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CFA I Final Mock Exam: Ethical and Professional Standards
You are a stock broker in Laxitania, a country with no securities laws. Your golfing partner tells you and a rival fund manager of forthcoming takeover bid he is launching. You know your rival will advise his clients to trade on this information, should you? Yes, because to fail to do so would be to fail to act in your clients' best interests Yes, because to fail to do so would be to fail to act in your own best interests No, because this information relates to a tender offer and you must apply the higher of the local rules or the Code and Standards No, because this information relates to a tender offer and such a trade would be illegal in Laxitania You are a fund manager in Laxitania, a country with no securities laws. While changing at your local tennis club you overhear a man you know to be a director of one of the country's biggest mining companies boasting to his friend of the discovery of extensive gold deposits that are shortly to be publicly announced . Should you trade on this information? Yes, because to fail to do so would be to fail to act in your clients' best interests Yes, because to fail to do so would be to fail to act in your own best interests No, because this information is inside information No, because this information would be illegal in Laxitania You are enrolled for the CFA level II exam next sitting. You achieved your level I pass many years ago (in 1987). Which of the following is an unacceptable description of your status for inclusion in investment literature? CFA level I pass CFA level II expected next May CFA level II candidate CFA level I pass (1987) Sarah has passed Level I of the CFA examination. She is due to enroll on Level II as soon as the enrollment opens. She prints up and distributes business cards that state her details as 'Sarah Fisher, CFA level II candidate'. Is Sarah in breach of the Code and Standards? Yes, because no reference may be made to CFA without been awarded the charter Yes, because she is not a candidate for level II until formally enrolled No, because she intends to enroll as soon as possible No, because a person is deemed to be a candidate from the moment they pass level I You are a sell side research analyst. You produce a report recommending a stock based on work done by your colleague, Jane and by a model developed by Professor Smith at the University of Dementia, Virginia. You have tweaked the model and believe it would not have produced the results it did but for the tweaks. Your report goes out solely in your name, have you violated the standard against plagiarism? No because the model was tweaked Yes in respect of Professor Smith's work but no in respect of Jane's work Yes in respect of Professor Smith's work and yes in respect of Jane's work Yes in respect of Jane's work but no in respect of Professor Smith's work
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Has Conrad violated the Code and Standards? Yes. Your report goes out solely in your name. by mentioning the fact he was leaving Yes. and that he will be unable to talk about his new venture until after his resignation becomes effective. as an employee is permitted to talk freely with clients in the time between tendering of resignation and it becoming effective 18466 A: B: C: D: 7 18467 A: B: C: D: 8 18468 A: B: C: D: 9 A: B: C: D: 10 18469 18471 A: B: C: D: Delivering Financial Knowledge Page 3 of 27 . If the laws of Strictitania say that professional conduct is governed by the country in which the investment business is conducted which rules apply to the member? The laws of Strictitania The Code and Standards The laws of Laxitania The rules of choice According to AIMR Code of Ethics members must act with integrity. as he has done nothing to induce the clients No. Whenever he talks to clients he signs off by telling them that he will shortly be leaving the firm. competence. Virginia. dignity and in an ethical manner when dealing with: Regulatory bodies Exchanges Public and clients only Public and clients Members of the Association for Investment Management and Research shall: Act with due diligence. You have tweaked the model and believe it would not have produced the results it did but for the tweaks. acknowledging that data was provided by ' a leading research establishment'. by entering into a business in competition with his current employer No. Have you violated the standard against plagiarism? Yes in respect of Professor Smith's work but no in respect of Jane's work No in respect of Professor Smith's work and yes in respect of Jane's work Yes in respect of Professor Smith's work and yes in respect of Jane's work Yes in respect of Jane's work but no in respect of Professor Smith's work An AIMR member lives in Strictitania (a country with strict securities laws) and has an office in Laxitania (a country with lax securities laws). professionalism and in a responsible manner Practice and encourage others to practice in as efficient a manner as possible Strive to maintain and improve their client wealth Use reasonable care and exercise independent professional judgment Conrad is due to leave his current employment as a stockbroker in order to set up his own business. You produce a report recommending a stock based on work done by your colleague. Jane and by data collected in a year long research study into behavioral dynamics by Professor Smith at the University of Dementia.6 You are a sell side research analyst.

Has he violated the standard against plagiarism? Yes in respect of the client discussions but no in respect of the court case as he was not asked a direct question No in respect of the client discussions but yes in respect of the court case No in respect of the client discussions and no in respect of the court case Yes in respect of client discussions and yes in respect of the court case You are a sell side analyst at a major investment bank. the friend is aware of his existing business but thinks that Zoltan would make a valuable addition to his investment team. Zoltan is considering an offer from a friend to go in house. You strongly believe that a current full service client of the bank. an investment adviser currently runs an independent practice with a steady stream of work provided by several wealthy clients. Company X will announce a profits warning in the next few weeks. providing only factual information about the company Jones has recently become a candidate for the level I examination. She is aware that many others in her firm have also taken the examination.11 Paulo Sanderson CFA has marketed heavily a new analytical model that has been developed by his colleagues at Random Risk Management Inc. The relationship manager warns you that release of a sell note will result in the loss of $10m of fees for the bank this year and that you will almost certainly be fired. At the subsequent court case Sanderson gives expert witness testifying on his model's strengths. A client who uses a similar model provided by a rival company incurs large losses and blames the losses on alleged faults in the rival model. If Zoltan is to maintain his own business as well as being employed then which of the following best describes his course of action? Obtain the written consent of his new employer to retain his old business and disclose in writing to each of his clients his new employment Obtain the written consent of his clients to retain his old business and disclose in writing to his new employer Obtain the verbal consent of his clients to retain his old business and disclose in writing to his new employer Obtain the written consent of his clients to retain his old business and disclose verbally to his new employer 18477 A: B: C: D: 12 18478 A: B: C: D: 13 18479 A: B: C: D: 14 18480 A: B: C: D: Delivering Financial Knowledge Page 4 of 27 . without alluding specifically to the fact that he did not develop the model. Which of the following best describes her duty with respect to informing her employer of her obligations under the Code and Standards? She should tell her immediate supervisor of her obligation to conform to the Code and Standards She should inform her immediate supervisor of her obligation to conform to the Code and Standards in writing She should inform the managing director of her obligation to conform to the Code and Standards in writing She has no obligation as other colleagues would have informed the employer previously Zoltan. What is your best course of action? Release the sell note so as to affirm your professional integrity Review your opinion and change your outlook to neutral Resign. You wish to issue a sell note but your senior advises you to talk to the corporate finance MD responsible for managing the relationship with that client before you do. When marketing the model he does not explicitly mention the fact that he did not develop the model but does demonstrate its use to best advantage. and recommend to your colleagues that they resign too in the face of unconscionable pressure Remove Company X from the research universe and place on a restricted list.

because hid decision to change his mind is adequately justified Yes. because he has misappropriated non-public information No. He drops his fork and crawls around on the floor so that he can get closer to his table to hear what is being said.15 Sally's company imposes trading restrictions on employees forbidding them from entering into any equity purchases of US listed securities. because the information is non-public and price sensitive and his actions amount to insider dealing Yes. Dan runs back to the office and changes his note to a sell. The Director is confiding to his friend that the company is in real trouble and will most likely be in liquidation before the end of the year. because he does not have a sound basis for his new opinion Dan Wright. Whilst enjoying a celebratory dinner at his favourite restaurant he notices a director of Zenon Corp sitting at a nearby table. He is due to release the research the next day. an equity analyst conducts extensive research into Zenon Corp and is convinced the stock is a strong buy. The rival analyst is boasting to his friend that only he has called Zenon Corp correctly. as he must not receive any outside compensation Yes as he should disclose all compensation from outside sources Dan Wright. certain of the accuracy of his advice. because the information is non-public and price sensitive and his actions amount to insider dealing Yes. certain of the accuracy of his advice. Dan runs back to the office and changes his note to a sell. because the purchase was small No. Has Sally violated her duty towards her employer? No. not for personal profit but to make an ethical stand. because hid decision to change his mind is adequately justified Yes. Has he breached his obligation to his employer? No. Sally believes that this is an unfair restriction on her right to trade and decides to buy a single share in Microsoft. as he merely needs to disclose that he receives compensation. He drops his fork and crawls around on the floor so that he can get closer to his table to hear what is being said. because she could still make a profit Yes. Smith discloses his non-executive salary to his employer but not the groceries as he considers them a private matter. not specifics Yes. because he does not have a sound basis for his new opinion 18481 A: B: C: D: 16 18482 A: B: C: D: 17 18492 A: B: C: D: 18 18493 A: B: C: D: Delivering Financial Knowledge Page 5 of 27 . Whilst enjoying a celebratory dinner at his favourite restaurant he notices a rival analyst sitting at a nearby table. Is Dan likely to have breached the code and standards? Yes. as the groceries have no cash equivalent No. Has he breached the code and standards? Yes. because he has misappropriated non-public information No. because she has no right to unilaterally disapply a trading restriction just because she feels it unjust Robert Smith CFA is a corporate financier and a non-executive director of Groceries Inc. an equity analyst conducts extensive research into Zenon Corp and is convinced the stock is a strong buy. His family receives free groceries from Groceries Inc as part of his compensation package. because the purchase was justified on ethical grounds Yes. that the company is in real trouble and will most likely be in liquidation before the end of the year. He is due to release the research the next day.

15 respectively 0. and do not reject the null hypothesis at the 5% significance level.13. In a histogram the vertical axis is most likley to display which of the following? The class width of each interval The midpoint of each class The frequency of each class None of the above If A and B are independent events.02 0. The mean will be greater than the median and the mean will be greater than the mode. Reject the null hypothesis at the 10% significance level. which of the following is most likely to be true? Do not reject the null hypothesis at the 10% significance level.35 and 0.15 and 0. Reject the null hypothesis at the 10% significance level.88 Which of the following is least likely to be true for a positively skewed distribution? The mode will be greater than the median and the mean will be greater than the median.35 respectively 0. which of the following is closest to the probability of obtaining exactly three heads? 0.31 1. and the probability of A is 0. 17936 17935 17934 17933 17932 A: B: C: D: 20 A: B: C: D: 21 A: B: C: D: 22 A: B: C: D: 23 A: B: C: D: Delivering Financial Knowledge Page 6 of 27 .8 respectively If John tosses a two sided coin 6 times.35 respectively 0.5 and the probability of B is 0.7. The mean will be greater than the median and the median will be greater than the mode. Which of the following is most likely to be the probability of A and B both happening and the probability of A happening but not B happening? 1.16 0. The median will be greater than the mode and the mean will be greater than the mode.2 and 0. and reject the null hypothesis at the 5% significance level. and do not reject the null hypothesis at the 5% significance level.15 and 0. and reject the null hypothesis at the 5% significance level.2 19 CFA I Final Mock Exam: Quantitative Methods John has just performed a hypothesis test and has calculated the p-value to be 0. Do not reject the null hypothesis at the 10% significance level.

and the correlation coefficient is 0.09 If the correlation coefficient between two variables is -0. and the correlation coefficient is 0.1% and 8. Incorrectly rejecting the alternative hypothesis when it is correct.1% and 8.49 The variables move in the opposite direction and the coefficient of determination is -0.09 and 88 degrees of freedom A t-statistic of 5.92 The variance of B is more than 50% bigger than that of A. if the decision is referred then the share price is expected to increase by 1%. Failing to reject the null hypothesis when it is correct. event A is the event that the number on the top of the face is a 2 or 3.1% and 10.09 The variance of B is more than 50% bigger than that of A.09 and 88 degrees of freedom A t-statistic of 4. Bart believes that there is a 50% chance of approval.4.49 The variables move in the opposite direction and the coefficient of determination is 0. and if approval is not granted then the share price will fall by 5%.23 and the standard deviation of B is 5. then which of the following is most likely to be true? The variance of B is less than 50% bigger than that of A.08% respectively 5.09 and 89 degrees of freedom If the covariance between two variables A and B is 20. and the standard deviation of A is 4.1% and 10.08% respectively Delivering Financial Knowledge Page 7 of 27 .09 and 89 degrees of freedom A t-statistic of 4.92 The variance of B is less than 50% bigger than that of A. assuming that there are 90 observations. Failing to reject the null hypothesis when it is incorrect. If the approval is granted the share price is expected to increase by 12%.8% respectively 4. In testing the significance of the correlation coefficient of 0. a 40% chance of non-approval and a 10% chance that they will refer the decision to a specialist agency body. City Inc is waiting on a government approval.23. which of the following is likely to be true? The variables move in the same direction and the coefficient of determination is -0.49 The variables move in the same direction and the coefficient of determination is 0. Which of the following is closest to expected return on the shares and the standard deviation of the expected earnings per share? 17937 A: B: C: D: 25 A: B: C: D: 26 17938 17939 A: B: C: D: 27 17940 A: B: C: D: 28 17941 A: B: C: D: 29 17942 A: B: C: D: 4. Which of the following is most likely to be true? With one roll of the dice events A and B are mutually exclusive and with two rolls of the dice events A and B are independent With one roll of the dice events A and B are not mutually exclusive and with two rolls of the dice events A and B are independent With one roll of the dice events A and B are mutually exclusive and with two rolls of the dice events A and B are not independent With one roll of the dice events A and B are not mutually exclusive and with two rolls of the dice events A and B are not independent Which of the following best describes a type II error? Incorrectly rejecting the null hypothesis when it is correct. whilst event B is the event that the number on the top face is a 4 or 5.49 Bart analyses City Inc.8% respectively 5. and the correlation coefficient is 1. which of the following is most likely to be true? A t-statistic of 5. and the correlation coefficient is 1.36.7.24 Brad rolls a dice.

30 A: B: C: D: 31 A: B: C: D: 32 Which of the following is least likely to be a limitation of regression analysis? Correlations can change over time Once a regression relationship becomes well-known. it loses its effectiveness Regression relations can change over time Slope coefficients can be negative Which of the folowing is least likely to be required in order to perform an F-test? The sum of the squared errors The total number of observations The mean regression sum The total number of parameters to be estimated Which of the following best describe observations that significantly reduce what would otherwise be a high correlation? Outliers Non-linear relations Independent variables Spurious correlations 17943 17944 17945 A: B: C: D: Delivering Financial Knowledge Page 8 of 27 .

and an increase in aggregate supply so that GDP (measured by quantity) is maintained at the same level A fall in prices.000. increase Increase. increase Decrease.000 $100.3 33 CFA I Final Mock Exam: Economics According to the classical view of fiscal policy. maintaining constant expenditure Only decreases in taxes can stimulate aggregate demand If reserve requirements are 10% how much must a bank be required to keep on reserve if it has $2.000.000 The actual deposit multiplier tends to be lower than the theoretical multiplier because: People can borrow and deposit across several banks Not all money is spent Banks may keep less in reserve than they have to Not all money is spent or deposited in bank accounts Which of the following is least likely to be a potential problem in the meaning and measurement of the money supply? US currency outside the US Increasing availability of low fee stock and bond mutual funds Debit cards and electronic money enabling transfers without cash Lack of co-operation amongst the 12 banks of the Federal Reserve 18229 18228 18226 18224 18222 18220 A: B: C: D: 34 A: B: C: D: 35 A: B: C: D: 36 A: B: C: D: 37 A: B: C: D: 38 A: B: C: D: Delivering Financial Knowledge Page 9 of 27 . decrease Increase.000 Nil $1. a decrease in aggregate demand will be followed by: A rise in prices. and a decrease in aggregate supply so that GDP (measured by quantity) is maintained at the same level In an economic downturn countercyclical fiscal policy advocates which of the following changes to spending and taxation respectively? Decrease. and an increase in aggregate supply so that GDP (measured by quantity) is maintained at the same level A fall in prices.000. decrease Which of the following is least likely to be a neo-classical view of discretionary fiscal policy? Budget deficits will not stimulate aggregate demand Households will maintain consumption at the same level even if taxes increase Households will anticipate increased government debt by saving more.000 of loans? $200. and an increase in aggregate supply so that GDP (measured by quantity) is permanently maintained at a lower level A fall in prices.000 of deposits and $1.

decrease Applying the theory of rational expectations in the short run the effect of expansionary monetary policy on inflation and the real interest rate respectively is: Decrease. decrease Increase. decrease Increase. lower Lower. higher Later interpretations of the Phillip's curve suggested that: There was no trade off between inflation and unemployment There was a trade off between inflation and unemployment Restrictive fiscal policy leads to crowding out Unemployment did not matter to policy makers The downward slope of the indifference curve is caused by: Complementary goods Elasticity Inelasticity Substitute goods A market exhibiting signs of perfect competition is characterized by: A large number of firms producing identical products with high barriers to entry A small number of firms producing identical products with high barriers to entry A large number of firms producing identical products with low barriers to entry A large number of firms producing different products with low barriers to entry 18230 A: B: C: D: 40 18232 A: B: C: D: 41 18234 A: B: C: D: 42 A: B: C: D: 43 A: B: C: D: 44 A: B: C: D: 18236 18288 18290 Delivering Financial Knowledge Page 10 of 27 . decrease Which of the following best describes the long run effect of a shift to a more expansionary policy under adaptive expectations to prices and output respectively? Higher. same Higher. same Lower. increase Decrease. increase Increase. no change Decrease. no change Increase.39 In the short run the effect of expansionary monetary policy if unanticipated on inflation and the real interest rate respectively is: Decrease.

Which of the following is true? 2002 2003 17998 17997 17996 45 A: B: C: D: 46 A: B: C: D: 47 Net profit margin 10% 12% Asset turnover 2 1.7380 Diluted $0.000 Average common stock outstanding 200.000 6% $1 nominal 1000 x 5% $200 nominal convertible bond (each bond convertible into 2 common stock) No preference dividends were paid this year.5 1.000 Average common stock outstanding 200.75 Diluted $0.000 Cumulative preference stock.88 A company has the following results and information for the year: Net income $150.75 A company has the following results for the years ended 2002 and 2003.5 Leverage multiplier 1.7380 Basic $0. What is the basic EPS? 50c 48.7380 Diluted $0.000 6% $1 nominal No preference dividends were paid this year.000 Cumulative preference stock.7802 Basic $0.8c $5 $4.2 A: B: C: D: ROE rose in 2003 due to increased net profit margins ROE fell in 2003 due to increased net profit margins ROE fell in 2003 due to decreased asset turnover and leverage ROE rose in 2003 due to decreased asset turnover and leverage Delivering Financial Knowledge Page 11 of 27 . What is the basic and diluted EPS? (Assume tax at 40%) Basic $0. 40.7604 Basic $0. 40.7380 Diluted $0.4 CFA I Final Mock Exam: Financial Statements and Corporate Finance A company has the following results and information for the year: Net income $100.

2 11% 1.2 10% 1.48 A company has published results for the years ended 2002 and 2003.5 1. Which of the following is true? 2002 Operating margin Asset turnover Interest expense rate Leverage multiplier Tax retention rate 15% 1.7 2003 16% 1.2 A: B: C: D: 49 ROE rose in 2003 due to increased net profit margins ROE fell in 2003 due to increased net profit margins ROE fell in 2003 due to decreased asset turnover and leverage ROE rose in 2003 due to decreased asset turnover and leverage A company has published results for the years ended 2002 and 2003. Which of the following is true? 2002 2003 17999 Net profit margin 5% 12% Asset turnover 2 1.7 18000 A: B: C: D: ROE rose in 2003 due to increased profit margins and leverage ROE fell in 2003 due to increased net profit margins ROE fell in 2003 due to decreased asset turnover and leverage ROE rose in 2003 due to decreased asset turnover and leverage Delivering Financial Knowledge Page 12 of 27 .5 .4 .5 Leverage multiplier 1.

3 11% 1. Which of the following is true? 2002 Operating margin Asset turnover Interest expense rate Leverage multiplier Tax retention rate 15% 1.2 13% 1.7 18002 A: B: C: D: ROE rose in 2003 due to increased profit margins and leverage ROE fell in 2003 due to increased net profit margins ROE fell in 2003 due to over leverage ROE rose in 2003 due to increased profit margins Delivering Financial Knowledge Page 13 of 27 .2 11% 1. Which of the following is true? 2002 Operating margin Asset turnover Interest expense rate Leverage multiplier Tax retention rate 13% 1.2 10% 1.2 .7 2003 16% 1.50 A company has published results for the years ended 2002 and 2003.5 .7 18001 A: B: C: D: 51 ROE rose in 2003 due to increased profit margins and leverage ROE fell in 2003 due to increased net profit margins ROE fell in 2003 due to over leverage ROE rose in 2003 due to decreased asset turnover and leverage A company has published results for the years ended 2002 and 2003.4 .4 .7 2003 16% 1.

52 A company has the following information for the years 2002 and 2003.800 1.300 1.000 600 250 300 250 2003 1.000 400 150 200 150 2003 2. From 2002 to 2003 which of the following is true? $000 Sales COGS Average receivables Average inventory Average trade payables 2002 1. From 2002 to 2003 which of the following is true? $000 Sales COGS Average receivables Average inventory Average trade payables 2002 2.500 170 220 240 18013 A: B: C: D: Cash conversion cycle increased Inventory turnover decreased Cash conversion cycle decreased Inventory turnover decreased Cash conversion cycle decreased Inventory turnover increased Cash conversion cycle increased Inventory turnover increased Delivering Financial Knowledge Page 14 of 27 .500 370 420 240 18012 A: B: C: D: 53 Cash conversion cycle increased Inventory turnover decreased Cash conversion cycle decreased Inventory turnover decreased Cash conversion cycle decreased Inventory turnover increased Cash conversion cycle increased Inventory turnover increased A company has the following information for the years 2002 and 2003.

lower Higher. From 2002 to 2003 which of the following is true? $000 Sales COGS Average receivables Average inventory Average trade payables 2002 1. higher 18018 18017 18016 18015 A: B: C: D: 56 A: B: C: D: 57 A: B: C: D: 58 A: B: C: D: Delivering Financial Knowledge Page 15 of 27 .800 1. lower Lower. and R&D is an example of: Income smoothing Intertemporal smoothing Big bath accounting Acceptable practice Compared to the completed contract method. catch up adjustments are shown as: Exceptionals Extraordinary items Not disclosed separately Accounting change.54 A company has the following information for the years 2002 and 2003. below the line Timing expenditures like asset disposals. the percentage of completion method has what effect on earnings volatility and liabilities respectively? Higher. higher Lower.500 180 220 240 18014 A: B: C: D: 55 Cash conversion cycle increased Receivables processing decreased Cash conversion cycle decreased Receivables processing decreased Cash conversion cycle decreased Receivables processing increased Cash conversion cycle increased Receivables processing increased The installment sales method of revenue recognition recognizes revenues and associated costs on the basis of: Revenue earned and costs paid Revenue earned as payments received and costs as a proportion of receipts to total amount to be billed Payments received as a proportion of total costs incurred Revenue earned as a proportion of total costs If a company switches from straight line to reducing balance depreciation for all of its existing assets.000 550 150 200 250 2003 1.

an asset that cost $10. higher Applying the completed contract method.59 Compared to the completed contract method.000.000 purchase $11. lower Higher. this year's ending balance is $105. how much was spent on purchases this year? $20.000.000 purchase $17. how much was spent on purchases or disposals this year? $11. higher Same.000 was sold for $3.000 and depreciation for the year is $10.000 was sold for $3.000 $25.000.000.000 $7.000 and had accumulated depreciation of $8. including income from investments Payments to reduce notes payable are counted as: CFO CFF inflow CFF outflow Non-cash If last year's Plant and equipment balance was $98. the percentage of completion method has what effect on cash flows and liabilities to equity respectively? Higher.000.000 and depreciation for the year is $10. excluding income from investments Cash generated as a result of its production.000 $19. how are cash receipts and cash expenditures reported respectively? Customer advances and cost of sales Inventory and cost of sales Customer advances and inventory Inventory and customer advances Investing cash flow covers: Payments to acquire fixed assets and income receipts from those assets Payments to acquire fixed assets and disposal receipts from the sale of such assets Payments to acquire fixed assets and entire businesses and income receipts from those assets Payments to acquire fixed assets and entire businesses and disposal receipts from the sale of such assets CFO measures: Capital structure changes Investments in fixed assets Cash generated as a result of its production.000.000 and had accumulated depreciation of $6. lower Same. this year's ending balance is $105. an asset that cost $10.000 disposal 18019 A: B: C: D: 60 18021 A: B: C: D: 61 A: B: C: D: 62 A: B: C: D: 63 A: B: C: D: 64 18022 18023 18024 18025 A: B: C: D: 65 18026 A: B: C: D: Delivering Financial Knowledge Page 16 of 27 .000 If last year's Plant and equipment balance was $108.000 disposal $15.

What is the weighted average common stock for the year to 30 June? 240. Cash is used to pay off accounts payable.5. Cash is used to pay off accounts payable.5.6 35.000 shares are repurchased.500 235. What happens to the ratio? Decreases Increases Stays the same Cannot be determined A company has a current ratio of 0.66 A company has a current ratio of 1.000 18029 A: B: C: D: 67 18030 A: B: C: D: 68 18031 A: B: C: D: 69 18032 A: B: C: D: Delivering Financial Knowledge Page 17 of 27 .000 230. calculate the cash conversion cycle: Inventory turnover = 12 Receivables turnover = 8 Payables turnover = 9 116.000 shares outstanding on 1 July and issues a 10% stock dividend on 1 August.000 227. What happens to the ratio? Decreases Increases Stays the same Cannot be determined Given the following information. On 31 March 50. On 1 April 10.000 more shares are issued.4 11 29 Zeta plc has 200.

$10.000 inflow $9. $4. $10.000 inflow $9.000 $200 $8.000 A: B: C: D: $9. $4.500 $4.000 inflow.200 inflow.000 $2.000 inflow $9.000 $2.500 $4.000 $3.200 inflow.000 inflow. Cash flow from operations and Cash flow from investing are respectively: 18034 Bond coupon payments Bond interest expense Profits on disposal of land Proceeds of land disposal Dividend receipts Payment of salaries Cash sales collected New shares issued Dividend payments Receivables collected $2.70 Based solely on the following information.000 $15.000 $10.000 inflow Delivering Financial Knowledge Page 18 of 27 .

Cash flow from operations and Cash flow from financing are respectively: 18036 Bond coupon payments Bond interest expense Losses on disposal of land Proceeds of land disposal Dividend receipts Payment of salaries Cash sales collected New debt issued Dividend payments Payment to suppliers $1. LIFO When comparing FIFO to LIFO.000 $10. higher Higher.500 $4. $2. LIFO will result in which of the following effects to cost of goods sold and net income respectively? Lower. LIFO will result in which of the following effects to cost of goods sold and net income respectively? Lower.500 outflow. FIFO LIFO.71 Based solely on the following information. LIFO FIFO.000 $2. higher Lower.000 A: B: C: D: 72 $1. $1. in periods of rising prices and stable inventory levels. in periods of rising prices and decreasing inventory levels. lower Higher.300 outflow.200 inflow.000 inflow $1. higher Lower. FIFO FIFO. lower When comparing FIFO to LIFO.000 $2. lower 18041 18040 18039 A: B: C: D: 73 A: B: C: D: 74 A: B: C: D: Delivering Financial Knowledge Page 19 of 27 .500 outflow Which of the following is preferable for the analysis of balance sheet inventories and income statement costs respectively: LIFO.500 $4. higher Higher. lower Higher.000 $200 $7.000 $14.000 outflow.000 inflow $2.200 inflow $2. $2.000 $3. $2.

75 If LIFO is used rather than FIFO then the impact on cash flows and working capital is most likely to be what. respectively: Lower.000 understated. higher Lower. lower 18042 A: B: C: D: 76 A: B: C: D: 77 18043 18044 A: B: C: D: 78 18045 A: B: C: D: Delivering Financial Knowledge Page 20 of 27 . lower Higher. higher Higher.000 overstated. $4.400 understated $ nil. If the tax rate is 40%. higher Less variable. higher More variable.000 overstated Firms that expense costs rather than capitalizing them will see which of the following impacts to income and cash flow from investing respectively? Less variable. what will be the effect on gross profit and net income respectively $4.000 understated $4.000.000 and understates ending inventory by $2. lower More variable. $4. $2.000 understated. $nil $4. lower To calculate FIFO COGS from LIFO COGS an analyst should: Add the ending LIFO reserve to the LIFO COGS Subtract the ending LIFO reserve to the LIFO COGS Subtract the increase in the LIFO reserve from the LIFO COGS Add the increase in the LIFO reserve from the LIFO COGS A firm overstates beginning inventory by $2.

and if the market expects a rate of return of 17%. What is the expected rate of return on stock X.61. given the correlation between the two investments is 0.02% respectively 15.98% respectively 13.02% and 13.98% and 10.2% and 15.5 79 CFA I Final Mock Exam: Portfolio Management Which of the following is most likely to be the correct order in implementing the four-step portfolio management process? Develop an investment strategy Write the policy statement Implement the plan Monitor and update the strategy Write the policy statement Develop an investment strategy Monitor and update the strategy Implement the plan Write the policy statement Develop an investment strategy Implement the plan Monitor and update the strategy Develop an investment strategy Implement the plan Write the policy statement Monitor and update the strategy Which of the following is the best description of the decision that a manager makes when they decide which specific securities will be purchased for the portfolio? Timing Policy Selection Endowment Which of the following portfolios is most likely to lie below the Markowitz efficient frontier? Expected return of 8% and standard deviation of 12% Expected return of 7% and standard deviation of 13% Expected return of 9% and standard deviation of 15% Expected return of 10% and standard deviation of 18% The risk free rate of return is 3%. the market rate of return is 15% and the beta of stock X is 1.8% and overpriced If an investor puts 70% of his funds in an asset that has a return of 12% and risk of 18%.4.2% respectively 10. what is the overall risk and return that the investor is exposed to? 10.8% and underpriced 19.2% and 13. and the remainder in an asset that generates a return of 6% and has a risk of 7%. is the stock over or under priced? 24% and underpriced 24% and overpriced 19.98% respectively Delivering Financial Knowledge Page 21 of 27 18601 18598 18593 18585 18582 A: B: C: D: 80 A: B: C: D: 81 A: B: C: D: 82 A: B: C: D: 83 A: B: C: D: .

84 A: B: C: D: Which of the following best describes the difference between the CAPM and APT models? CAPM is a multifactor model whereas APT is a single factor model APT is a multifactor model whereas CAPM is a single factor model APT requires that security returns are normally distributed. whereas CAPM does not APT has more assumptions than CAPM 18602 Delivering Financial Knowledge Page 22 of 27 .

What is the most suitable option position? Purchase a call option Write a call option Purchase a put option Write a put option Which of the following is true of a call option? The writer pays a premium to the holder It can be used to hedge a short underlying position The holder of a call has unlimited downside potential The writer can only lose the premium A writer of a put option on a security: Hopes the underlying price will fall Has the right to sell the security May be forced to sell the security May be obliged to buy the security Which of the following is true of a European call option? The buyer has the right to buy the underlying up to the maturity date The seller may be obliged to sell the underlying only at maturity The seller is obliged to buy the underlying only at maturity The buyer will exercise his option when it is in-the-money Which of the following would be described as a European style option? One that is traded only on European exchanges An option that is cash settled An option to buy or sell an asset on a particular date An option to buy or sell European securities A long put option position has potential for: Unlimited profit and unlimited loss Limited profit and limited loss Unlimited profit and limited loss Profit limited to strike price plus premium 3042 2948 2375 210 156 151 68 A: B: C: D: 87 A: B: C: D: 88 A: B: C: D: 89 A: B: C: D: 90 A: B: C: D: 91 A: B: C: D: Delivering Financial Knowledge Page 23 of 27 .6 85 A: B: C: D: 86 CFA I Final Mock Exam: Asset Valuation The maximum potential loss which could be incurred by the holder of a put option is: Unlimited The exercise price plus the premium The premium for the option The exercise price minus the premium An investor holding equities believes share prices will rise but wants protection in case the market falls.

what is the value of the stock.67 $5. 16.24 Cannot be determined $13. If the required rate of return is 12% and the dividend payout ratio is 40% from year 3 onwards.92 A: B: C: D: 93 A: B: C: D: 94 A: B: C: D: 95 A: B: C: D: 96 Which of the following illustrates an out-the-money option? A put option with a strike price below the current price of the underlying security A put option with a strike price above the current price of the underlying security A call option with a strike price below the current price of the underlying security An American style option traded on European exchanges Which of the following best describes an American option? An option exercisable at any time up to its expiry date An option on a US stock or bond An option exercised only at expiry An option traded on US exchanges Which of the following is true about the money (or 'dollar') weighted rate of return? It represents the internal rate of return of the portfolio It is not affected by the timing of the cash flows into the fund It cannot be calculated if withdrawals are made It uses the beta of the portfolio to measure risk The time weighted return Will equal the money weighted return when there are only inflows to the fund Gives equal weighting to the return in each period Will equal the money weighted return when there are only outflows from the fund Gives the total rate of return when there are only inflows to the fund Certain exchanges allow exchange for physicals (EFP) on some of their contracts.21 3046 5311 6248 6316 17082 A: B: C: D: 97 18141 A: B: C: D: 98 18142 A: B: C: D: Delivering Financial Knowledge Page 24 of 27 .33 $10.93 $11.63 A stock is expected to start paying dividends in 4 years. Which of the following would NOT be a use for EFPs? To swap one futures position of another To swap a position in the cash for a position in the future For two parties to establish opposite positions with each other in the cash and futures market For two parties to avoid the requirement of having to deliver standardised grades A stock is expected to start paying dividends in 3 years. Return on equity is constant at 15%.4 that year. what is the value of the stock. The dividend is expected to be $0. If the required rate of return is 12% and the retention ratio is 40% from year 4 onwards.86 $12. The dividend is expected to be $0. Return on equity is constant at 15%.5 that year. $13.

8x Cannot be determined 18145 A: B: C: D: 100 Roxo Inc's sales estimate is $80 per share. putable. depreciation is $3 per share. EBITDA is 20% of sales. A: B: C: D: $5.4 $3. asset backed and mortgage backed Callable.5 $9 18146 101 Which of the following should best be used when forecasting sales per share figures for an entire industry? A: B: C: D: Industry life cycle Industry life cycle and input-output analysis Industry economy relationship All 3 18147 102 Which of the following is least likely to be true? A: B: C: D: Price -weighted indices are downward biased due to the effect of stock splits Value-weighted indices tend to be biased towards price movements of higher priced stocks Geometric means cause downward bias in an index Rapidly growing companies tend to split their stocks more frequently than low growth companies 18148 103 Tests of the weak-form of the EMH looking have generally indicated that: A: B: C: D: Investors can earn excess returns after costs Investors cannot earn excess returns after costs Stock returns are significantly correlated over time Stock prices are dependent on each other over time 18149 104 Which of the following event study tests of the semi-strong form have failed to support the EMH? A: B: C: D: Stock splits Accounting changes IPOs Exchange listings 18150 105 How is an executor or administrator most likely to pay the inheritance tax bill? A: B: C: D: By selling assets before probate From their own funds They do not need to pay inheritance tax By borrowing the money 18410 106 For which of the following bonds would you have difficulty in estimating the cash flows? A: B: C: D: Callable and putable Callable. putable. What is the P/E ratio? 8. required return of 12% and a growth rate of 8%. Calculate EPS. mortgage backed and convertible 18429 Delivering Financial Knowledge Page 25 of 27 . asset backed. amortisation $1 per share.2x 7. interest expense is $3 per share and tax is 40%. putable and asset backed Callable.6 $4.99 A stock has an expected dividend payout ratio of 30%.5x 9.

63 $98.98 18431 109 If an investor holds a bond to maturity they will make a capital gain if: A: B: C: D: The bond is issued below par The bond is purchased below par The bond is issued above par The bond is purchased above par 18432 110 Which of the following is not an assumption of the yield to maturity measure? A: B: C: D: All coupons are reinvested at the YTM The bond is held to maturity Flat yield curve Nominal value reinvested at YTM 18433 111 Which of the following effects on reinvestment risk will greater maturity and greater coupon rate have respectively? A: B: C: D: Lower. lower Higher. There are 3 coupons remaining. What is the dirty price of the bond? A: B: C: D: $95.07 $102. The market rate is 6%. There are 72 days between settlement and the next coupon date and 183 days in the coupon payment period. What is the dirty price of the bond? A: B: C: D: $99.76 $104.69 $105. There are 76 days between settlement and the next coupon date and 184 days in the coupon payment period.01 $98. higher 18434 112 Which of the following is FALSE of the cash flow yield? A: B: C: D: It is mainly used as a measure for securities with prepayment risk It is commonly used for mortgage backed and other asset backed securities It is generally calculated monthly and then annualized as appropriate It assumes that cash flows are reinvested at the YTM 18435 113 Which of the following is true of the discount margin? A: B: C: D: It is calculated as the difference between YTM and the z spread One shortcoming is that LIBOR remains constant over the life of the security It is calculated as the difference between YTM and an A rated bond yield One shortcoming is that LIBOR will change over the life of the security 18436 Delivering Financial Knowledge Page 26 of 27 . lower Lower.87 18430 108 Consider a 8% bond paying semi-annual coupons. higher Higher. The market rate is 8%.35 $104. There are 3 coupons remaining.107 Consider a 5% bond paying semi-annual coupons.

falls faster than an option free Falls faster than an option free. irrespective of yield to maturity. positive Positive. Convexity is a means of correcting for the predictive errors inherent in duration. increase Decrease. true 18441 119 For an option free bond the adjustment to the bond's predicted value using effective duration that considers convexity is always: A: B: C: D: Negative Positive Either negative or positive Uncertain as to its sign 18442 120 What effect will an increase in interest rate volatility have on the price of a callable bond and an increase in stock price volatility have on the premium for an equity option respectively? A: B: C: D: Decrease.4%. true False. positive Negative. negative Positive. the 12 month spot rate 4. falls more slowly than an option free Falls more slowly than an option free.' Are these statements true or false respectively? A: B: C: D: False. What is the 6 month forward rate 6 months from now? A: B: C: D: 2% 4% 2. At low yields a bond's convexity is: A: B: C: D: Negative. decrease Increase. false True.114 The 6 month spot rate is 4%. The 4 year spot rate is 6%.4% 4. falls at similar rate to option free 18440 118 'Effective duration is the same for all putable bonds.33% 6. decrease 20632 Delivering Financial Knowledge Page 27 of 27 .8% 18437 115 The 12 month spot rate is 4%. coupon or redemption date. What is the 3 year forward rate to start in 12 months? A: B: C: D: 3% 3.67% 6% 18438 116 Which of the following is true concerning callable and putable bonds respectively. falls more slowly than an option free Falls at similar rate as an option free. true True. negative 18439 117 At high yields which of the following best describes the price impact of a further increase in yields on a putable and callable bond respectively? A: B: C: D: Falls at similar rate to an option free. increase Increase.

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