» CFA 1 – 25 questions

According to European Central Bank (ECB), debt securities with a maturity of up to two years are part of which of the following aggregate categories of money?

M2

M1

M3

When a reliable current market price for a firm’s debt is not available, the cost of debt can be estimated using the:

interest expense of the firm’s income statement.

matrix pricing model.

coupon rate of the same bonds.

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?

Yes, with respect to priority of transactions

Yes, with respect to fair dealing

No

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

M2 and Sharpe ratio.

Treynor ratio and Jensen’s alpha.

Sharpe and Treynor ratios.

Which of the following most likely represents valid criticisms concerning the neoclassical and Austrian schools?

It is difficult to achieve market equilibrium through reduction in generalized price and wage.

Neoclassical and Austrian policies are focused on the short term only.

Economic forecasts are imperfect as fiscal policies are implemented with a time lag.

Which of the following statement is least accurate regarding Standard V(C) - Record Retention?

If the review of a security does not lead to a change in position, there is no record retention requirement.

An employee's notes supporting a recommendation belong to his or her firm.

A press release issued by the covered company is an example of supporting documentation.

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

A day order

A fill or kill order

A good on close order

Anita Vizquel, CFA, is a sole practitioner providing investment advisory services. Based on extensive and ongoing research, Vizquel believes that Viatex Brokerage provides the best execution at a competitive price and she uses the firm for the majority of her clients' trades. In recognition of her loyalty, Viatex provides Vizquel with soft dollar commissions in the form of research reports that Vizquel finds very relevant for some, but not all, of her clients. Has Vizquel violated the CFA Standards?

Yes, by accepting research reports that do not benefit all of her clients

Yes, by using Viatex for the majority of her client's trades

No

You are the favorite to win a tennis tournament. In fact, oddsmakers give you a 90% chance to win each match, regardless of who you are playing. Each match is considered an independent event. The probability of you winning all 10 matches to claim the trophy is closest to:

90%

50%

35%

Which of the following is a leading economic index?

Average price rate

Employees on non-agricultural progress

Average weekly hours of manufacturers

Under which of the following cases is the capitalization of development cost most likely prohibited?

In the case of a company following IFRS.

In the case of the development of a lifesaving drug by a company following US GAAP.

In the case of software development by a company following US GAAP.

An analyst is developing net present value (NPV) profiles for two investment projects. The only difference between the two projects is that Project 1 is expected to receive larger cash flows early in the life of the project, while Project 2 is expected to receive larger cash flows late in the life of the project. The slope of the NPV profile for Project 1 when compared to the slope of the NPV profile for Project 2 is most likely:

equal

flatter

steeper

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

Under U.S. GAAP at the end of year 1, EBB would recognize $0 revenue, $0 cost of construction and $0 income. The $26 million expenditure would be recorded as an increase in inventory account and decrease in cash (if EBB paid cash for all expenditures).

Cash outflows from operations.

Total assets.

debt-to-equity.

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.

A portfolio manager's small cap portfolio has a beta of 1.2 and standard deviation of 40%. Over the past year, the portfolio returned 10%, the market returned 7%, and the risk-free rate was 2%. The Sharpe ratio is closest to:

0.4

0.2

0.3

An equity analyst working for a growth oriented mutual fund has a tendency to misvalue the stocks of popular companies that she has previously recommended and the fund already owns. Her behavior is most likely consistent with which of the following biases?

Escalationbias

Confirmationbias

Prospecttheory

The Sharpe Ratio measures'

beta

return relative to beta

return relative to standard deviation

If a European bank is looking to borrow money from another bank over a short term, it would be most likely to use which measure for the assigned rate?

Koribor

Spot rate

Libor

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?

Annual compounding

Quarterly compounding

Continuous compounding

During the morning section of the CFA Level 1 exam, when the proctor made the final 5 minutes announcement, Enrique, a candidate next to Rachael noticed and told Rachael that she was not filling her answers on the sheet provided. Rachael immediately started transferring answers on to the answer sheet. When the proctor made the final announcement Rachael succeeded filling 100 circles and by the time proctor reached at her table, she had only 5 circles left to fill. Rachael instantly handed her sheet to the proctor. Is Rachael or Enrique in violation of the standard relating to conduct as members and candidates in the CFA Program?

Only Enrique is in violation.

Both Rachael and Enrique are in violation.

Only Rachael is in violation.

Which of the following properties of correlation and covariance is most likely correct?

When correlation between two variables is > 0 the variables have a perfectly positive linear relationship.

As the number of securities in a portfolio increases the importance of covariance decreases all else equal.

Correlation only deals with linear relationships.

A high yield bond issuer has offered the ‘change of control put’ to its bondholders. Under this covenant in the event of acquisition, the bondholder has a (n):

right to require the issuer to buy back their debt at par or at some premium to par.

right to put limits on how much secured debt an issuer can have.

option to change a certain percentage of his bond value with the equity of the issuer.

Roberto Vargas, CFA, is in charge of the compliance program at his investment firm. According to the Standards of Practice Handbook, as a supervisor, Vargas is least likely required to:

disseminate the contents of the program to all personnel.

respond promptly to all violations.

incorporate a professional conduct evaluation as part of an employee’s performance review.

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.

0.09.

1.20.

CFA 1 - 25 Questions