by $26,250 and cash remains unchanged.

accounts receivable and revenue increased by $27,750 and inventory decreased by $26,250.

accounts receivable and revenue increased by $27,750 and inventory and cost of goods sold decreased by $26,250.

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%

Which of the following statements regarding the Markowitz efficient frontier is least likely to be correct? The optimal portfolio for:

an investor is found at the point of tangency between the efficient frontier and an investor’s highest utility curve.

a more risk-averse investor will lie inside the efficient frontier but will lie outside the efficient frontier for a less risk-averse investor.

an investor is the portfolio that lies on the efficient frontier and provides her with the greatest level of utility.

Gary Cohn, CFA, a broker at Slater Investments, works primarily with high net worth individuals. One of his clients, Claire Stafford, has adopted a very successful investment strategy and made a number of successful trades over the past year. Having observed this pattern, Cohn replicates Stafford's trades in his personal account after carrying out the instructions in his client's orders. Has Cohn most likely violated the Standards?

No

Yes, with respect to fair dealing

Yes, with respect to priority of transactions

CFA 1 - 25 Questions