exams 46

Schweser Printable Exams

SchweserPro 2012 CFA Level I

Question 1 - 94785

All of the following are required by fiduciaries under Standard III(A), Loyalty, Prudence, and Care, EXCEPT:

A) support the sponsor's management during proxy fights.B) act solely in the interest of the ultimate beneficiaries.C) place the client’s interest before the employer’s interest.

Question 2 - 94854

Which of the following is least accurate regarding reasons for imposing a summary suspension upon covered persons?

A) Failure to return the annual professional conduct statement.B) Misdemeanor charge for the possession of illegal narcotic substances.C) Disbarment under securities laws.

Question 3 - 94823

According to the Code of Ethics, which of the following statements is NOT correct? CFA Institute members are required to:

A) use reasonable care and exercise independent professional judgment.

B)maintain and improve their competence and strive to maintain the competence of others in the profession.

C) comply with the CFA Institute Performance Presentation Standards.

Question 4 - 127395

Jason Reynolds meets Jack Parker, CFA, at a social engagement and asks for some "hot stock tips." Parker declines, but sets up an appointment to review Reynolds’ risk and return objectives and financial constraints. At the conclusion of their appointment, Parker recommends three securities he has thoroughly researched: ACK, D-Wing, and Ophus-Littbinger. Parker is least likely:

A)in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to consider the three securities in the context of the whole portfolio.

B) not in violation.

C)in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to make a reasonable inquiry into the client’s investment experience.

Question 5 - 94693

49

Go to Answ er Sheet

Isabella Travelli, CFA, is a research analyst for Worldwide Investments in Rome, Italy. Travelli was contacted by Seaside Partners of Milan, Italy, a regional brokerage firm, about doing research on companies in the beverage industry on a contract basis.

Travelli may only do the contract work:

A) if Worldwide does not follow the beverage industry.B) if Worldwide has no clients in the same geographic area as Seaside.C) after receiving consent from both Worldwide and Seaside.

Question 6 - 127394

Nancy Korthauer, CFA, has launched a new hedge fund called the Korthauer Tautology Fund and is actively soliciting clients from competitor’s firms. Client presentations are necessarily brief and often take place with the prospective client’s current investment advisor in the room. The Code and Standards require that:

A)member or candidate provide (on request) additional detail information which supports the abbreviated presentation.

B) a prospective client’s current investment advisor not participate in meetings.

C)all client presentations provide a thorough review of all elements of the investment management process. Abbreviated presentations are forbidden.

Question 7 - 94919

Selma Brown, CFA, is a portfolio manager for Mainland Securities. Rick Wood, one of her clients and owner of Wood Fitness Centers, offers to permit Brown and her immediate family to use the facilities at his fitness centers at no cost during 2003. To get this benefit, Brown must achieve on Wood’s portfolio at least a 2-percentage point return above the total return on the S&P’s 500 index during 2002. Brown orally informs her immediate supervisor of the nature and duration of the proposed arrangement.

Arnold Turley, a CFA Institute member, is a portfolio analyst at Mainland Securities. He was just elected to the Board of Directors for Omega Services, which pays him $1,000 plus expenses for attending each of its quarterly board meetings. Turley e-mails Mainland’s compliance officer informing her of this arrangement with Omega and receives a reply informing him that the agreement is acceptable.

Did Brown or Turley violate CFA Institute Standards of Professional Conduct?

A) Brown: No, Turley: No.B) Brown: Yes, Turley: No.C) Brown: Yes, Turley: Yes.

Question 8 - 93528

Brendan Duval works as a research analyst for Toby Securities. Duval recommends changing a recommendation from “sell” to “buy” on Dalton Company. His firm, which manages several mutual funds, may be interested in buying Dalton’s stock. He also manages the retirement account that his parents established with Toby. Duval wants to buy shares of Dalton’s stock because it is an appropriate investment for his parent’s retirement account and obtains approval from his employer to do so. Duval is also thinking about personally investing in Dalton stock. According to CFA Institute Standards of Professional Conduct, which of the following best describes the priority of transactions? Duval should give:

A)priority to Toby's clients and his employer concurrently, followed by his parent's retirement account, and finally his personal account.

B) priority of transactions to Toby's clients, followed by his employer, then his parent's retirement account,

and finally his personal account.

C)Toby's clients and his parent's account equal priority, followed by his employer, and then his personal account.

Question 9 - 94689

What is the rule of thumb for members, CFA charterholders and candidates in the CFA program when weighing the requirements of the CFA Institute Code and Standards and the requirements of local laws? If the applicable laws are:

A)less strict, they should make a judgment call on which to follow, the Code and Standards or the local laws and requirements.

B) more strict, they must still follow the Code and Standards.C) more strict, they must adhere to the applicable laws.

Question 10 - 94907

Compliance with the CFA Institute Performance Presentation Standards (PPS) or the Global Investment Performance Standards (GIPS) is:

A) the only way to comply with Standard V(B), Performance Presentation.B) required by the Code of Conduct.C) the best way to comply with Standard V(B), Performance Presentation.

Question 11 - 94637

According to CFA Institute Standards of Professional Conduct, which of the following is NOT a form of plagiarism?

A)Using factual information published by recognized financial and statistical reporting services or similar sources without an acknowledgment.

B)Citing specific quotations supposedly attributable to "leading analysts" and "investment experts" without specific reference.

C)Presenting statistical estimates of forecasts prepared by others with the source identified, but without qualifying statements or caveats that may have been used.

Question 12 - 94719

Roger Halpert, CFA, prepares a company research report in which he recommends a strong "buy." He has been careful to ensure that his report complies with the CFA Institute Standard on research reports. According to CFA Institute Standards of Professional Conduct, which of the following statements about how Halpert can communicate the report is most correct?

A) Halpert can transmit his report by computer on the Internet.B) Halpert can make his report in person.C) Halpert can make his report in person, by telephone, or by computer on the Internet.

Question 13 - 93566

Which of the following is an a priori probability?

A) For a stock, based on prior patterns of up and down days, the probability of the stock having a down day

tomorrow.B) The probability the Fed will lower interest rates prior to the end of the year.C) On a random draw, the probability of choosing a stock of a particular industry from the S&P 500.

Question 14 - 93570

What is the present value of a 10-year, $100 annual annuity due if interest rates are 0%?

A) $900.B) No solution.C) $1,000.

Question 15 - 95628

There is a 40% chance that an investment will earn 10%, a 40% chance that the investment will earn 12.5%, and a 20% chance that the investment will earn 30%. What is the mean expected return and the standard deviation of expected returns, respectively?

A) 15.0%; 5.75%.B) 15.0%; 7.58%.C) 17.5%; 5.75%.

Question 16 - 93585

The following table summarizes the availability of trucks with air bags and bucket seats at a dealership.

Bucket Seats No Bucket Seats TotalAir Bags 75 50 125 No Air Bags 35 60 95Total 110 110 220

What is the probability of selecting a truck at random that has either air bags or bucket seats?

A) 73%.B) 34%.C) 107%.

Question 17 - 93541

What is the effective annual yield for a Treasury bill priced at $98,853 with a face value of $100,000 and 90 days remaining until maturity?

A) 4.79%.B) 1.16%.C) 4.64%.

Question 18 - 96015

An investor has the following assets:

$5,000 in bonds with an expected return of 8%. $10,000 in equities with an expected return of 12%. $5,000 in real estate with an expected return of 10%.

What is the portfolio's expected return?

A) 10.00%.B) 10.50%.C) 11.00%.

Question 19 - 93957

The average return on the Russell 2000 index for 121 monthly observations was 1.5%. The population standard deviation is assumed to be 8.0%. What is a 99% confidence interval for the monthly return on the Russell 2000 index?

A) 0.1% to 2.9%.B) -6.5% to 9.5%.C) -0.4% to 3.4%.

Question 20 - 94007

When is the t-distribution the appropriate distribution to use? The t-distribution is the appropriate distribution to use when constructing confidence intervals based on:

A) large samples from populations with known variance that are nonnormal.B) small samples from populations with known variance that are at least approximately normal.C) small samples from populations with unknown variance that are at least approximately normal.

Question 21 - 94309

Given a holding period return of R, the continuously compounded rate of return is:

A) ln(1 + R).B) eR − 1.C) ln(1 − R) − 1.

Question 22 - 94328

If random variable Y follows a lognormal distribution then the natural log of Y must be:

A) denoted as ex.B) lognormally distributed.C) normally distributed.

Question 23 - 93986

Which of the following statements about the normal probability distribution is most accurate?

A) Sixty-eight percent of the area under the normal curve falls between the mean and 1 standard deviation

above the mean.B) The normal curve is asymmetrical about its mean.C) Five percent of the normal curve probability is more than two standard deviations from the mean.

Question 24 - 93867

A sample of five numbers drawn from a population is (5, 2, 4, 5, 4). Which of the following statements concerning this sample is most accurate?

A) The variance of the sample is: ∑(x1 − mean of the sample)2 / (n − 1) = 1.5.B) The mean of the sample is ∑X / (n − 1) = 5.C) The sampling error of the sample is equal to the standard error of the sample.

Question 25 - 96816

The graph of two long run average total cost (LRATC) curves for a typical company appears below.

Based on this graph, which of the following statements is least accurate?

A) The ideal plant size is indicated by point M.B) The use of improved technology may have caused the company to move from LRATC1 to LRATC2.C) At point L, the company is experiencing economies of scale.

Question 26 - 96747

Which of the following most accurately describes the relationship between marginal cost (MC), average variable cost (AVC), marginal product (MP), and average product (AP)?

A) When MP > AP, MC > AVC.B) When MP = AP, MC > AVC.C) When MP = AP, MC = AVC.

Question 27 - 138306

Earl Hakkim is indifferent between consuming 10 DVDs and 5 books or consuming 8 DVDs and 6 books. The condition of non-satiation in utility theory predicts that:

A) Hakkim would prefer to consume 11 DVDs and 5 books.B) Hakkim would also be indifferent to consuming 6 DVDs and 7 books.C) books have twice as much utility for Hakkim as DVDs.

Question 28 - 96742

Under which type of market structure are the production and pricing alternatives of a firm most affected by the decisions of its competitors?

A) Monopolistic competition.B) Oligopoly.C) Perfect competition.

Question 29 - 97151

Which of the following statements is most accurate regarding monetarists? Monetarists believe that:

A) steady, predictable money growth is the best monetary policy.B) discretionary monetary policy is the best way to moderate fluctuations in prices and output.C) fiscal policy is the most powerful of all government tools used to affect prices and output.

Question 30 - 97642

Which of the following statements is most accurate? Cost-push inflation:

A) typically results from a significant price increase in a production input.B) often occurs because of an increase in short-run aggregate supply.C) results from excess short-run aggregate demand.

Question 31 - 97067

Which type of unemployment describes situations where qualified workers are not immediately matched with existing job openings?

A) Structural.B) Cyclical.C) Frictional.

Question 32 - 97169

Which of the following statements about biases that affect the consumer price index (CPI) is least accurate?

A)The basket of goods on which the CPI is based becomes a less accurate measure of household costs as new goods appear on the market.

B) Price increases that result from quality improvements are reflected as increases in the CPI.C) The net effect of built-in biases in the CPI is to underestimate inflation.


If the CAD is trading at USD/CAD 0.6403 and the GBP is trading CAD/GBP 2.5207, the USD/GBP exchange rate is:

A) 0.6196.B) 3.9367.

C) 1.6140.


The Marshall-Lerner condition suggests that a country’s ability to narrow a trade deficit by devaluing its currency depends on:

A) elasticity of demand for imports and exports.B) national saving relative to domestic investment.C) capacity utilization in the domestic economy.


In Japan, the direct quote of JPY/USD 108.82 is the equivalent of an indirect quote of:

A) USD/JPY 0.091895. B) USD/JPY 0.918949. C) USD/JPY 0.009189.

Question 36 - 89052

A U.S. importer wants to buy stuffed toys from the nation of South Apoa for a total cost of 6 million Apoas. The spot exchange rate is Apoa:USD 0.50. The USD equivalent cost is:

A) USD 3,000,000.B) USD 12,000,000.C) Apoa 3,000,000.

Question 37 - 98106

An analyst is least likely to use disclosures of accounting policies and estimates to evaluate:

A) whether the disclosures have changed since the prior period.B) what policies are likely to be modified in future periods.C) what policies are discussed.

Question 38 - 98085

When a publicly traded U.S. company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote, it also files the statement with the SEC as Form:

A) 8-K.B) 144.C) DEF-14A.

Question 39 - 98175

Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting standards?

A) Reluctance of firms to adhere to a single set of reporting standards.B) GATT already requires sufficient agreement.

C)Different standard-setting bodies of different countries disagree on the best treatment of a particular issue.

Question 40 - 97793

Protocol, Inc.’s net income for 2005 was $4,800,000. Protocol had 800,000 shares of common stock outstanding for the entire year. The tax rate was 40 percent. The average share price in 2005 was $37.00. Protocol had 5,000 8 percent $1,000 par value convertible bonds that were issued in 2004. Each bond is convertible into 25 shares of common stock. Protocol, Inc.’s basic and diluted earnings per share for 2005 were closest to:

Basic EPS Diluted EPSA) $6.00 $4.92

B) $5.19 $4.92

C) $6.00 $5.45

Question 41 - 97307

Maverick Company reported the following financial information for 2007:

in millionsBeginning accounts receivable $180 Ending accounts receivable 225 Sales 11,000 Beginning inventory 2,000 Ending inventory 2,300 Purchases 8,100 Beginning accounts payable 1,600 Ending accounts payable 1,200

Calculate Maverick’s cost of goods sold and cash paid to suppliers for 2007.

Cost of goods sold Cash paid to suppliers A) $7,800 million $7,100 million

B) $7,800 million $8,500 million

C) $3,800 million $8,500 million

Question 42 - 97859

Are changes in accounting principles and extraordinary items treated similarly in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards?

Accounting principles Extraordinary items A) No No

B) Yes Yes

C) Yes No

Question 43 - 95558

On the lessee's cash flow statement, the principal portion of a finance lease payment is a:

A) operating cash flow.B) investing cash flow.C) financing cash flow.

Question 44 - 95441

An analyst gathered the following information about a company:

Pretax income = $10,000. Taxes payable = $2,500. Deferred taxes = $500. Tax expense = $3,000.

What is the firm's reported effective tax rate?

A) 25%.B) 30%.C) 5%.

Question 45 - 94146

Units Unit Price

Beginning Inventory 709 $2.00

Purchases 556 $6.00

Sales 959 $13.00

Sales Expenses $2,649 per annum

What is gross profit using the FIFO method and LIFO method?

FIFO LIFOA) $6,900 $5,506

B) $6,213 $5,676

C) $6,900 $5,676

Question 46 - 87601

Which of the following statements about cash flow is (are) CORRECT?

Statement #1: The cash effects of decreasing accounts payable turnover are unlimited.Statement #2: The tax benefits from employee stock options can result in a significant source of investing cash flow.

Statement #1 Statement #2A) Correct Incorrect

B) Incorrect Incorrect

C) Incorrect Correct

Question 47 - 87618

Marnie Colston, CFA, suspects one of the companies she covers is committing accounting fraud. She has uncovered evidence of pressure to increase earnings and weak internal controls. To satisfy the third point of the fraud triangle, Colston should try to find a sign of:

A) motivation.B) temptation.C) rationalization.

Question 48 - 87616

Risk factors that provide incentives for management to manipulate financial statements include:

A)threats to financial stability, excessive third-party pressures, and threats to management’s personal wealth.

B) pressure to meet internal goals, weak internal controls, and threats to management’s personal wealth.C) threats to profitability, weak internal controls, and pressure to meet internal goals.

Question 49 - 96544

The underlying cause of ranking conflicts between the net present value (NPV) and internal rate of return (IRR) methods is the underlying assumption related to the:

A) initial cost.B) reinvestment rate.C) cash flow timing.


Landen, Inc. uses several methods to evaluate capital projects. An appropriate decision rule for Landen would be to invest in a project if it has a positive:

A) profitability index (PI).B) internal rate of return (IRR).C) net present value (NPV).


Which yield measure is the most appropriate for comparing a company’s investments in short-term securities?

A) Money market yield.B) Bond equivalent yield.C) Discount basis yield.

Question 52 - 96531

Which of the following statements regarding the net present value (NPV) and internal rate of return (IRR) is least accurate?

A)For mutually exclusive projects, you must accept the project with the highest NPV regardless of the sign of the NPV calculation.

B) For independent projects, the internal rate of return IRR and the NPV methods always yield the same

accept/reject decisions.C) The NPV tells how much the value of the firm will increase if you accept the project.

Question 53 - 97614

Which of the following statements about the payback period is NOT correct?

A) The payback period provides a rough measure of a project's liquidity and risk.B) The payback period is the number of years it takes to recover the original cost of the investment.C) The payback method considers all cash flows throughout the entire life of a project.

Question 54 - 87184

Which of the following statements about business risk and financial risk is least accurate?

A) Business risk is the riskiness of the company's assets if it uses no debt.B) The greater a company's business risk, the higher its optimal debt ratio.C) Factors that affect business risk are demand, sales price, and input price variability.

Question 55 - 87087

Pants R Us Inc.’s Board of Directors is considering repurchasing $30,000,000 worth of common stock. Pants R Us assumes that the stock can be repurchased at the market price of $50 per share. After much discussion Pants R Us decides to borrow $30 million that it will use to repurchase shares. Pants R Us’ Chief Investment Officer (CIO) has compiled the following information regarding the repurchase of the firm’s common stock:

Share price at the time of buyback = $50 Shares outstanding before buyback = 30,600,000 EPS before buyback = $3.33 Earnings yield = $3.33 / $50 = 6.7% After-tax cost of borrowing = 6.7% Planned buyback = 600,000 shares

Based on the information above, what will be Pants R Us’ earnings per share (EPS) after the repurchase of its common stock?

A) $3.33.B) $3.28.C) $3.40.

Question 56 - 97235

At a recent Haggerty Semiconductors Board of Directors meeting, Merle Haggerty was asked to discuss the topic of the company’s weighted average cost of capital (WACC).

At the meeting Haggerty made the following statements about the company’s WACC:

Statement 1: A company creates value by producing a higher return on its assets than the cost of financing those assets. As such, the WACC is the cost of financing a firm’s assets and can be viewed as the firm’s opportunity cost of financing its assets.

Statement 2: Since a firm’s WACC reflects the average risk of the projects that make up the firm, it is not appropriate for evaluating all new projects. It should be adjusted upward for projects with greater-than-average risk and downward for projects with less-than-average risk.

Are Statement 1 and Statement 2, as made by Haggerty CORRECT?

Statement 1 Statement 2A) Correct Incorrect

B) Correct Correct

C) Incorrect Correct

Question 57 - 97462

The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in years 1 through 4, $35,000 per year in years 5 through 9, and $40,000 in year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10%. The payback period for this investment is closest to:

A) 5.23 years.B) 6.12 years.C) 4.86 years.

Question 58 - 97518

Which of the following practices should be included in a firm’s code of ethics?

A)Prohibiting board members or other insiders from purchasing stock before shareholders can make purchases.

B)Providing the board with relevant corporate information in a timely manner and allowing board members or other insiders to purchase stock before shareholders can make purchases.

C)Providing the board with relevant corporate information in a timely manner and prohibiting board members or other insiders from purchasing stock before shareholders can make purchases.


Which of the following policies regarding shareowner rights for equity investors is most likely detrimental to the shareowners’ interests?

A) The company uses a third-party entity to tabulate shareowner votes.B) Shareowners are permitted to vote either by paper ballot or a proxy voting service.C) Shareowners can approve changes to the corporate structure only with a supermajority vote.

Question 60 - 97484

If the calculated net present value (NPV) is negative, which of the following must be CORRECT. The discount rate used is:

A) greater than the internal rate of return (IRR).B) less than the internal rate of return (IRR).C) equal to the internal rate of return (IRR).

Question 61 - 93495

The standard deviation of the rates of return is 0.25 for Stock J and 0.30 for Stock K. The covariance between the returns of J and K is 0.025. The correlation of the rates of return between J and K is:

A) 0.10.B) 0.33.C) 0.20.

Question 62 - 95016

An investor calculates the following statistics on her two-stock (A and B) portfolio.

σA = 20% σB = 15% rA,B = 0.32 WA = 70% WB = 30%

The portfolio's standard deviation is closest to:

A) 0.1600.B) 0.1832.C) 0.0256.

Question 63 - 93389

Which of the following is least likely considered a source of systematic risk for bonds?

A) Purchasing power risk.B) Default risk.C) Market risk.

Question 64 - 93417

Luis Green is an investor who uses the security market line to determine whether securities are properly valued. He is evaluating the stocks of two companies, Mia Shoes and Video Systems. The stock of Mia Shoes is currently trading at $15 per share, and the stock of Video Systems is currently trading at $18 per share. Green expects the prices of both stocks to increase by $2 in a year. Neither company pays dividends. Mia Shoes has a beta of 0.9 and Video Systems has a beta of (-0.30). If the market return is 15% and the risk-free rate is 8%, which trading strategy will Green employ?

Mia Shoes Video SystemsA) Buy Sell

B) Buy Buy

C) Sell Buy

Question 65 - 96297

Given a beta of 1.55 and a risk-ree rate of 8%, what is the expected rate of return, assuming a 14% market return?

A) 12.4%.

B) 17.3%.C) 20.4%.

Question 66 - 93401

A stock that plots below the Security Market Line most likely:

A) has a beta less than one.B) is overvalued.C) is below the efficient frontier.

Question 67 - 94927

The basic premise of the risk-return trade-off suggests that risk-averse individuals purchasing investments with higher non-diversifiable risk should expect to earn:

A) lower rates of return.B) rates of return equal to the market.C) higher rates of return.

Question 68 - 93416

The following information is available for the stock of Park Street Holdings:

The price today (P0) equals $45.00. The expected price in one year (P1) is $55.00. The stock's beta is 2.31. The firm typically pays no dividend. The 3-month Treasury bill is yielding 4.25%. The historical average S&P 500 return is 12.5%.

Park Street Holdings stock is:

A) undervalued by 3.7%.B) overvalued by 1.1%.C) undervalued by 1.1%.

Question 69 - 94120

What is the variance of a two-stock portfolio if 15% is invested in stock A (variance of 0.0071) and 85% in stock B (variance of 0.0008) and the correlation coefficient between the stocks is –0.04?

A) 0.0007.B) 0.0020.C) 0.0026.

Question 70 - 93429

An investor believes Stock M will rise from a current price of $20 per share to a price of $26 per share over the next year. The company is not expected to pay a dividend. The following information pertains:

RF = 8% ERM = 16% Beta = 1.7

Should the investor purchase the stock?

A) Yes, because it is undervalued.B) No, because it is undervalued.C) No, because it is overvalued.

Question 71 - 95222

Which of the following statements about asset pricing models is most accurate?

A)Assuming assets are not perfectly positively correlated, the systematic risk of a portfolio decreases as more assets are added.

B) Adding the risk-free asset to a portfolio will reduce return and total risk.

C)According to the Capital Asset Pricing Model (CAPM), the expected rate of return of a portfolio with a beta of 1.0 is the market expected return.

Question 72 - 94166

In a two-asset portfolio, reducing the correlation between the two assets moves the efficient frontier in which direction?

A)The efficient frontier is stable unless the asset’s expected volatility changes. This depends on each asset’s standard deviation.

B)The frontier extends to the left, or northwest quadrant representing a reduction in risk while maintaining or enhancing portfolio returns.

C)The efficient frontier is stable unless return expectations change. If expectations change, the efficient frontier will extend to the upper right with little or no change in risk.

Question 73 - 98147

Regarding the technical points affecting the short sales of a stock, which of the following statements is most accurate?

A) The lender must deposit margin to guarantee the eventual return of the stock.B) The short seller must pay all dividends due to the lender of the shorted stock.C) Stocks can only be shorted in a down market.


The most appropriate benchmark for measuring the relative performance of an investment manager is:

A) a broad market index.B) the risk-adjusted return on the market portfolio.C) an index that closely matches the manager’s investment approach.

Question 75 - 98246

Byron Campbell purchased 300 shares of Crescent, Inc., stock at a price of $80 per share. The purchase was made on margin with an initial margin requirement of 50%. Assuming the maintenance margin is 25%, the stock price of Crescent, Inc. has to fall below what level for Campbell to receive a margin call?

A) $20.00.B) $53.33.C) $40.00.

Question 76 - 98240

Assume a stock index consists of many firms who have recently split their stock. Which of the following weighting schemes will see a bias due to the impact of stock splits?

A) Unweighted price series.B) Price-weighted series.C) Market value-weighted series.

Question 77 - 97602

Becky Kirk contacted her broker and placed an order to purchase 1,000 shares of Bricko Corp. stock at a price of $60 per share. Kirk wishes to buy on margin. Assuming the margin requirement is 40%, how much money does Kirk have to pay up front to make the purchase?

A) $60,000.B) $36,000.C) $24,000.

Question 78 - 98201

What is the price-weighted index of the following three stocks?

As of December 31, 2001

Company Stock Price Shares Outstanding

A $50 10,000

B $35 20,000

C $110 30,000

A) 75.

B) 80.

C) 65.

Question 79 - 96355

Calculate the value of a preferred stock that pays an annual dividend of $5.50 if the current market yield on AAA rated preferred stock is 75 basis points above the current T-Bond rate of 7%.

A) $70.97.B) $42.63.

C) $78.57.

Question 80 - 96256

All else equal, the price-to-earnings (P/E) ratio of a stable firm will increase if the:

A) dividend payout is decreased.B) ROE is increased.C) long-term growth rate is decreased.


Commercial industry classification systems such as the Global Industry Classification Standard (GICS) typically classify firms according to their:

A) correlations of historical returns.B) principal business activities.C) sensitivity to business cycles.

Question 82 - 96340

Use the following data to analyze a stock's price earnings ratio (P/E ratio):

The stock's beta is 1.2. The dividend payout ratio is 60%. The stock's expected growth rate is 7%. The risk free rate is 6% and the expected rate of return on the market is 13%.

Using the dividend discount model, the expected P/E ratio of the stock is closest to:

A) 8.1.B) 5.4.C) 10.0.


Hodges Fund provides mezzanine stage financing to private companies. In which type of private equity investing is Hodges Fund most likely involved?

A) Leveraged buyout.B) Private investment in public equity.C) Venture capital.


A manager tells a research analyst, “A thorough industry analysis should use more than one approach to estimate industry variables,” and “An analyst should not compare his valuations to those of other analysts.” Which of these two statements is (are) CORRECT?

A) Only one of these statements is accurate.B) Both of these statements are accurate.

C) Neither of these statements is accurate.

Question 85 - 96839

Kyle Barnes, CFA, is meeting his friend, Lita Rombach, about possible bond investments. Rombach is concerned about reinvestment risk. Which of the following statements about Rombach is CORRECT? Rombach:

A) will prefer a higher coupon bond to a lower coupon bond.B) will prefer a noncallable bond to a callable bond.C) need only be concerned about reinvestment risk on coupon payments.

Question 86 - 97508

Which reason for purchasing U.S. Treasury securities is least valid?

A) The over-the-counter secondary market for Treasury securities is very liquid. B) Coupon strips synthesize a zero-coupon bond. C) Treasury-bonds are available in maturities of two years to nearly 30 years.

Question 87 - 96423

Which of the following statements regarding a bond being called is CORRECT? Call prices are known as regular redemption prices when bonds are called at:

A) under the call provisions specified in the bond indenture.B) at the par value.C) at a premium.

Question 88 - 97101

Which of the following statements about how the features of a bond impact interest rate risk is CORRECT?

A) Zero-coupon bonds have the highest price volatility.

B)For a given change in yield, a higher coupon bond will experience a larger change in price than a lower-coupon bond.

C) Market yields are the most important determinant of bond price volatility.

Question 89 - 96836

Which of the following statements about the yield curve is CORRECT?

A) In a typical upward sloping yield curve, short and intermediate term rates are lower than long term rates.B) Parallel shifts in the yield curve are not of concern to bond investors.

C)If long-term rates are low, the present value of cash flows far into the future will be low,and the bond's value will be low.

Question 90 - 97900

Which of the following statements regarding U.S. Treasury securities is least accurate?

A)Due to the way Treasury STRIPS are taxed, U.S. investors may face negative cash flows before the maturity date.

B) A 5-year Treasury note can be stripped into 11 different zero coupon securities.C) The U.S. Treasury issues zero coupon notes, but not bonds.

Question 91 - 95948

The one-year spot rate is 5% and the two-year spot rate is 6.5%. What is the one-year forward rate starting one year from now?

A) 8.02%.B) 5.00%.C) 7.87%.

Question 92 - 95807

With market interest rates at 6%, an analyst observes a 5-year, 5% coupon, $1,000 par value callable bond selling for $950. At the same time the analyst observes a non-callable bond, identical in all other respects to the callable bond, selling for $980. The analyst should estimate that the value of the call option on the callable bond is closest to:

A) $50.B) $20.C) $30.

Question 93 - 95972

Which of the following statements about the market yield environment is most accurate?

A) For a given change in interest rates, bond price sensitivity is lowest when market yields are already high.

B)As yields increase, bond prices rise, the price curve flattens, and further increases in yield have a smaller effect on bond prices.

C) Positive convexity applies to the percentage price change, not the absolute dollar price change.

Question 94 - 95862

Suppose that IBM has a $1,000 par value bond outstanding with a 12% semiannual coupon that is currently trading at 102.25 with seven years to maturity. Which of the following is closest to the yield to maturity (YTM) on the bond?

A) 11.52%.B) 11.21%.C) 11.91%.

Question 95 - 96112

A 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at what value assuming annual compounding periods:

A) $464.B) $315.C) $308.

Question 96 - 95690

A non-callable bond with 4 years remaining maturity has an annual coupon of 12% and a $1,000 par value. The current price of the bond is $1,063.40. Given a change in yield of 50 basis points, which of the following is closest to the effective duration of the bond?

A) 3.11.B) 2.94.C) 3.27.

Question 97 - 95062

Which of the following statements regarding currency forward contracts is least accurate?

A)A long position in a currency that appreciates more than expected over the term of the contract will have a positive value at contract expiration.

B)If the domestic currency appreciates over the term of the contract, the party that is long the foreign currency will have losses on the contract.

C) Currency forward contracts can be settled in cash or by delivery.

Question 98 - 95319

An investor bought a futures contract covering 100,000 Mexican Pesos at 0.08196 and deposited margin of $320. The following day the contract settlement price was 0.08201. The new margin balance in the account is:

A) $320.B) $325.C) $314.

Question 99 - 95804

If 60-day London Interbank Offered Rate (LIBOR) is 6 percent, the interest on a 60-day LIBOR-based Eurodollar deposit of $990,000 is:

A) $10,000.B) $9,900.C) $59,400.


Consider a U.S. commercial bank that borrows funds in England for one year denominated in English pounds. Why would the investor wish to enter into a swap contract? As the:

A) English pound decreases in value, it takes more U.S. dollars to pay off the English liability.B) English pound increases in value, it takes more U.S. dollars to pay off the English liability.C) U.S. interest rate increases, the value of the English liability increases.


A similarity of margin accounts for both equities and futures is that for both:

A) interest is charged on the margin loan balance.B) the value of the security is the collateral for the loan.C) additional payment is required if margin falls below the maintenance margin.


Which of the following is a difference between futures and forward contracts? Futures contracts are:

A) standardized.B) over-the-counter instruments.C) larger than forward contracts.


Which of the following statements about arbitrage is NOT correct

A) Arbitrage can cause markets to be less efficient. B) No investment is required when engaging in arbitrage. C) If an arbitrage opportunity exists, making a profit without risk is possible.


For two American options that differ only in time to expiration, strongest statement we can make is that:

A) the longer-term option must be worth less than the shorter-term option.B) the longer-term option must be worth more than the shorter-term option.C) the longer-term option must be worth at least as much as the shorter-term option.


All of the following are benefits of derivatives markets EXCEPT:

A)transactions costs are usually smaller in derivatives markets, than for similar trades in the underlying asset.

B) derivatives markets help keep interest rates down. C) derivatives allow the shifting of risk to those who can most efficiently bear it.


Which of the following statements about futures is least accurate?

A) Futures contracts have a maximum daily allowable price limit.B) The exchange-mandated uniformity of futures contracts reduces their liquidity.C) The futures exchange specifies the minimum price fluctuation of a futures contract.


No Errors Printing has entered into a "plain-vanilla" interest rate swap on $1,000,000 notional principal. No Errors receives a fixed rate of 5.5% on payments that occur at quarterly intervals. Platteville Investments, a swap broker, negotiates with another firm, Perfect Bid, to take the pay-fixed side of the swap. The floating rate payment is based on LIBOR (currently at 6.0%). Because of the current interest rate environment, No Errors expects to pay a net amount at the next settlement date and has created a reserve to cover the cash outlay. At the time of the next payment (due in exactly one quarter), the reserve balance is $1,000. To fulfill its obligations under the swap, No Errors will need approximately how much additional cash?

A) No Errors will receive $250.B) $0.C) $250.


Faye Sagler takes a long position in 12 August yttrium futures contracts at a contract price of $3.50 per unit. Each contract is for 1,000 units of yttrium. The required initial margin is $400 per contract and the maintenance margin is $300 per contract. August yttrium futures decline to $3.42, $3.38, and $3.31 on the next three trading days. On the first day that Sagler will be required to deposit additional cash into her futures account, the required deposit is closest to:

A) $1,440.B) $240.C) $960.


Which of the following statements regarding fund of funds (FOF) is NOT correct?

A) FOF have consistently delivered high returns to investors.B) The higher diversification of a FOF can lead to lower expected returns.C) FOF may be able to offer access to hedge funds that are closed to new, individual investors.


An investor with a large real estate portfolio must estimate the value of his holdings at year-end. Given the following data for an apartment building in the portfolio, estimate the appraised value using the income approach:

NOI $165,000Marginal tax rate 28%Market cap rate 9%

A) $1,576,667.

B) $1,320,000.

C) $1,833,333.


Only successful, ongoing hedge funds are included in hedge fund databases. The resulting inflation of reported hedge fund performance can be best described as:

A) asymmetrical returns.

B) self-selection bias.C) survivorship bias.


Jillian Best is choosing between two mutual funds. Fund A has a front-end load of 4%, a net asset value (NAV) of $60.00, and an expected return of 13.0%. Fund B has a redemption fee of 1.5%, a NAV of $27, and an expected return of 10%. Jillian will invest $50,000 in either fund. Which of the following statements is most accurate if Jillian has a 6-month holding period? The:

A) investor is better off with the front-end load fund by $120.00.B) investor is better off with the redemption fee fund by $712.50.C) investor is better off with the redemption fee fund by $592.50.


The gross rental income for an apartment building allowing for vacancies is $500,000. Estimated expenses total $200,000. If the capitalization rate is 10%, the value of this building using the direct capitalization approach is closest to:

A) $3,000,000.B) $3,500,000.C) $2,500,000.

Question 114 - 100687

If a commodities market has a downward-sloping term structure of futures prices, this would be associated with:

A) normal backwardation and a positive roll return. B) normal backwardation and a negative roll return.C) contango and a positive roll return.


Which of the following is least likely considered a benefit of the fund-of-funds hedge fund structure?

A)The fund-of-funds manager has the expertise needed to evaluate and conduct due diligence on individual hedge funds.

B) A fund of funds may have access to hedge funds that are closed to new investors.C) Similar to index funds, a fund of funds charges investors lower fees than individual hedge funds.


The total return on a collateralized futures position is composed of the change in:

A) futures price plus the interest income on the futures.B) futures price plus the interest income on the Treasuries.C) Treasuries price plus the interest income on the futures.


The income approach to valuing real estate is most similar to the following method of valuing common stock?

A) Dividend discount model with zero growth.B) Dividend discount model with normal growth.C) Price-to-sales ratio.


You are going to invest in a closed-end mutual fund and are told that the net asset value of the fund is $20.40, and the share price is $18.20. What is the discount you would receive or the premium that you would pay?

A) -0.1209.B) 0.1209.C) -0.1078.


Commodity-linked securities may be appropriate for investors:

A) prohibited from owning physical assets.B) seeking speculative profits in the commodities market.C) seeking investments that are negatively correlated with inflation.


To avoid most SEC regulations, hedge funds organized in the United States typically operate within all of the following guidelines EXCEPT hedge:

A) funds may accept a maximum number of investors.B) fund investments by individuals are limited to a maximum of $500,000. C) fund managers are prohibited from advertising or marketing the fund.

© 2012 Schweser

Go to Answ er Sheet

exams 46

Documents