» CFA 1 – 25 questions

Which of the following is a leading economic index?

Employees on non-agricultural progress

Average weekly hours of manufacturers

Average price rate

An investor is holding an inverse floating rate note. If interest rates increase, the periodic coupons paid to the investor will:

increase.

remain unchanged.

decrease.

A tariff directly benefits which of the following entities:

Consumers and the government

Consumers and local producers

Local producers and the government

As of September 5, 2014, the current price of corn is $3.60 per bushel. Farmers have stopped asking if they will profit this year - the question now is how much will they lose for their year's work. Under which of the following 6-month futures corn prices would backwardation most likely be present?

$3.20 per bushel

$4.00 per bushel

$3.60 per bushel

The elements directly related to measurement of financial performance least likely include:

expenses

liabilities

capital maintenance adjustments.

Which of the following statements is most likely correct regarding the major sections of GIPS standards?

According to section 5 ‘Presentation and Reporting’, firms cannot include in GIPS-compliant presentations information not addressed by the GIPS standards.

According to Section 3’Composite Construction’, a composite return is the asset weighted average of the performance of all portfolios in the composite.

According to Section 4 ‘Disclosures’, firms are required to make negative assurance disclosures.

Inturnal Systems, Inc. sells calculators. IS's calculators sell for an average of $15 apiece, and it costs IS an average of $5 to make each calculator. With $500,000 of fixed expenses and $250,000 of debt service due, IS's breakeven point considering all financial costs is closest to how many calculators?

50,000

75,000

25,000

For short selling purposes if a security is extremely hard to borrow, the short rebate rate may be:

very high.

10 basis points more than the overnight rate.

negative or very low.

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

Overstated

Neither understated nor overstated.

Understated

If you were offered to invest your money at interest rate of 4% and can choose how it is compounded, which compounding frequency would yield the highest effective return?

Quarterly compounding

Annual compounding

Continuous compounding

The value, at 6% interest, of a bond paying 8% annual coupon payments, redeemable at par in 5 years, with a $25,000 face amount is closest to:

$27,600

$27,100

$25,600

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

No less than a 1% loss in capital

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

Fund should return 5% per year

Aggregate demand (AD) curve will be flatter if:

investment expenditure is highly sensitive to interest rates.

saving is highly sensitive to income.

money demand is highly sensitive to income and interest rates.

ccording to Standard II-A ‘Material Non-Public Information’, if a member or candidate determines that information is material he should make reasonable efforts to:

achieve public dissemination of the information.

alter current investment recommendations for clients.

protect information from those who can possibly act on that information.

Which of the following best describes the reason for choosing the NPV rule over the IRR rule when dealing with mutually exclusive projects?

NPV rankings are affected by external interest rates or discount rates.

IRR ranking assumes reinvestment at opportunity cost of capital that is less realistic and economically less relevant.

The reinvestment rates used by NPV are more conservative and therefore are economically more relevant.

A company recorded a depreciation expense of $5,000,000 for tax purposes and $3,500,000 for accounting purposes. Which of the following is the correct accounting treatment if the tax rate is 30%?

The firm should create a deferred tax liability of $450,000.

The firm reverse of a deferred tax liability of $450,000.

The firm should a deferred tax asset of $450,000.

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

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

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

Due to the upcoming elections in the U.S., the CAD/USD currency exchange rates has risen from 1.17 to 1.31. Calculate the percentage change in the value of the USD in terms of CAD.

-10.68%

11.96%

10.68%

The optimal capital budget occurs at the intersection of:

the investment opportunity schedule and the corporate tax rate

the investment opportunity schedule and the marginal cost of capital

the old marginal cost of capital and the new marginal cost of capital

A real estate appraiser is estimating the value of a real estate investment trust (REIT) which is composed of a portfolio of real estate properties. The appraiser begins the process by adjusting net income for depreciation charges and gains and losses from sales of real estate property. The resulting amount is capitalized into a value using a cap rate. The approach being used by the appraiser is most likely classified as a/an:

asset-based approach.

direct capitalization approach.

income-based approach.

A consumer with a steeper indifference curve most likely indicates that his marginal rate of substitution (MRSXY) is:

greater and he can give up more of good Y to get an additional unit of good X.

greater and he cannot gain from voluntary exchange with the consumer whose MRSXY is lower.

lower and he can give up more of good X to get an additional unit of good Y.

Requesting that the broker complete the order either immediately or not at all is most accurately called:

A good on close order

A day order

A fill or kill order

After 5-years of service with Jacob Securities as a financial planner, Shane Alvarado planned to start his own practice in his hometown. He informed his employer through email three days before starting his independent practice. The employer was on a business trip for a week and on his return he accepted his resignation. Alvarado always maintained his personal records related to training programs that he conducted at Jacob Securities, and he used that material in his new project. Alvarado:

is in compliance with standards regarding timely notification and using his own personal records.

violated the standards by rendering services without receiving consent from his employer and by using records.

violated the standards by using records but is in compliance with standards in notifying his employer regarding his independent practice.

GIPS standards least likely resolve misleading practices related to:

survivorship bias.

varying time periods.

analyst financial statement adjustments.

Russell Bellamy, CFA, a manager with a regional bank, sends out a regular newsletter to clients on a monthly basis. Independent of his position, Bellamy has been appointed to the Board of a local nonprofit organization that provides grants to local artists. In his latest newsletter to clients, Bellamy mentions his appointment as well as the fact that the organization recently announced the start of a fundraising campaign. Has Bellamy most likely violated the Standards?

No

Yes, with respect to loyalty

Yes, with respect to preservation of confidentiality

CFA 1 - 25 Questions