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News Analysis

Passage 1
Fish Heads to Chicken Fat Light Homes, Cut Retailer Costs
June 6, 2012 (Bloomberg) Fish heads and chicken fat are being turned into electricity by
some of the U.K.s largest retailers. These companies are shipping food waste to power plants
in an effort to reduce garbage-removal costs. Tesco, Britains biggest supermarket chain, leads
the list of retailers interested in this new green way to dispose of waste. Tesco and others are
using leftover meat, fish, cooking oils, and sandwiches to lower energy bills and landfill costs.
Supermarkets are in part making these changes to avoid a landfill tax that makes it more and
more costly to bury waste. The tax starting in April was 64 pounds ($98) a ton and is set to
increase by 8 pounds a year. Diverting food waste from landfill to anaerobic digestion is an
obvious choice for supermarkets, said Niamh McSherry, a food-retail analyst. She added,
Landfill charges and energy costs are only getting more expensive.
Anaerobic digestion breaks down organic material in the absence of oxygen to make a biogas
that can be burned to generate power. Electricity from this process currently costs about
$142.80 a megawatt-hour, according to data from Bloomberg New Energy Finance. This
compares to coal-fired power that costs $78 a megawatt-hour.
Projects to convert waste to power in the U.K. benefit from state subsidies under the
governments Renewable Obligation Certificate program. This program requires utilities to buy
increasing amounts of electricity from clean energy sources. Reducing energy consumption
and sustainably managing waste is just good business, said Bob Gordon from the British
Retail Consortium. U.K. retailers are saving hundreds of millions of pounds per year through
their sustainability agendas.

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1. Why are U.K. food retailers interested in anaerobic digestion even though energy from this source
is nearly twice as expensive as coal-fired power?
A. The retailers are looking for other sources of energy to encourage coal-fired power
providers to lower rates.
B. The retailers believe they can save hundreds of millions of pounds per year due to the
Renewable Obligation Certificate program.
C. The price of the clean-energy alternative is likely to fall by up to 8 pounds a year.
D. The retailers hope to avoid rising waste-disposal costs and to reduce the cost of powering
their stores.

2. According to the article, how was food waste used by supermarkets before the implementation of
anaerobic-digestion programs?
A. The waste was recycled and used to create other products.
B. The waste was buried with other waste in landfills.
C. The waste was shipped to power plants to aid in the generation of coal-fired power.
D. The waste was shipped to landfills, where it was turned into a power-generating biogas.

3. According to the figures projected in the article, what will be the landfill tax per ton in April 2015?
A. 24 pounds
B. 40 pounds
C. 64 pounds
D. 88 pounds

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Passage 2
U.S. Intelligence Agencies See a Different World in 2030
December 10, 2012 (Bloomberg) According to a U.S. National Intelligence Council report,
new technologies, dwindling resources, and population growth will radically change the global
balance of power by 2030. The report identifies four megatrends causing these changes.
These trends include the rising power of individuals, a growing middle class, resource
shortages, and the end of U.S. global dominance.
The first three are related. The world population is expected to reach 8.3 billion by 2030.
Especially in the developing world, the middle class will grow. Much of this growing middle
class will move to cities. The urban population could increase to 60% of the worlds total.
Rising incomes will create new demand for food, water, and energy, all of which will be in
shorter supply. New communications technologies and more educational opportunities will be
available. These advances will empower people to make greater demands on their
governments for services.
The role of the U.S. in this new world order is hard to predict. The U.S. will most likely remain
first among equals for its ability to organize coalitions. However, the report also projects that
power will shift away from North America and Europe. The report predicts that China will
surpass the U.S. economically. In addition, countries such as Colombia, India, Nigeria, and
Turkey will play more significant roles in the global economy.
The report is designed to encourage long-term planning. In particular, the crisis-prone global
economy will determine the impact of the megatrends. The global economy is vulnerable to
international crises and to development-rate disparities among national economies. The key
question, the report says, is whether these weaknesses will result in a global economic
breakdown or whether the development of multiple growth centers will lead to resiliency.

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4. Which of the following is identified in the report as a megatrend that will transform the world?
A. The continued global dominance of the United States
B. A massive population shift away from urban centers
C. A decrease in the supply of food, water, and energy
D. The growth of strong coalition governments

5. Why does the article mention the crisis-prone global economy?


A. As a warning to nations to avoid the changes described in the report
B. To explain why power will shift away from the United States and Europe
C. To underscore the necessity of having a dominant global power
D. As a reason why the likely effects of the megatrends are unclear

6. How can the changes identified in the report best be summarized?


A. The crisis-prone global economy will lead to the end of U.S. dominance.
B. The next 18 years are likely to see a shift in both power and population.
C. China is likely to surpass the United States as the dominant world power by 2030.
D. New technologies will lead to more urbanization and resource shortages.

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Passage 3
Hong Kong Parking Costs $387,000 as Cash Moves from Homes
November 27, 2012 (Bloomberg) Amid the Hong Kong governments campaign to curb home
buying, investors have turned to parking spaces instead. The average price of a previously
owned parking spot in a residential complex recently rose to HK$640,000, the second-highest
average price on record. One space in the exclusive Repulse Bay area sold in May for HK$3
million. That represents the highest price for a single transaction and more than double the
median U.S. home price.
Hong Kong Chief Executive Leung Chun-ying took over in July amid concerns that continued
U.S. stimulus would attract more funds into the city and fuel an asset bubble. In response,
Leung has imposed several restraints on home buying. Apartment prices in the city doubled in
almost four years, driven by near record-low interest rates and an influx of money from China.
According to a survey that compared prices in 10 major cities, Hong Kong is currently the
priciest place to buy a home.
Most parking spaces in Hong Kong are freely transferable. However, some garages have rules
prohibiting nonresidents from parking on the premises. Spaces in industrial and commercial
buildings are also transferable, though some landlords hold on to parking spaces for the stable
rental returns those spaces provide. Developers often sell spaces independently from
residential units.
Nevertheless, many buyers believe that parking spaces are an easier, less expensive
investment option. For example, one parking space in a middle- to low-end residential project
in the city recently sold for HK$910,000. The space is being leased for HK$3,300 a month,
producing a yield of about 4.4 percent. By contrast, a 900-square-foot apartment in the same
project is being sold for HK$5.18 million. With a monthly rental of HK$15,000, the yield is
around 3.5 percent.

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7. Which of the following is given as a possible reason for the recent increase in the cost of parking
spaces in Hong Kong?
A. A decrease in the cost of housing
B. Decreased restrictions on transferability
C. Global economic conditions
D. Increasing interest rates on loans

8. Why is the sale of a parking spot in the Repulse Bay neighborhood mentioned in the article?
A. To give an example of how much the cost of parking spaces has increased
B. To provide a warning to potential buyers of the risk of buying parking spaces
C. To compare the cost of a parking spot in many different countries
D. To demonstrate the result of landlords restrictions on selling private parking spaces

9. Based on the information in the article, how can the investment market in Hong Kong best be
described?
A. Benefitting from an excess supply of parking
B. Shifting focus as a result of new restrictions
C. Suffering from global economic conditions
D. Easily accessible to young professionals

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Economics
1. According to public comments by Jamaicas Prime Minister, the Caribbean island would like the
International Monetary Fund to consider a Greek-style bailout as part of negotiations for a new
loan agreement. Specifically, Jamaicas Prime Minister would like to see investors forgive principal
on its sovereign debt. If the Jamaican government succeeds in its efforts, which of the following
financial statistics will show immediate improvement?
A. Debt-to-GDP
B. Government tax receipts-to-GDP
C. Private-sector incomes
D. Exports

2. According to China Railway Group, China intends to boost plans for spending on railway
construction this year to 496 billion yuan, or $78 billion, as part of a government led effort to revive
flagging economic growth. This effort by the countrys national government to stimulate economic
growth is most closely associated with which of the following schools of economic thinking?
A. Mercantilism
B. Monetary economics
C. Classical economics
D. Keynesian economics

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3. Jill, a grocer, is seeking to maximize her profit. Some apples that she bought last week for $0.30
each are about to go bad. Should she be willing to sell the apples for $0.05 per apple today, rather
than allow them to go bad and be worthless tomorrow?

A. No. It makes no sense to sell the apples below cost.


B. Yes, but only if buyers promise to pay $0.50 per apple once Jill receives a new shipment of
apples.
C. No. If customers are unwilling to cover the cost of production, apples should not be
available.
D. Yes. The cost of the apples is a sunk cost, and thus the apples should be sold for whatever
price Jill can get for them, regardless of her cost.

4. One morning, you read the following news on your smartphone: "About 55 percent of the
contiguous U.S. states were in moderate-to-extreme drought at the end of June -- the highest
since December 1956, according to the National Climatic Data Center. Last month was the 14thwarmest ever and the 10th-driest June based on records going back to 1895." What effect will this
drought most likely have on the prices of meat and poultry?

A. Both prices will increase.


B. Both prices will decrease.
C. Both prices will stay the same.
D. Meat prices will increase and poultry prices will decrease.

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5. Bloomberg News reports that European Central Bank (ECB) President Mario Draghi cut the banks
main interest rate 25 basis points from 1% to a record low 75 basis points. In addition to cutting
the main rate, the ECB also reduced its deposit rate to zero, but stopped short of restarting its
bond buying program. What macroeconomic policy option has the ECB taken?
A. Expansionary fiscal policy
B. Contractionary monetary policy
C. Quantitative easing
D. Expansionary monetary policy

6. The graph below represents the market for apartment rentals in New York City. In the absence of
any market disruption, the market equilibrium price and quantity are represented by P* and Q*,
respectively.
Suppose that, due to a massive influx of new residents, the demand function for New York City
apartments becomes perfectly inelastic at Q*. Which of the following statements is true of this
market following a decision by the citys landlords to increase rents across the board by 10%?

A. Deadweight loss will be increased.


B. The demand for apartments will decrease.
C. The demand for apartments will not change.
D. The market cannot be in equilibrium because of the inelastic demand.
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7. The term BRIC refers to the four most prominent emerging-market economies. The chart below
shows the value of corporate debt issued in 20 emerging markets, including BRIC countries, from
2007 through 2012. Which BRIC country issued the least corporate debt during this period?

A. Colombia
B. China
C. Indonesia
D. India

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Mathematics
1. The Ideal Gas Law is often used to determine the behavior of gases at different temperatures (T)
and pressures (P) and is expressed

as , where R is a constant and n is the quantity

of the gas. What happens to the volume (V) if the pressure and temperature are both doubled?

A. The change in volume cannot be determined.


B. The volume is quadrupled.
C. The volume remains constant.
D. The volume is quartered.

2. A jeweler bought a diamond ring in 1990 for $2,000. From 1990 to 2005, the market value of the
ring doubled. From 2005 to 2010, the market value of the ring increased by $500. Finally, the
market value of the ring increased by 10% per year for the next two years, at which point the
jeweler sold the ring at market value. What was the percent increase, rounded to the nearest
integer, in the price of the ring between when the jeweler bought and sold the ring?
A. 245%
B. 172%
C. 95%
D. 63%

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3. Two squares, A and B, shown below, are placed next to each other so that their bottom edge
forms a line segment, . Squares A and B are then inscribed in a square called square S with side
as shown below. If square A has side length a and square B has length b, how much of the area of S
is left uncovered by A and B in terms of (a and b)?

A. a2 + b2
B. 2ab
C. 2ab
D. 4a2

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5. Which of the following sets of ordered pairs is a function whose inverse is also a function?
A. {(0,0), (0,1), (1,1), (2,3)}
B. {(0,1), (1,3), (2,5), (3,7)}
C. {(0,0), (1,1), (2,1), (3,2)}
D. {(0,0), (1,0), (1,1), (3,2)}

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6. Peter and Ming both won the National Lottery and received 1 million dollars each. Peter donated
30% of his prize to charity, and Ming donated

of his prize to charity. Which of the following

statements is most supported by the information above?

A. Peter and Ming donated the same amount.


B. Ming donated 10% more than Peter.
C. Peter donated 90% of the value donated by Ming.
D. Peter and Ming donated $600,000 in all.

7. Three bus lines P, Q, and R depart from the Downtown Bus Depot.

The P arrives between 8:00 and 8:10 AM 40% of the time.

The Q arrives between 8:00 and 8:10 AM 80% of the time.

The R arrives between 8:00 and 8:10 AM 10% of the time.

What is the probability that exactly two of the three buses arrive between 8:00 and 8:10?

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Analytical Reasoning
Case 1
A family decides to have a party. Each family member invites his or her friends. The first
person to hand out invitations is the son, then the daughter, then the mother, and finally
the father. All people who receive invitations attend the party. No one receives more
than 1 invitation.
The son invites at least 1 person and at most 5 people.
The daughter invites 2 more people than does the son.
The mother invites half the number of people as do the son and daughter combined.
The father invites an odd number of people.

1. What is the maximum number of people who could receive invitations from the mother?
A. 2
B. 5
C. 6
D. 7

2. What is the minimum number of people who could come to the party?
A. 6
B. 7
C. 8
D. 9

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3. Suppose that a total of 17 people come to the party. How many people could the daughter have
invited?
A. 4
B. 5
C. 6
D. 7

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Case 2
A zoo has seven exhibits: the alligator swamp, the bear igloo, the lions den, the
monkey house, the panda house, the snake pit, and the zebra pen. Visitors at the zoo
must follow the rules below.
No visitor may go directly from the zebra pen to the snake pit.
No visitor may go to both the lions den and the bear igloo.
Anyone who goes to the monkey house must also go to the zebra pen.
Anyone who goes to the snake pit must go to the bear igloo next.
Anyone who goes to the alligator swamp must go to the monkey house next.
No visitor may go to an exhibit more than once.

4. A small boy and his father decide to visit both the snake pit and the alligator swamp. Which of the
following routes could they take through the zoo?
A. Snake pit, panda house, zebra pen, alligator swamp, monkey house
B. Alligator swamp, monkey house, zebra pen, snake pit, bear igloo
C. Snake pit, bear igloo, zebra pen, alligator swamp, monkey house
D. Alligator swamp, monkey house, lions den, snake pit, bear igloo

5. A tour group plans to begin its day at the zoo by visiting the snake pit, and plans to finish by
visiting the monkey house. If the group visits exactly 5 exhibits, how many possible routes through
the zoo can the tour group take?
A. 1
B. 2
C. 3
D. 4

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6. A wildlife photographer decides to visit the zoo and photograph the lions. If he plans to visit at
least two other exhibits in addition to the lions den, which of the following exhibits must he visit?
A. The zebra pen
B. The alligator swamp
C. The monkey house
D. The panda house

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Case 3
Three accountants Dee, Fred, Gina and three marketers Omar, Roy, Sophie
each speak at a conference. They speak in one of two conference rooms: east or west.
Each conference room has three 1-hour talks: east at 1:00, 2:00, and 3:00; west at 2:00,
3:00, and 4:00. Each speaker speaks individually and exactly once, according to the
following conditions:
Omar speaks at 1:00 or 4:00.
Dee speaks at some time before Fred speaks.
If any marketer speaks at 3:00, no accountant does.
Gina and Sophie speak in different conference rooms.
Roy speaks immediately after an accountant, although not necessarily in the
same conference room.

7. Which one of the following people must speak before 3:00?


A. Sophie
B. Fred
C. Dee
D. Roy

8. If a marketer speaks at 3:00, then which of the following must be true?


A. An accountant speaks at 1:00.
B. An accountant speaks at 2:00.
C. A marketer speaks at 2:00.
D. A marketer speaks at 4:00.

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9. Which one of the following could be a complete and accurate ordering of speakers in the east
conference room, from first to last?
A. Fred, Roy, Sophie
B. Dee, Gina, Roy
C. Omar, Roy, Gina
D. Dee, Fred, Gina

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Financial Statements Analysis


1. Greenlight Capital, a well-known value-oriented hedge fund, released an analysis on the company
Green Mountain Coffee Roasters (GMCR). The fund's research highlighted GMCR's decision to
discontinue releasing information on total pounds of coffee shipped and brewer units shipped.
Which of the following describes the trend in GMCR's disclosure policy?

A. Lack of transparency
B. Aggressive accounting
C. Shifting current expenses to a later period
D. Shifting future expenses to the current period

2. For a wholesaler of homogeneous commodities such as coffee, grain, and paper products, in
which stored inventory is often co-mingled, it is difficult to track the original purchase price of items
sold when calculating overall profits.
To counter this, firms make assumptions about the purchase price of items sold from inventory,
and these are expressed in terms of when the item arrived in stock. For instance, First-in-first-out
(FIFO) assumes that the oldest item in stock is the one used to fill a customer order.
In an environment of rapidly rising prices, which of the following valuation methods gives the
lowest reported profit?
A. Last-in-first-out (LIFO)
B. First-in-first-out (FIFO)
C. Average cost
D. Last-in-last-out (LILO)

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3. Operating leverage (OL) is a measure of how sales revenue growth translates into growth in
operating income, and can be calculated using the equation below.
OL = % change in operating income % change in sales revenue.
A high level of operating leverage indicates that operating income is more sensitive to changes in
sales. If a firm has operating leverage of 4.0, and sales revenue falls from $1 million to $800,000,
which of the following is the expected decrease in the previous operating income of $150,000?
A. 5%
B. 20%
C. 33%
D. 80%

4. A week into training a newly-hired class of investment banking analysts, the class instructor told a
joke about investment banking. According to the instructor, "the problem with investment banks'
balance sheets is that on the left side nothing is right and on the right side nothing is left." Why is
this a fair description of bank balance sheets, especially during the financial crisis?
Under U.S. Generally Accepted Accounting Principles (GAAP), the left side represents assets and
right side represents liabilities and shareholders' equity.
A. Banks securitized too many mortgages without performing due diligence on borrowers.
B. Banks stopped making loans and gave CEOs excessive compensation packages.
C. Banks misvalued assets and operated with insufficient levels of equity capital.
D. Bank assets such as mortgages are undervalued and liabilities such as deposits are
overvalued.

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5. In the most basic sense, the accounting terms "Assets" and "Liabilities" can be defined as what
you own versus what you owe.
On February 1, AmCorp purchased $25,000 of equipment, paying $5,000 in cash and signing a
note promising to pay the balance of the purchase 90 days after installation. The equipment was
delivered and installed on March 26. Which of the following statements most accurately describes
the accounting impact of this equipment transaction in AmCorp's books prepared for the quarter
ended March 31?
A. Total assets increase by $25,000.
B. Total assets increase by $20,000.
C. Total liabilities decrease by $5,000.
D. Total liabilities increase by $25,000.

6. In an effort to support the housing market, the treasury department authorized a housing program
in which landlords may obtain a maximum of four federally subsidized loan workouts. Such
workouts require commercial banks to reduce monthly payments by cutting interest rates,
extending terms, and forgiving principal. What will be the direct effect of this government program
on commercial banks' balance sheets?
A. Improve the asset side of bank balance sheets
B. Improve the liability side of bank balance sheets
C. Increase the net interest margins earned by banks
D. Reduce bank capital levels

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7. Target Corp., one of the worlds largest retailers, reported that its retail sales for the month ended
February 25, 2012, were $5.0 billion, an increase of 8.0% year-over-year. Experience has shown
that merchandise equivalent to 8.0% of sales will be returned within 30 days, and another 2.0%
will be returned within 90 days. Moreover, merchandise equivalent to 5.0% of sales will be
exchanged for merchandise of equal or greater value. What amount should Target most correctly
report as net sales in its income statement for the month of February?
A. $4.5 billion
B. $4.3 billion
C. $5.0 billion
D. $4.6 billion

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Investment Banking
1. You work in the Fixed Income Investment Banking division of Credit Suisse. While speaking with a
potential client, your boss highlights the advantages of issuing warrants along with bonds. He
notes that investors are often attracted to these derivative securities since they offer the holder the
right to purchase equity from the issuer at a specific price within a certain time period. The
potential client, however, refuses the suggestion and demands that the offering only include bonds
(without warrants). Why would an issuing company not want to issue warrants?

A. Warrants are dilutive to existing shareholders.


B. Warrants ensure higher interest rates on bonds.
C. Warrants cannot be fairly valued.
D. Warrants cannot be attached to bonds.

2. Given the lower rates of floating-rate relative to fixed-rate loans, borrowers are increasing their
applications for floating-rate mortgages. Why would lenders underwrite floating-rate mortgages?
A. It removes interest-rate risk for both parties.
B. It transfers interest-rate risk to the borrower.
C. It offers predictable payments to the borrower.
D. It offers predictable interest income to the lender.

3. Equity investors are exposed to firm-specific risk (diversifiable) and market-wide risk (nondiversifiable). Of the risks listed below, which one is the best example of firm-specific risk?
A. Interest-rate risk
B. Inflation risk
C. Business cycle risk
D. Financial-leverage risk
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4. SmartMart, a discount supermarket chain that is popular with investors, acquires Mom&Pop, an
equal-sized food retailer. Both companies are publicly listed. SmartMart has a price-to-earnings
(P/E) multiple of 21, and Mom&Pop, which is out of favor with investors, has a P/E of 7. The deal
is executed through an exchange of stock. What will the P/E of the consolidated entity be closest
to if the market is efficient?
A. 21
B. 7
C. 14
D. 28

5. You are an analyst at an investment bank, trying to determine if Zynga, a social gaming company,
is trading at a premium to its book value of equity. The companys market capitalization is $5.2
billion, its book value is $1.8 billion, and the total number of shares outstanding is 732 million.
What is the stock price-to-book value per share?
A. Price-to-book is 7.10
B. Price-to-book is 2.89
C. Price-to-book is 2.46
D. Price-to-book is 0.35

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6. Much of the cash used to fund trading activities and support derivative contracts at Merrill Lynch
originates from its parent, Bank of Americas retail banking system. This information demonstrates
that instead of relying on capital markets to finance the bulk of its investment banking activities,
Merrill Lynch obtains financing from which of the following?
A. Retail bond investors
B. Retail equity investors
C. Retail depositors
D. Retail businesses

7. A companys after-tax cost of debt is derived by adjusting its nominal cost of borrowing by the
effect of tax deductibility on interest payments. When determining the cost of debt for a company
with privately issued debt vs. a company with publicly listed debt, which of the following factors
typically presents the most significant challenge?
A. Market rates of interest for the company with publicly listed debt
B. Market rates of interest for the company with privately issued debt
C. Marginal tax rates for the company with publicly listed debt
D. Marginal tax rates for the company with privately issued debt

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Global Markets
1. A technology stock analyst at Morningstar is researching the initial public offering (IPO) of the
social networking site Facebook. The company made its trading debut on the NASDAQ, issuing
421.2 million public shares, and bringing total shares outstanding to 2.7 billion (according to
Facebooks SEC filing), for an opening market capitalization of $102 billion. The analyst notes that
the opening valuation is 104 times trailing annual earnings. What were Facebooks approximate
earnings in 2011?

A. $620 million
B. $980 million
C. $149 million
D. $3.9 billion

2. You want to generate yearly income from your securities holdings. Which type of security should
you definitely not buy?
A. 5-year corporate bond
B. Preferred stock
C. 5-year zero coupon bond
D. Common stock

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3. You are a junior analyst at Jefferies & Co. managing the firms European bond portfolio. Jefferies
took high exposure to Portuguese government bonds and has been placed on a ratings watch by
Fitch. You wake to news that Fitch has cut Portugals credit rating from BBB- to BB+. How will this
development affect Fitch's ratings watch of Jefferies?
A. The downgrade of Portugal most likely will lower the value of Portuguese bonds, decreasing
the value of Jefferies' European bond portfolio and increasing the risk of a Fitch ratings
downgrade for the firm.
B. The downgrade of Portugal most likely will lead to higher Portuguese yields, increasing the
value of Jefferies' portfolio and increasing the risk of a Fitch ratings downgrade for the firm.
C. The downgrade of Portugal most likely will lead to lower Portuguese yields, increasing the
value of Jefferies' portfolio and decreasing the risk of a Fitch ratings downgrade for the firm.
D. The downgrade of Portugal most likely will increase demand of Portuguese bonds, therefore
increasing the value of Jefferies' bond portfolio and lowering the risk of a Fitch ratings
downgrade to the firm.

4. Which of the following is the least capital-intensive industry?


A. Public utilities
B. Oil exploration and production
C. Retailing
D. Auto manufacturing

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5. Which set of portfolio returns would yield the highest profit, assuming that there are no
contributions to, or withdrawals from, the portfolio during the period?
A. 1%, 4%, 1%
B. 6%, 3%, 3%
C. 2%, 3%, 1%
D. 1%, 3%, 4%

6. Which of the following price-change scenarios would cause the greatest steepening of the treasury
yield curve?
A. The prices for long-term treasuries rise, and the prices for other maturities stay constant.
B. The prices for long-term treasuries fall, and the prices for other maturities stay constant.
C. The prices for long-term treasuries rise, and the prices for other maturities also rise.
D. The prices for long-term treasuries fall, and the prices for other maturities also fall.

7. A junior trader on the FX desk at Morgan Stanley sees the following quotes for the EUR/USD and
EUR/CHF exchange rates on April 18th:EUR/USD = 1.3126EUR/CHF = 1.2020He quickly checks
to see where the same currency pairs were at the beginning of the year on January 2nd:EUR/USD
= 1.2945EUR/CHF = 1.2154What happened to EUR in relation to USD and CHF between January
2nd and April 18th?
A. EUR appreciated in relation to both USD and CHF.
B. EUR appreciated in relation to USD and depreciated in relation to CHF.
C. EUR depreciated in relation to USD and appreciated in relation to CHF.
D. EUR depreciated in relation to both USD and CHF.

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Chart and Graph Analysis


1. The chart below shows U.S. unemployment rates for men and women since 1950. Looking at the
period from 1980 to the present, what can be said about the correlation and volatility of the two
sets of data?

A. Unemployment rates are highly correlated, and men experienced less volatile
unemployment rates.
B. Unemployment rates are highly correlated, and men experienced more volatile
unemployment rates.
C. Unemployment rates are not highly correlated, and men experienced more volatile
unemployment rates.
D. Unemployment rates are not highly correlated, and men experienced less volatile
unemployment rates.

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2. An FX trader believes that many commodity prices are being influenced by the level of the
Chinese yuan. Given the information in the chart below, which statement is most likely true?

A. The S&P GSCI Index was less volatile than the Chinese yuan in 2011.
B. The S&P GSCI Index had a high negative correlation to the Chinese yuan (yuan per dollar)
in 2011.
C. The S&P GSCI Index is negatively correlated to the Chinese yuan (yuan per dollar) in 2012.
D. The S&P GSCI Index is less volatile than the Chinese yuan in 2012.

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3. The graph below shows the Dow Jones Industrial Average (DJIA) and the Dow Jones
Transportation Average (DJTA) over the period from March 2011 to March 2012. If the movement
in the Dow Jones Transportation Average is viewed as a leading indicator of economic activity,
which of the following will most likely happen with this graph going forward?

A. DJIA will go up.


B. DJIA will go down.
C. DJTA will go up.
D. DJTA will go down.

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4. You are a fixed-income analyst at Egan Jones ratings covering European sovereign bonds. The
chart below shows the borrowing profile for Spain compared to former Communist bloc country
Hungary. At which points over the year were the gaps between Hungarys cost of borrowing and
Spains cost of borrowing the widest and narrowest?

A. Widest: May; Narrowest: February


B. Widest: January; Narrowest: July
C. Widest: February; Narrowest: May
D. Widest: July; Narrowest: January

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5. Changes in net income and in Pretax Preprovision (PTPP) profit from Q1 2010 to Q1 2011 are
shown below for six financial institutions. By what percentage did the decline in PTPP profit for
Morgan Stanley exceed the decline in PTPP profit for Goldman Sachs from Q1 2010 to Q1 2011?

A. 32%
B. 87%
C. 122%
D. 195%

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6. A junior analyst is reviewing the chart below. On May 1, 2012, the last day of the observation
period, Wal-Mart de Mexico closed at $25.57, down 88 cents. Assume that American Movil closed
at the same price per share on May 1 and that Wal-Mart de Mexico shares traded down from
$25.57 to $25 a share on May 2. What is the best forecast of the value of American Movil shares
at closing on May 2?

A. $24.55
B. $25.00
C. $25.83
D. $25.31

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7. For May 2012, the high point and low point shown in the graph below coincide with wheat futures
prices of $6.15 and $7.00, respectively. After reviewing the information accompanying the graph,
what was the approximate percent change in corn futures prices between the same two points?

A. 3%
B. 5%
C. 7%
D. 9%

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Answer Key
News Analysis (pp. 1-6)
1. D
2. B
3. D
4. C
5. D
6. B
7. C
8. A
9. B

Analytical Reasoning
(pp. 14-20)
1. C
2. B
3. B
4. C
5. C
6. A
7. C
8. B
9. B

Global Markets (pp. 28-30)


1. B
2. C
3. A
4. C
5. C
6. B
7. B

Economics (pp. 7-9)


1. A
2. D
3. D
4. A
5. D
6. C
7. D

Financial Statements
Analysis (pp. 21-24)
1. A
2. A
3. D
4. C
5. B
6. D
7. A

Chart and Graph Analysis


(pp. 31-37)
1. B
2. C
3. B
4. B
5. D
6. C
7. B

Mathematics (pp. 10-13)


1. C
2. B
3. B
4. B
5. B
6. C
7. C

Investment Banking
(pp. 25-27)
1. A
2. B
3. D
4. C
5. B
6. C
7. B

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