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CFA Level I Mock Test I

Question1
Marks: 1

Which of the following is not a characteristic of open-end fund? Choose one answer. a. It stands ready to redeem shares at the closing value on any trading day. b. The liquidity is determined in the open market. c. The share price of an open end fund will always be equal to net asset value (NAV).

Question2
Marks: 1

Which of the following is not a characteristic of closed-end fund? Choose one answer. a. Its shares are traded in the secondary market. b. Terms like load and no-load is not applicable. c. The share price of a closed- end fund will always be equal to net asset value (NAV).

Question3
Marks: 1

An investor purchases a small residential building .The value of the property based on income method using the following figures: Annual Rental income: $ 400,000 Annual operating expenses: $ 250,000 Investors tax rate : 25% Financing percentage : 90% Holding period : 8 years Market Capitalization rate: 20% Choose one answer. a. $ 750,000 b. $ 600,000 c. $ 562,500

Question4
Marks: 1

Which of the following costs is least likely associated with closed end funds? Choose one answer. a. Issuance cost b. Redemption cost c. Load and no-load

Question5
Marks: 1

An investor wants to estimate the value of a piece of land using hedonic price model. The following data pertains to the sale of comparable real estate properties.

The land is 5 Kms away from the market, has a vacancy rate of 6% and its size is 25,000 square feet. The estimated appraised value of the land is closest to: Choose one answer. a. $1,578,000 b. $3,470,000 c. $1,758,000

Question6
Marks: 1

The term balanced stage in venture capital financing includes: Choose one answer. a. Formative Stage and Second Stage b. Second Stage and Third Stage c. Formative Stage and Later Stages

Question7
Marks: 1

A company ABC ltd has the following schedule of cash flows

The IRR for the company is closest to? Choose one answer. a. 16.97% b. 17.4% c. 16.4%

Question8
Marks: 1

Which of the following statements is correct? Choose one answer. a. IRR method assumes that the cash flows could be invested at projects IRR. b. Discounted payback method is a good measure of profitability c. Pay back method is not a good measure of liquidity of a firm.

Question9
Marks: 1

Which of the following statements is correct? Choose one answer. a. Business risk is a combination of operating and financial risk b. Business risk is a combination of sales and financial risk c. Business risk is a combination of operating and sales risk

Question10
Marks: 1

In the dividend payment chronology the date on which shareholders of record are designated to receive the dividend is known as Choose one answer. a. Ex- dividend date b. Holder of record date

c. Payment date

Question11
Marks: 1

A company borrows some funds to repurchase shares then which of the following statement is correct? Choose one answer. a. If the after-tax cost of borrowed funds is less than earning yield of the share before repurchase then after repurchase EPS of the company will fall. b. If the after-tax cost of borrowed funds is more than earning yield of the share before repurchase then after repurchase EPS of the company will fall. c. Share repurchase does not affect EPS.

Question12
Marks: 1

If a firm wants to develop a pro forma financial statement then the first step that it takes is? Choose one answer. a. Estimate the interest and dividends payment for the next period. b. Estimate future revenue growth c. Estimate the increase in share price of the company for the next period.

Question13
Marks: 1

Which of the following statements is correct in case of takeover defences? Choose one answer. a. Provision that gives rich severance package for top managers who lose their jobs as a result of a takeover is known as green mail. b. Provisions that grant rights to existing shareholders in the event a certain percentage of a companys share are acquired is known as Poison Pill. c. Provision of use of corporate funds to buy back the shares of a hostile acquirer at a premium to their market value is known as golden parachutes.

Question14

Marks: 1

Which of the following is most unlikely a purpose of post audit as a part of capital budgeting process? Choose one answer. a. To generate concrete ideas for future investment. b. To improve operations of a firm c. To revise the original forecast to match actual results

Question15
Marks: 1

A firm is determining the after tax cost of debt in its WACC calculation. It has recently issued a bond for $956 for 15 years with the semi-annual coupon payment of 10%. The bond has a face value of $1,000. If the marginal tax rate is 35 percent the after tax cost of debt which the company should use is. Choose one answer. a. 10.6% b. 6.88% c. 8.68%

Question16
Marks: 1

Consider the following situation: Australian U.S dollar-denominated 10 year government bond yield = 8.3% 10 year U.S Treasury bond yield = 5.2% Annualised standard deviation of Australian stock index = 35% Annualised standard deviation of Australian U>S dollar denominated 10 year government bond = 25% Then the country risk premium is closest to: Choose one answer. a. 4.34% b. 5.34% c. 3.44%

Question17
Marks: 1

Compared to forward contract, future contracts are most likely more: Choose one answer.

a. Liquid b. Standardized c. Larger in size

Question18
Marks: 1

Funds that are deposited into the account to bring it back to initial margin in a future contract is known as: Choose one answer. a. Maintenance margin b. Settlement fund c. Variation margin

Question19
Marks: 1

Which of the following is least likely a characteristic of a Treasury bond futures contract? Choose one answer. a. Short has the option to deliver any of the several bonds that will satisfy the delivery terms of the contract. b. The long pays futures price at expiration times the conversion factor. c. The long pays face value multiplied by the conversion price.

Question20
Marks: 1

A stock is selling at $ 50; a 3 months call at $ 60 is selling for $2 whereas a 3 months put at $60 is selling for $ 14.The risk free rate is 6%. Considering these figures the gain which can be made through arbitrage is: Choose one answer. a. $2.87 b. $ 2 c. $ 0 ( No arbitrage possible)

Question21
Marks: 1

Which of the following will most likely increase the value of a European put option?

Choose one answer. a. Decrease in the exercise price b. Increase in volatility of an asset or interest underlying the option. c. Increase in the time to expiration.

Question22
Marks: 1

Which of the following is most likely a characteristic of a fixed for fixed currency swap? Choose one answer. a. Notional principal is swapped at initiation. b. Interest payments are netted out and .net amount is paid by one who owes it. c. At the term of the contract notional principals are netted out and the net amount is paid by the one who owes it.

Question23
Marks: 1

Which of the following statements is least likely true? Choose one answer. a. Demand for gasoline is elastic in short run because no substitutes are available. b. Demand for toothpaste is relatively inelastic as compared to demand for automobiles c. Price elasticity of demand for most goods is greater in long run than in short run

Question24
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A good whose demand increases with increase in income is most likely known as: Choose one answer. a. Inferior good b. Normal good c. Necessities

Question25
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Which of the following statements is most likely correct? Choose one answer. a. The cross elasticity of demand for a substitute is less than zero and income elasticity for a inferior good is greater than zero b. The cross elasticity of demand for a substitute is less than zero and income elasticity for a inferior good is also less than zero c. The cross elasticity of demand for a substitute is more than zero and income elasticity for a inferior good is less than zero

Question26
Marks: 1

Price taker firms in a competitive environment are characterised by the following except. Choose one answer. a. They face perfectly elastic demand curves. b. They can make normal profits by selling their output above market price. c. They are small relative to the size of the total market.

Question27
Marks: 1

Let P1 denote the intersection of MC and AVC curve and P2 represent the intersection of MC and ATC curve in a pure competitive market then. Choose one answer. a. At P1, economic profit is zero. b. At P2, economic profit is zero. c. At P2, normal profit is zero.

Question28
Marks: 1

Monopolist environment is characterised by the following except Choose one answer. a. Focus on highest price so as to maximise profits. b. Focus on earning maximum profits.

c. Possibility of earning positive economic profits in the long run.

Question29
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The price P in a monopolistic environment is given by Choose one answer. a. Intersection of MC and Demand curve b. Intersection of MC and MR curve c. Price on per the demand curve as per the quantity given by the intersection of MC and MR Curve.

Question30
Marks: 1

In the average cost pricing form of regulation the following happens except: Choose one answer. a. Increased allocative welfare. b. Increased output and decreased price. c. The point of intersection of marginal cost (MC) with the demand curve gives the price and quantity.

Question31
Marks: 1

Marginal cost pricing is associated with the following except Choose one answer. a. Government subsidy to the firm owner b. The point of intersection of MC with the demand curve gives the price and quantity. c. Price (P) > ATC

Question32
Marks: 1

Kinked demand curve model is based on the following assumption Choose one answer. a. Increase in a firms product price will be followed by its competitors, but a decrease will not. b. Increase in a firms product price will not be followed by its

competitors, but a decrease will. c. Demand above kink price (PK) is less elastic and below PK is more elastic.

Question33
Marks: 1

Dominant firm oligopoly model is characterised by the following except Choose one answer. a. Dominant firm has the marginal revenue curve below demand curve. b. Remaining firm are price takers. c. Price is set through the collusion between all the firms.

Question34
Marks: 1

Consider an agreement between India and Sri Lanka over tea exports. The expected payoff matrix is given below. Outcome is most likely:

Choose one answer. a. Both India and Sri Lanka comply b. India defaults and Sri Lanka complies c. India complies and Sri Lanka defaults

Question35
Marks: 1

Which of the following is least likely a characteristic of price-weighted index? Choose one answer. a. The divisor of a price-weighted index does not need to be adjusted for stock splits. b. For the same percentage change in the stocks price, a stock with higher price will have more impact than a stock with lower price.

c. Nikkei Dow is a price-weighted index.

Question36
Marks: 1

Which of the following is a correct definition of market float? Choose one answer. a. Total shares available to the investing public excluding the value of shares held by controlling stockholders. b. Total shares available to the investing public excluding shares available to foreign buyers. c. Total shares available to the investing public minus convertible debt.

Question37
Marks: 1

Which of the following statements is incorrect regarding Weak-form market efficiency? Choose one answer. a. Current security prices fully reflect all currently available public and private data. b. Past prices and volume information will have no predictive power about the future direction of security prices. c. Investor cannot achieve positive risk adjusted returns on average by using technical analysis.

Question38
Marks: 1

Which of the following is correct regarding the intrinsic value of an asset? Choose one answer. a. It can be determined with certainty b. It constantly changes as new information is available. c. Investors will buy assets whose intrinsic value is greater than its market value.

Question39
Marks: 1

Which of the following is least likely to be correct regarding participating preference shares? Choose one answer.

a. Smaller and riskier firms issue participating preference shares b. Participating preference shareholders are paid only fixed dividends c. Participating preference shareholders may receive a value greater than the par value of the preferred stock on liquidation.

Question40
Marks: 1

Which of the following is least likely a characteristic of Convertible preference shares? Choose one answer. a. The preferred dividend is higher than a common dividend. b. The conversion option becomes more valuable when the common stock price increases. c. They are used to finance less risky firms.

Question41
Marks: 1

Which of the following is least likely a characteristic of private equity as compared to public equity? Choose one answer. a. Less liquidity b. Lower reporting cost c. Stronger corporate governance.

Question42
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Which of the following is most likely a characteristic of cumulative voting? Choose one answer. a. Through cumulative voting minority shareholders have more proportional representation on the board. b. Under cumulative voting, each share is assigned one vote in the election of each member of the board of directors. c. Under cumulative voting, shareholders can allocate their votes to only one candidate as they choose.

Question43
Marks: 1

A firm is not going to pay dividends for next three years after which it will pay dividends which will grow at a constant rate of g =5%.If the stock price at the end of the third year is $50.The present stock value is most likely to be assuming the required rate of return of 10% Choose one answer. a. $50 b. $ 37.57 c. $ 38

Question44
Marks: 1

A company issues $ 100 par preferred stock with dividend of 8% paid semi-annually and has a required rate of return of 10%. If the preferred stock has a maturity of one year , the present value of the preferred stock is most likely: Choose one answer. a. $100 b. $98.54 c. $98.14

Question45
Marks: 1

Which of the following is most likely incorrect in case of price multiples based on fundamentals? Choose one answer. a. P/E based on fundamentals is also referred to as justified P/E. b. P/E based on fundamentals is based on the present value of future cash flows. c. Fundamental method always gives the same value of Equity as comparable method.

Question46
Marks: 1

Firm X and Y which operate in the same industry have has EV/EBITDA values of 9 and 9.5 respectively, where EV represents the Enterprise value of the firm. Then compared to firm X, firm Y is: Choose one answer.

a. Overvalued b. Undervalued c. Cannot tell from these values.

Question47
Marks: 1

Mark Watson, CFA, is a portfolio manager with XYZ Portfolio Management Company which has a long term relationship with an investment bank. The investment bank asks Mr Watson to purchase shares in a new IPO so that so that it can support its price for short term. It is known to Mr Watson that once his buying support ceases the share prices will fall dramatically. If Mr Watson accepts to purchase the shares then most likely he will: Choose one answer. a. Violate the standard regarding fair dealing. b. Violate the standard regarding conflict of interest. c. Violate the standard regarding market manipulation.

Question48
Marks: 1

After appearing for CFA Level 1 exam in December 2010, Rahul Saxena told one of his friends that a lot of emphasis was put on Financial Reporting and Analysis in the CFA exam this year. By telling this to his friend Rahul Saxena has most likely: Choose one answer. a. Not violated any CFA Standard as it was just another view on the exam. b. Has violated Standard VII (A). c. Has violated standard III(B) of fair dealing.

Question49
Marks: 1

XYZ mutual fund advertises that all the analysts in its company are CFA charter holders who have passed all the CFA exams in their first attempt. The company also boasts of the superior performance of their company as a result of this. By doing this XYZ mutual fund has most likely: Choose one answer. a. Not violated any CFA standard as it was just an opinion. b. Violated Standard VII (B) as it tried to imply that those who

pass CFA in their CFA exams in their first attempt achieve superior results. c. Violated Standard VII(A) as the company is not allowed to disclose the number of attempts in which its employees clear the CFA exams.

Question50
Marks: 1

Rahul Saxena has enrolled for CFA level 1.He does not want to spend too much on purchasing CFA books from CFA Institute. He contacts one of his friends Jagjit Singh who photocopies his previous years copyright CFA material and hands it over to Rahul. In this situation who has violated the CFA Code? Choose one answer. a. Rahul only as Jagjit was just trying to help him. b. Jagjit only as he misled Rahul c. Both Rahul and Jagjit

Question51
Marks: 1

A client is happy with the performance of his investments so far. He decides to give a gift of significant value to his money manager for his performance so far. The money manager accepts the gift and informs his employer. By accepting the gift the money manager has most likely: Choose one answer. a. Only Money manager has violated Standard I(B) as he accepted gift which could compromise his objectivity b. Not violated any standard c. Both Money manager and his Employer have violated Standard I(B) .

Question52
Marks: 1

Rahul Jalan is a portfolio manager for several clients in his city. One of his clients told him that he is under investigation for tax evasion pertinent to his business. After this Rahul disclosed this information to one of his friends. By doing so Rahul has: Choose one answer. a. Violated the Code and Standards as he should have reported to the concerned authorities. b. Violated the Code and Standards by failing to maintain the

confidentiality of his client. c. Not violated any Code and Standards as it was just an informal discussion with his friend.

Question53
Marks: 1

An investors friend, who is a singer by profession, tells him that based on the recent market activities he feels that a company XYZ will get merged into another bigger company ABC. After hearing this, the investor does some research and purchase stocks of company XYZ.By doing so the investor has most likely: Choose one answer. a. Violated Standard II(A) by acting on material non public information. b. Violated Standard II(B) by acting on information and hence manipulating market. c. Not violated any Code and Standards

Question54
Marks: 1

A member is managing the account for one of its clients who has low risk tolerance and expects modest returns.Th e member saw the opportunity of investing in a high risk , high return securities and invests some money into it hoping to maximize the potential gain for his client. By doing so the member has most likely: Choose one answer. a. Not violated any Code and Standards b. Violated Standard III (D) regarding performance presentation. c. Violated Standard III(C) regarding suitability

Question55
Marks: 1

A money manager in a XYZ mutual fund states in the advertising brochure that the company has achieved an annual growth of 15% in the past year and hence it expects future growth of the company in excess of 15% per annum.If the mutual fund indeed grew by 15% in the last year then by putting it in the brochure which of the following standards the money manager has least likely violated. Choose one answer. a. Standard I(C) regarding misrepresentation b. Standard III(D) regarding performance presentation

c. Standard III (B) regarding fair dealing.

Question56
Marks: 1

Ankit Malhotra, CFA, works with an investment bank. He accepts a position of a volunteer in Teach India campaign such that the time devoted to it does not preclude performing his excepted job functions well. But he has not informed it to his employer. By doing so Ankit has most likely: Choose one answer. a. Not violated any code and Standards b. Violated of IV(A) regarding duties to Employers c. Violated of IV(B) regarding additional compensation arrangements

Question57
Marks: 1

While working for a firm a member developed software for derivatives modelling. After some time he leaves the firm and joins another firm where he recreates the same software based on his knowledge .By doing so the member has most likely: Choose one answer. a. Violated Standard IV (A) regarding duties to Employers b. Violated Standard V(C) regarding record retention c. Not violated any Code and Standards

Question58
Marks: 1

Ankit Sharma, CFA, is an independent contractor, writes research reports for several publications. He entered into a non exclusive contract with one of the publications for writing a research report. After selling the report to the publication, he modifies the content of his research to some extent and sells it to another publication. By doing so Ankit has most likely: Choose one answer. a. Violated Standard I(C) regarding misrepresentation b. Violated Standard III(B) regarding Fair dealing c. Not violated any Code and Standards

Question59
Marks: 1

Steven Jones, CFA, an investment banker is working on the acquisition of a shipping company. The rules of the country require strict confidentiality about the clients. In due course he finds that the company is involved in a lot of partnerships where a lot of illegal funds are used in the company and its ships are used for many illegal activities. The best course of action for Steven Jones would be: Choose one answer. a. To maintain confidentiality about his client b. To consult outside counsel for the next step c. To disclose these details to regulatory authorities.

Question60
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The misleading reporting practise which involves showing a top-performance portfolio as a representative of a firms result is most likely known as: Choose one answer. a. Representative accounts b. Survivorship bias c. Varying time periods

Question61
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Which of the following statements is true regarding the compliance of GIPS standards? Choose one answer. a. Firms having less than five years of existence cannot claim GIPS compliance. b. In any case where country-specific regulations conflict with GIPS, firms must follow GIPS Standards c. After making an initial compliant performance presentation, one year of compliant performance must be added each year upto a minimum performance history of ten years.

Question62
Marks: 1

Akhil Gupta is a mining analyst. He has written a report on XYZ Bauxite Mines Corporation. Based on his estimates the new area of mining leased by XYZ has in excess of 100,000 tonnes of bauxite. He writes this in his research report that the new mine has capacity in excess of 100,000 tonnes and hence the clients should buy stocks of XYZ. By doing so Akhil has most likely:

Choose one answer. a. Violated the Standard V (B) regarding communication with clients and prospective clients. b. Violated the Standard I(C) regarding misrepresentation c. Not violated any Code and Standards

Question63
Marks: 1

Which of the following is not true regarding the Standard IV(A) about Duties to Employers? Choose one answer. a. Members and Candidates are free to use public information about their former firm after departing to contact former clients. b. Members and Candidates can use knowledge gained in the former firm after departing. c. Members should always put interest of employer ahead of family and other personal obligations.

Question64
Marks: 1

Which of the following is true regarding Mosaic Theory in connection to Integrity of Capital Markets? Choose one answer. a. When an analyst reaches an investment conclusion through analysis of public information then it is a violation of the Standard. b. When an analyst reaches an investment conclusion through analysis of non material non public information then it is a violation of the Standard. c. When an analyst reaches an investment conclusion through analysis of public information together with items of nonmaterial non public information then there is no violation.

Question65
Marks: 1

Use US GAAP accounting principle if nothing is mentioned For a firm Revenue = $ 2,000,000, Cost of goods sold =$ 1,500,000, Selling Expenses = $100,000, Interest Expenses= $50,000, Administrative Expenses =$50,000, Dividend paid =$100,000,Tax Rate =20%. Choose one answer.

a. Gross Profit =$ 500,000,Operating profit = $350,000,Net Profit = $240,000 b. Gross profit =$ 350,000,Operating profit = $500,000,Net Profit =$ 160,000 c. Gross profit =$ 500,000,Operating profit = $350,000,Net Profit =$ 160,000

Question66
Marks: 1

Which of the following statements is correct? Choose one answer. a. Percentage of completion method is used when the projects cost and revenue cannot be determined. b. Percentage of completion method is more aggressive with respect to Completed Contract method. c. Percentage of completion method involves less subjectivity as compared to Completed Contract method.

Question67
Marks: 1

Under the principle of matching concept which one of the following statements is false? Choose one answer. a. Recognize warranty expenses in the period of sale than when they are actually incurred b. Recognize bad debts expenses in the period of sale than when they are actually incurred c. Depreciation expenses for intangible assets like copyright/patents is matched with the revenue of one accounting period.

Question68
Marks: 1

Which of the following statements is true? Choose one answer. a. For perishable goods LIFO inventory method is used b. If the prices are rising the value of inventor as per LIFO method is greater than FIFO method but less than weighted average method c. If the prices are falling the value of inventory as per LIFO

method is greater than both FIFO method as well as weighted average method

Question69
Marks: 1

For a company ABC net income is $ 150,000.Cash dividend paid to preferred shareholders is $25,000.Accrued dividend but not paid to preferred shareholders is $25,000.Cash dividends to the common shareholders $50,000. Shares outstanding as on 1st January 2010 are 50,000.New shares issued 10,000 on 1st April 2010, 10,000 on 1st July 2010. Calculate basic EPS for ABC Choose one answer. a. $ 1.6 b. $ 2 c. $ 1.43

Question70
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Which of the following statements is most likely correct regarding inventory measurement? Choose one answer. a. Inventory write down is not permitted under IFRS b. Inventory write up is not permitted under IFRS c. Inventory write up is not permitted under US GAAP.

Question71
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Which of the following marketable securities is not adjusted for the change in its market value? Choose one answer. a. Held to maturity securities b. Trading securities c. Available for sale securities

Question72
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Calculate revenue to be recognized under percentage of completion method in 2008& 2009 for following contract awarded in 2008 beginning Total Contract Size = $120,000 Total Estimated Costs = $100,000

Costs incurred in 2008 = $25,000 Costs incurred till 2009 = $75,000 Choose one answer. a. 2008: $30,000 2009: $90,000 b. 2008: $30,000 2009: $60,000 c. 2008: $90,000 2009: $30,000

Question73
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Which of the following statements is correct? Choose one answer. a. Under IFRS interest and dividend received can also be classified as financing activities b. Under IFRS interest and dividend paid can also be classified as investing activities. c. IFRS is more flexible than US GAAP in classification of cash flows.

Question74
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During financial year 2010-2011 a company ABC ltd accrued wages of $2,000 and collected accounts receivable of $10,000 of previous year. Which of the following statements is correct? Choose one answer. a. Net income will increase b. Current ratio will decrease c. CFO will decrease

Question75
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A company has 50,000 shares outstanding as on 1st January 2011 . On 1st July 2010 the company plans either 200% stock dividend or 3 for 1 stock split. For calculation EPS as on 31st December 2010 the number of shares will be Choose one answer. a. 150,000 for both stock dividend and stock split case b. 100,000 for both stock dividend and stock split case

c. 100,000 for stock dividend case and 150,000 for stock split case

Question76
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Which of the following statements is incorrect? Choose one answer. a. When prices decline FIFO provides a more accurate estimate of the economic value of inventory b. When prices rise FIFO provides a more accurate estimate of the economic value of inventory c. When prices decline FIFO provides a more accurate estimate of COGS

Question77
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Which of the following statements is true under US GAAP for inventory valuation? Choose one answer. a. If the market price is higher than historical cost, inventory is written up above the historical value. b. Losses prior to the sale of inventory may be realized on the financial statement as they occur. c. The lower end for the market replacement cost is known as net realizable value (NRV).

Question78
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Which of the following is most likely a characteristic of LIFO liquidations? Choose one answer. a. Firm sells more inventory than it purchases b. Cost of goods sold increases c. LIFO reserves increases

Question79
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Which of the following Financial Statement Impact of Capitalizing vs. Expensing does not hold true? Capitalizing Expensing Choose one answer.

a. Cash flow from operations Lower Higher b. Leverage ratios Lower Higher c. Profitability early years Higher Lower

Question80
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The following information is available about a company ($ millions):

Which of the following has the company most likely increased during the period from 2009 to 2010? Choose one answer. a. Inventory , anticipating higher demand in 2010 b. Proportion of sales made on cash basis c. Accounts receivable and debt level.

Question81
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For a firm the dividend payout ratio is 35%, asset turnover is 0.8 times, financial leverage multiplier is 1.3 times and net profit margin is 15%.The firms sustainable growth rate is Choose one answer. a. 10.14 % b. 14.10% c. 10.52%

Question82
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Which of the following best reflect the financial statement impact of lease accounting on lessees account? Choose one answer. a. Total net income is higher under capital lease than operating lease

b. Operating income (EBIT) is lower under capital lease than operating lease c. Cash flow from operations is higher under capital lease than operating lease.

Question83
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Which of the following is incorrect regarding the Ratio impact of lease accounting on the lessee? Choose one answer. a. Current ratio lower for Capital lease than operating lease b. Asset turnover is lower for Capital lease than operating lease c. Return on assets is higher for capital lease than operating lease in the early years of lease.

Question84
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Kodak sells digital cameras. Per unit cost information is given as follows Original cost $ 420 Estimated selling price $ 450 Estimated selling costs $ 44 Net realizable value $406 Replacement cost $394 Normal profit margin $24 What is the gain/loss reported in the income statement under IFRS? Choose one answer. a. $14 loss b. $14 gain c. No loss is reported under IFRS in inventory writedown

Question85
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Which of the following is correct with respect to bond issuance cost? Choose one answer. a. Under US GAAP the initial bond liability on the balance sheet is reduced by the amount of bond issuance cost. b. Under US GAAP , bond issuance costs are capitalised on an asset.

c. Under IFRS , bond issuance costs are treated as amortised discount.

Question86
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Which of the following statements is most likely correct with respect to valuation allowances in Income taxes? Choose one answer. a. Valuation allowances reduce the deferred tax liabilities and hence increases the net income. b. Valuation allowances increase the deferred tax liability and hence increases the net income. c. Valuation allowances reduce the deferred tax assets and hence reduce the net income.

Question87
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Which of the following statements is most likely incorrect? Choose one answer. a. Warranty expenses create deferred tax liability b. Different depreciation methods used on the tax return and income statement can create deferred tax liability. c. Post employment benefits create deferred tax assets.

Question88
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Which of the following is least likely a principle for preparing financial statements as per International Accounting Standards (IAS)? Choose one answer. a. Fair presentation b. Going concern basis c. Aggregation

Question89
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A companys fixed income portfolio comprises three bonds whose market values, par values, coupon rates, and durations are given in the following table:

The portfolios duration is closest to: Choose one answer. a. 6.85 b. 6.58 c. 6.65

Question90
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A bond has a modified duration of 5.5 and convexity of 38.5. If interest rates increases by 1.0 percent, the percentage decreases in the value of the bond will be closest to: Choose one answer. a. 5.115% b. 5.511% c. 5.515%

Question91
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An investor is considering the purchase of two bonds. One is a 6% yield tax-exempt bond while the other is an 8% yield taxable bond. If the two bonds are alike in all other characteristics, the marginal tax rate that would make the investor indifferent between the two bonds is closest to: Choose one answer. a. 25% b. 26% c. 24%

Question92
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Which of the following statements is incorrect regarding option adjusted spread (OAS) and Z-spread for option embedded bonds? Choose one answer. a. For a callable bond OAS < Z spread b. For a Callable bond OAS > Z spread c. For a Putable bond OAS > Z spread

Question93
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If the bond is selling at discount which of the following relations hold true. Choose one answer. a. Coupon rate = Current Yield = Yield to Maturity b. Coupon rate > Current Yield = Yield to Maturity c. Coupon rate < Current Yield < Yield to Maturity

Question94
Marks: 1

20-year Treasury bond purchased at par value of $100, 10% coupon rate paid semiannually, how much reinvestment income should be generated to earn a YTM of 10%? Choose one answer. a. $ 404 b. $ 484 c. $ 504

Question95
Marks: 1

Which of the following statements is least correct regarding reinvestment risk? Choose one answer. a. Reinvestment risk is higher for callable bonds than option free bonds. b. Higher the coupon rate, higher the reinvestment risks. c. Longer the maturity, lower the reinvestment risk.

Question96
Marks: 1

For a bond which pays annual coupon of 4% for 4 years with the par value of $ 1,000.The yield for the bond is 5%. The Macaulay Duration for this bond. Choose one answer. a. 3.77 years b. 1.89 years c. 3.65 years

Question97
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Consider the following situation.

For a bond with the face value of $100 and which pays 8% annual coupon with maturity period of 3 years, the current market value based on arbitrage free valuation is equal to Choose one answer. a. $100.27 b. $100.72 c. $102.27

Question98
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For the given portfolio if the interest rate increases by 100 bps what will be the percentage decrease in bond price.

Choose one answer. a. 6.36% b. 6.63% c. 6.26%

Question99
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For a bond the last coupon date was 1st January 2010 and Mr X purchases that bond on 1st April 2010. The coupon rate is 12% per annum with par value of $1000.If the full price of the bond is $ 1050 then the clean price for the bond will be Choose one answer. a. 1000 b. 1050 c. 1020

Question100
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Which of the following bond is similar to zero coupon bonds in the sense that they do not make any periodic interest? Choose one answer. a. Accrual bonds b. Step-up notes c. Deferred coupon bonds

Question101
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An investor buys a share of a stock for $ 80 at the beginning of 2009. He buys another stock of share price $100 at the beginning of next year. Both these stocks pay a dividend of $ 2 per year during their holding period. At the end of 2nd year the investor sells both the stocks for $ 110 each. The money weighted rate of return is closest to: Choose one answer. a. 16.94% b. 16.64% c. 19.64%

Question102
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The line representing the possible combinations of risk-free assets and optimal risky asset portfolio is known as: Choose one answer.

a. Indifference curve b. Utility function c. Capital allocation line.

Question103
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Which of the following statements is most accurate about indifference curves? Choose one answer. a. For a risk averse person the indifference curve is flatter. b. Investors expected utility may be different along the indifference curve. c. Indifference curves do not intersect .

Question104
Marks: 1

Consider three portfolios A,B,C with their expected return and standard deviation given below.

Which of the portfolios will most likely fall below the Markowitz efficient frontier? Choose one answer. a. Portfolio A b. Portfolio B c. Portfolio C

Question105
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Macroeconomic factors like increase in interest rate will most likely: Choose one answer. a. Affect diversifiable risk b. Affect market risk

c. Affect Unsystematic risk

Question106
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Which of the following measures is based on systematic (beta ) risk only? Choose one answer. a. M-squared measures b. Treynor measures c. Shape ratios.

Question107
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A company which produced bulb find that 15% of the bulbs produced by it are defective. Using binomial probability function the probability of finding 6 defective bulbs in a sample of 10 bulbs is closest to. Choose one answer. a. 0.125% b. 4 % c. 1.25%

Question108
Marks: 1

The return on a stock in 5 years is given by -5% , 6.5% ,7% ,6% ,4%.The sample variance of these stock returns is closest to: Choose one answer. a. 0.002495 b. 0.001996 c. 0.002245

Question109
Marks: 1

Which of the following is most likely correct with regards to p value in a hypothesis testing? Choose one answer. a. When p value is negative alternate hypothesis is rejected

b. When p value is one , null hypothesis is rejected c. When p value is zero, null hypothesis is rejected.

Question110
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Which of the following is most likely correct about the measurement scale? Choose one answer. a. Data is categorized and ranked under a nominal scale b. Data is categorized and ranked under ordinal scale. c. Data is not ranked in an interval scale.

Question111
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Kurtosis for a normal distribution is: Choose one answer. a. Platykurtic. b. Leptokurtic. c. Mesokurtic.

Question112
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A 120 days U.S Treasury bill with a face value of $100,000 currently sells for $98,000 then which of the following is correct: Choose one answer. a. Holding period yield = 2.04% , Bank discount yield = 6.0%, Money market yield = 6.12% b. Holding period yield = 2.04% , Bank discount yield = 6.12%, Money market yield = 6.0% c. Holding period yield = 2.04% , Bank discount yield = 6.0%, Money market yield = 6.0 %

Question113
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For two firms X and Y the following table gives the value of return during different states of economy i.e Expansion, Normal, Contraction along with the probability of

occurrence of each states. The covariance of the returns for Stock X and Y is closes to:

Choose one answer. a. 0.0036 b. 0.0012 c. 0.0045

Question114
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Which of the following sampling methods is most likely used in bond indexing? Choose one answer. a. Simple random sampling b. Stratified random sampling c. Systematic sampling

Question115
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Which of the following is not true as per central limit theorem? Choose one answer. a. For sample sizes greater than 30, central limit theorem can be applied regardless of the population distribution. b. If ?2 is the population variance then population variance is given by ?2/n where n is the sample size. c. The sample population mean is equal to population mean divided by the sample size.

Question116
Marks: 1

A firm wants to measure the characteristics of a country like unemployment, inflation, and GDP growth rates for a long period of 10 years. Which kind of data the firm is most likely to use? Choose one answer.

a. Longitudinal data b. Panel data c. Cross-sectional data

Question117
Marks: 1

Which of the following is not a characteristic of Students t-distribution? Choose one answer. a. It has less probability in the tails than the normal distribution. b. As the degrees of freedom (the sample size) gets larger, the shape of the t-distribution more closely approaches a normal distribution. c. It is appropriate to construct confidence intervals when the population variance is unknown.

Question118
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Bias which occurs when some data is systematically excluded from the analysis, usually because of the lack of availability? Choose one answer. a. Look ahead bias b. Sample selection bias c. Survivorship bias

Question119
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A person which has wealth of $ 80 million intents to increase his wealth to $90 million in next one year. He is considering investing in three portfolios .whose returns are normally distributed, with the characteristic as given below. Using Roys first safety criteria which portfolio should he choose?

Choose one answer. a. Portfolio Z b. Portfolio Y

c. All the three portfolios

Question120
Marks: 1

In a school there is 70% probability that the teachers will teach well and if it happens then there is 80% probability that students will get good marks and 20% probability that students will poor marks. There is 30% probability that the teachers will not teach well and if this happens then there is 30% probability of students getting good marks and 70% probability of students getting poor marks. The probability of teachers teaching well, given that the students have got good marks is: Choose one answer. a. 56% b. 80% c. 86.15%
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