» CFA 1 – 25 questions

The efficiency of an unbiased estimator is measured by its:

variance

mean value.

sample size.

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?

Continuous compounding

Quarterly compounding

Annual compounding

Which of the following is a leading economic index?

Average price rate

Average weekly hours of manufacturers

Employees on non-agricultural progress

McKinney Alpha is an accredited research firm that only hires experienced and competent analysts offering them training and financial courses from time to time. The firm allows analysts to either prepare their own research or rely on secondary sources. Tyler Klein, an analyst at McKinney uses a research report prepared at Gemma Brokerage. If Klein will use that report, he will:

violate Standard IV-A ‘Loyalty to employers’ as he is not allowed to use the report prepared by Gemma Brokerage.

violate Standard I-C ‘Misrepresentation’ by relying on work not prepared by himself for his clients.

not violate any standard if he makes reasonable efforts to determine that research is sound and uses the information in good faith.

What is most likely the definition of a Special Purpose Vehicle (SPV)?

A subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.

A type of asset-backed security that is secured by a mortgage or collection of mortgages.

A structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors.

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

An interval scale.

An ordinal scale.

A nominal scale.

Sullivan Investments, an asset management firm, complied with the GIPS standards on 1 January 2006. Can Sullivan link its non-GIPS compliance performance for periods beginning on or after 1 January 2000 with its GIPS compliance performance?

Only if it discloses periods of non-compliance.

No

Yes

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

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

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

In the event of bankruptcy, which of the following is most accurate?

Senior subordinated loans are subordinate to junior subordinated loans.

Senior secured loans are subordinate to subordinated loans.

Junior subordinated loans are subordinate to senior subordinated loans.

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:

alter current investment recommendations for clients.

achieve public dissemination of the information.

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

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:

flatter

equal

steeper

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

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

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

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

Which of the following is most likely to be correct with respect to American-style options?

There is no option premium associated with American-style options.

American-style options can be exercised before expiration.

American-style options are associated with an obligation to buy the underlying.

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

increase.

decrease.

remain unchanged.

Which of the following is most likely an example of a non-amortizing loan?

Traditional residential mortgage loans

Credit card receivables

Automobile loans

Michael recently purchased a new sedan. He then acquired insurance to protect against loss due to accident, nature, failure, or theft. Because the vehicle was insured, Michael didn't bother locking the doors, and the car was soon stolen. This is an example of what insurance problem?

Fraud

Moral hazard

Adverse selection

For a normal random variable approximately 68% of all outcomes fall within:

three standard deviation of the mean.

one standard deviation of the mean.

two standard deviations of the mean.

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

Sharpe and Treynor ratios.

Treynor ratio and Jensen’s alpha.

M2 and Sharpe ratio.

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

An analyst is conducting a market liquidity study. After studying a stratified sample of dividend-paying stocks, the analyst concludes that the economy is sufficiently liquid and that the stock market may be undervalued. What trap has this analyst most likely fallen into?

Sample selection bias

Look-ahead bias

Data mining bias

If you earned 4% over the course of 5 months, your annualized return is closest to:

8%

2%

10%

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:

35%

90%

50%

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 lump-sum

The annuity

There's no difference between the two options

How does the oil the industry most likely maintain a premium pricing strategy?

The bargaining power of the buyers

The threat of substitutes

Significant barriers of entry

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 Rachael is in violation.

Both Rachael and Enrique are in violation.

Only Enrique is in violation.

CFA 1 - 25 Questions