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121 lines
92 KiB
121 lines
92 KiB
2 months ago
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CFA120.001&mcs&0&N&Which of the following statements is NOT part of the Global Investment Performance Standards regarding composite construction?&Convertible and other hybrid securities must be treated consistently across time and within composites. &Firm composites must be defined to include portfolios with similar investment objectives/strategies.;All actual fee-paying discretionary portfolios must be included in at least one composite.;Convertible and other hybrid securities must be treated consistently across time and within composites.;&LOS: Study Session 1-5-eStandard 3.A.8. mentions that composites must include only assets under management and may not link simulated or model portfolios with actual performance.Reference: AIMR, Global Investment Performance Standards, p. 8.&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.002&mcs&0&N&Which of the following information is required to be disclosed if a firm is complying with the Global Investment Performance Standards?I. The definition of the firm.II. The currency used to present performance.III. The performance calculation method used by the firm.IV. If settlement-date rather than trade-date accounting is used.&"I, II and IV only.&I and III only.;II and IV only.;All Answers are Correct.";&"LOS: Study Session 1-5-eThe calculation method used by the firm is part of the recommended disclosures, and is not required by Standard 4. Disclosures.Reference: AIMR, Global Investment Performance Standards, pp. 8-9."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.003&mcs&0&N&Which of the following is NOT an item that must be checked as part of the verification procedures according to the Global Investment Performance Standards? &Investment managers' remuneration.&Definition of the firm. ;Composite construction.;Performance measurement calculations.;&"LOS: Study Session 1-5-gChecking employee remuneration formula is not part of the verification procedures.Reference: AIMR, Global Investment Performance Standards, pp. 11-14."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.004&mcs&0&N&"Valery de Picarde, CFA, is the director of a major Karamba-owned investment management firm branch in Indopulo. Karamba is known as the world's centre of investment management with securities laws stricter than the AIMR Code and Standards. In Indopulo, an emerging market, the local securities laws and regulations are embryonic. They are very vague regarding the definition of insider trading and have no provision regulating soft-dollars. De Picarde's client is a citizen of Karamba but residing in and doing business in Indopulo. The client chooses the jurisdiction of the laws of Indopulo for his business dealings with de Picarde.Which of the following is TRUE when dealing with this client?"&"De Picarde does not need to comply with the laws of Karamba since the client is not resident there, and can therefore take full advantage of soft-dollars arrangements but not insider trading opportunities.&De Picarde should follow the laws of Karamba since they are stricter that the laws of Indopulo.;De Picarde should respect the client's choice, not worry about the laws of Karamba and take full advantage of soft-dollars arrangements as well as insider trading opportunities.;De Picarde does not need to comply with the laws of Karamba since the client is not resident there, and can therefore take full advantage of soft-dollars arrangements but not insider trading opportunities.";&"LOS: Study Session 1-3-aThe rule of thumb of Standard I (A) of the Code and Standards is that in principle members must comply with the stricter of the applicable laws (in this case Indopulo's laws) and the Code of Standards. Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 9-16."&&&&Class@SS01.2&1&&&0&1&N&0&N.N.N.N
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CFA120.005&mcs&0&N&"James Richards, CFA, who is a quantitative analyst at Chelsea Investments, a money management firm, has recently been working on a quantitative risk management model for convertible arbitrage strategy. Richards recently attended an AIMR conference where he learned that High Fidelity, a competing investment advisory firm, is also developing a similar model but approaching it from a different angle. He did not agree with the main assumptions of the High Fidelity model although he admitted that its new angle of analysis is innovative. Upon returning to his office, Richards adopted High Fidelity's quantitative techniques but kept the original assumptions from his model. The results are promising and Jane Seamore, the CEO of Chelsea Investments, is pleased with Richards' research. She appears in public seminars to present the new methodology and to win client mandates. Which of the following complies with the AIMR Standards of Professional Conduct?"&Richards may sue Seamore for using his research methodology and results.&Richards must credit High Fidelity for having developed the model.;Seamore must credit Richards every time she appears in public seminars.;Richards may sue Seamore for using his research methodology and results.;&"LOS: Study Session 1-3-aRichards is employed by Chelsea Investments, the intellectual property of research work generally belongs to the employer unless specified differently. Most quantitative techniques are not considered proprietary if the computer programs and the research papers are widely published, unless they are misappropriated.This is not an act of plagiarism as stipulated in Standard II(C) since Richards has been developing the model on his own as well. Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 29-34."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.006&mcs&0&N&"Catherine Vieira, CFA, has been recently recruited to head the Asian research department in Hong Kong of a Paris-based brokerage firm. The firm employs many analysts spread across different countries in Asia, some of whom are members of AIMR and subject to AIMR's Code of Ethics and Standards of Professional Conduct. Vieira thinks that the firm's compliance procedures need to be upgraded to adequately deal with current global requirements. Which is the best course of action for Vieira according to the AIMR Standards of Practice Handbook?"&Vieira should seek to improve the compliance procedures before she accepts supervisory responsibility.&Vieira should not delegate supervisory duties until the compliance procedures are upgraded.;Vieira may accept supervisory responsibility and can only delegate it to her subordinates who are AIMR members. ;Vieira may immediately accept supervisory responsibility after notifying her employer she is not happy with the compliance procedures.;&"LOS: Study Session 1-3-aIf the compliance procedures are inadequate she should not accept responsibility until reasonable procedures are in place. Standard III(E) states that supervisory responsibility remains with the supervisor although the actual supervision duties can be delegated. Members can rely on reasonable procedures to detect and prevent violations to applicable statutes, regulations and provisions of the Code and Standards.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 57-64."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.007&mcs&0&N&Which of the following requirements will NOT help to ensure the establishment of an information barrier (fire wall)?&III. Place securities on a restricted list when the firm has access to material nonpublic information.&I. Monitor carefully the personal trading activities of firm personnel.;II. Limit the number of people in the firm who have access to material nonpublic information.;III. Place securities on a restricted list when the firm has access to material nonpublic information.;&"LOS: Study Session 1-3-aFire walls are intended to block the dissemination of material nonpublic information. Choice IV. is still dissemination therefore in violation of Standard V(A).Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 232-235."&&&&Class@SS01.2&1&&&0&1&N&0&N.N.N.N
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CFA120.008&mcs&0&N&"William Johnson, CFA, is a stock analyst covering the oil sector. Through his contacts in the oil industry he has accumulated and analyzed several pieces of nonpublic information. Although none of the information is ""material,"" Johnson reached the conclusion that one of the companies he covers has discovered a potentially new oil field and future earnings will probably exceed expectations. According to the AIMR Standards of Practice Handbook, Johnson:"&is allowed to use the information to make investment recommendations and decisions.&should report the source of the nonpublic information to AIMR.;should urge the oil company to make the information public immediately.;is not allowed to make investment recommendations or take actions based on this information.;&"LOS: Study Session 1-3-aJohnson does not misappropriate the nonpublic nonmaterial information so he can use his conclusion as the basis of his investment recommendations and actions. This situation is not a violation of Standard V (A) but permissible under the ""mosaic"" theory."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.009&mcs&0&N&"An AIMR member will be summarily suspended from membership and/or the use of the CFA designation if the member:I. Is barred from conducting investment business.II. Is convicted, pleads guilty or consents to a crime or felony.III. Fails to cooperate with AIMR in its investigation of the member's conduct.IV. Fails to complete, sign and return to AIMR the required annual professional conduct Statement."&"I, II and III only.&I and III only.;II and IV only.;I, II and III only.";&"LOS: Study Session 1-3-aAll of the reasons given will lead to an AIMR member being suspended from membership and/or the use of the CFA designation.Reference: AIMR, Standards of Practice Handbook, 8th edition, preface."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.010&mcs&0&N&Which of the following concepts does the AIMR Code of Ethics include?I. Competence.II. Integrity and dignity.III. Independent judgment.IV. Verification of investment performance.&"I, II, and III only.&II only.;I and III only.;All Answers are Correct.";&"LOS: Study Session 1-5-fVerification of investment performance is not covered in the AIMR Code of Ethics. It is only recommended when a firm claims compliance with Global Investment Performance Standards.Reference: AIMR, Global Investment Performance Standards, pp. 11-13."&&&&Class@SS01.2&1&&&0&1&N&0&N.N.N.N
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CFA120.011&mcs&0&N&"Marco Lorenzo, CFA, is scheduled to visit the corporate headquarters of Saturn Industries. Lorenzo expects to use the information obtained to complete his research report on Saturn stock. The location of Saturn Industries is within half an hour of a prestigious golf course. Upon arrival at Saturn premises, Marco Lorenzo learns that Saturn is offering Lorenzo an extension of his stay that weekend and invites him for a day of golf with all expenses paid. Saturn Industries also offers to pay for all the expenses for the trip, including the costs of meals, hotel room, and air transportation back to Saturn Industries. The total cost for the weekend is about $2,000. Which of the following actions would be the best course for Lorenzo to take under the AIMR Code and Standards?"&"Pay for all travel and golf expenses, including costs of meals and incidental items.&Accept both the expense-paid trip and the golf outing.;Reject the golf outing offer but accept the reimbursement of travel expenses.;Accept the expenses-paid trip and disclose the value of the expenses in the research report. ";&"LOS: Study Session 1-3-aLorenzo will violate Standard IV (A.3) if he accepts any gift worth more than $100, it may impede his independence and objectivity.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 78-85."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.012&mcs&0&N&"Alan Duff, CFA, is a stock analyst with Grit and Sand securities broker. He has been concerned about the recent financial situation of Liverpool Corporation and is about to write a report with a 'sell' recommendation. While working on his report, his wife, who happens to be looking for a new job, is called by her employment agency informing her that Liverpool Corporation is interested in meeting her for a job interview. She is excited by the prospect of working for Liverpool Corporation and Duff thinks he can improve his wife's employment prospects by writing a more positive recommendation about the company. The following week he issues a 'buy' recommendation and revises the revenue, profit and cash flow projections using some of the nonpublic information which Mrs. Duff obtained in the interview process. Mrs. Duff is later hired by the company as a finance manager.\\\\\\Which of the following Standard(s) does Duff violate?I. Standard II (B) Professional Misconduct.II. Standard IV (A.1) Independence and Objectivity.III. Standard III (C) Disclosure of Conflicts to Employer. IV. Standard V (A) Prohibition against Use of Material Nonpublic Information."&II and IV only. &I and II only.;I and III only.;III and IV only.;&"LOS: Study Session 1-3-aDuff has compromised his independence and objectivity in making the buy recommendation and making use of the nonpublic information provided by his wife.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 65-72 and 145-152."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.013&mcs&0&N&"Lee Min Chu, is a senior partner of a small brokerage firm, Golden Sun Securities, which recently participated in a large convertible bond offering. The offering company has been given a poor recommendation by the research department in the past two quarters partly due to increasing competition. Anticipating a low level of interest from Golden Sun's clients, Lee immediately calls his senior analyst Jane Kwok, CFA, and instructs her to be more optimistic with her recommendation because Golden Sun must offload its substantial participation in the offering. Kwok is promised an increase in bonus for this recommendation upgrade. Kwok comes up with a more favorable recommendation within a short period of time, by revising some of the assumptions she made earlier.\\\\\\Which of the following AIMR Standards does Kwok violate?I. Standard IV(B.7) because she failed to disclose conflicts to clients and prospects.II. Standard V (B) because she failed to make a fair statement of investment performance.III. Standard IV(A.1) because she failed to exercise due diligence and thoroughness in making an investment recommendation.IV. Standard III (A) because she failed to make the management of Golden Sun aware of theexistence of the AIMR Code and Standards."&"I, III and IV only.&I and IV only.;II and III only. ;I, II, III and IV.";&"LOS: Study Session 1-3-bThe best answer is ""I, III and IV only"", since the Standard V (B) deals with performance presentation of discretionary portfolio management not with investment recommendations.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 153-159."&&&&Class@SS01.2&1&&&0&1&N&0&N.N.N.N
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CFA120.014&mcs&0&N&"Fiona Bergkamp, CFA, is an equity sales manager at London-based Arsenal Securities branch located in an emerging market in South East Asia. Initial public offerings are often oversubscribed making it difficult to ensure receiving a fair allocation. Bergkamp understands the local environment so she is able to influence the allocation process so that she can personally subscribe to the maximum she can afford and then allocate the rest to her clients. Her clients never complain because they have almost always profited from investing in the emerging market. Which of the following describes Bergkamp's action?"&Bergkamp is violating Standard IV (B.4) Priority of Transactions.&Bergkamp is violating Standard IV (B.5) Preservation of Confidentiality.;Bergkamp is complying with the AIMR Code and Standards since her clients are satisfied.;Bergkamp is violating Standard IV (B.2) Portfolio Investment Recommendations and Actions.;&"LOS: Study Session 1-3-aBergkamp is in violation as Standard IV (B.4) since she puts her personal investment ahead of her clients, regardless of whether the clients are pleased with her services. Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 119-125."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.015&mcs&0&N&"Martha Perrick, CFA, works for the securities custody department of South Pole Trust Bank. She makes a reciprocal referral fee arrangement with a number of investment advisory firms. She does not disclose the referral arrangement but the investment advisory firms insert one clause in their investment advisory agreements that says ""... from time to time referral fees may be arranged with a number of selected securities custodians."" Which of the following best describes the situation?"&III. Both Perrick and the investment advisory firms comply with the AIMR Code and Standards.&I. Only Perrick complies with the AIMR Code and Standards.;II. Only the investment advisory firms comply with the AIMR Code and Standards.;III. Both Perrick and the investment advisory firms comply with the AIMR Code and Standards.;&"LOS: Study Session 1-3-aThe best choice is IV. since any referral fee arrangement that a client ultimately pays must be disclosed in terms of the nature of the consideration or the benefit together with the estimated monetary value.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 55-56."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.016&mcs&0&N&"Jeffrey Chambertin, CFA, is a private client investment manager at Grand Cru investment firm based in Nice, France. One of his clients in Monaco offers him additional compensation beyond that provided by his firm if the portfolio performance exceeds the agreed benchmark. To make it more attractive to Chambertin, his client will send the additional compensation to a tax-free account in one of the tax havens outside the jurisdiction of Monaco and France. Chambertin"&"should turn down the additional compensation offered because it violates Standard III (D) Disclosure of Additional Compensation.&should report the situation to the compliance officer at AIMR according to Standard II(B).;is free to accept the additional compensation in the tax-free account, as long as the account is outside Monaco and France.;should turn down the additional compensation offered because it violates Standard III (D) Disclosure of Additional Compensation.";&"LOS: Study Session 1-3-aStandard III(D) does not prohibit the acceptance of additional compensation as long as the approval from the employer is obtained. The tax-free account is a separate issue and will have to be viewed in light of the prevalent tax rules and regulations. So choice D is best.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 55-56."&&&&Class@SS01.2&1&&&0&1&N&0&N.N.N.N
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CFA120.017&mcs&0&N&"Joseph Merlot is a research analyst covering Pinot Noir Vineyard Corporation. Merlot's parents bought $100 worth of Pinot Noir Vineyard Corporation shares for his three-year old daughter on her birthday. Under Standard IV(B.7) Disclosure of Conflicts to Clients and Prospects, Merlot "&must disclose the ownership of the shares by a member of his immediate family.&must file a report with the SEC.;must sell the shares immediately.;must disclose the ownership of the shares by a member of his immediate family.;&"LOS: Study Session 1-3-aThe share ownership is not material and cannot reasonably be expected to affect Merlot's ability to make unbiased and objective recommendations. Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 135-141."&&&&Class@SS01.0&1&&&0&1&N&0&N.N.N.N
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CFA120.018&mcs&0&N&"Richard Conner is a portfolio manager at Pont Blanc Investment Management and in charge of managing several discretionary portfolios. His wife holds 25% of the shares of Para Sites Corporation, a computer services company and Para Sites went public earlier in the year. The share price skyrocketed and the value of his wife's holding went up from $1 million prior to public offering to $8 million at the current market price. Conner is of the opinion that the current market price is too high and immediately advises his wife to sell half of her shares. He also recommends her to put the proceeds into one of the discretionary portfolios he is currently managing.Which one is the best answer:"&III. Conner violated Standard V (A) for possessing material non-public informationarrangement.&I. Conner violated Standard IV (B.7) for failing to disclose conflicts of interest.;II. Conner violated Standard III (D) for failing to disclose additional compensation. ;III. Conner violated Standard V (A) for possessing material non-public informationarrangement.;&"LOS: Study Session 1-3-aChoice I. would apply if the advice given is while one or more of the portfolios contain Para Sites shares. Conner has not violated any of the Standards.Reference: AIMR, Standards of Practice Handbook, 8th edition, pp. 55-56, 135-141 and 145-151."&&&&Class@SS01.1&1&&&0&1&N&0&N.N.N.N
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CFA120.019&mcs&0&N&"We are given the following data on a frequency distribution. <br> Interval Frequency <br> 0 up to 10 5 <br> 10 up to 20 8<br> 20 up to 30 10 <br> 30 up to 40 3 <br><br>Which of the following statements is FALSE?"&The intervals will not include outlying observations.&An observation can only fall into one interval.;The relative frequency of the first class is 0.19. ;The cumulative relative frequency of the second class is 0.50.;&"LOS: Study Session 2-1-C-g <br>All observations will be included in one of the intervals.<br>Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 3, pp. 91-99."&&&&Class@SS02.2&1&&&0&1&N&0&N.N.N.N
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CFA120.020&mcs&0&N&The ages of members of two football teams were analyzed. The first had an average (mean) age of 20 years with a standard deviation of 3 years. The second had an average age of 24 years with a standard deviation of 4 years. Which of the following is CORRECT?&The coefficient of variation of the first team is lower indicating that there is more variation in ages of the members.&The coefficient of variation of the first team is higher indicating that there is more variation in ages of the members.;The coefficient of variation of the first team is higher indicating that there is less variation in ages of the members.;The coefficient of variation of the first team is lower indicating that there is more variation in ages of the members.;&"LOS: Study Session 2-1-C-nThe coefficient of variation is the standard deviation/mean x 100 (in percentage terms) For the first team this is (3/20) x 100 = 15% For the second team this is (4/24) x 100 = 16.67%Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 3, pp. 139-140."&&&&Class@SS02.0&1&&&0&1&N&0&N.N.N.N
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CFA120.021&mcs&0&N&"The forecast revenues from an oil well are: <br><br>end year 1 $5 million<Br>end year 2 $8 million <br>end year 3 $9 million <br>end year 4 $3 million<br><br>Using a discount rate of 10% the present value of the oil well is closest to:"&$19.97 million.&$18.15 million.;$21.96 million.;$29.24 million.;&"LOS: Study Session 2-1-A-i \\\Mock1-021.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 1, pp. 25-26."&&&&Class@SS02.1&1&&&0&1&N&0&N.N.N.N
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CFA120.022&mcs&0&N&"An investor invests $5,000 at the beginning of each year for the next six years, if the investment earns 8% interest annually, the value of the investment at the end of six years will be closest to:"&38681&32400;34560;38681;&"LOS: Study Session 2-1-A-f This is an annuity type question.\\\mock1-023.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 1, pp. 13-21."&&&&Class@SS02.2&1&&&0&1&N&0&N.N.N.N
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CFA120.023&mcs&0&N&Which of the following statements about sample standard deviation is FALSE? Sample standard deviation is:&III. an estimate of the population standard deviation.&I. always zero or a positive number.;II. in the same units as the original data.;III. an estimate of the population standard deviation.;&"LOS: Study Session 2-1-C-k IV. is the variance.Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 3, pp. 129-135."&&&&Class@SS02.0&1&&&0&1&N&0&N.N.N.N
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CFA120.024&mcs&0&N&If a distribution is normal:&approximately 68% of the observations will lie between the mean plus or minus one standard deviation.&approximately 99.7% of the observations will lie between the mean plus or minus one standard deviation.;approximately 99.7% of the observations will lie between the mean plus or minus two standard deviations.;approximately 68% of the observations will lie between the mean plus or minus two standard deviations.;&"LOS: Study Session 2-1-C-q 68% will lie between the mean plus or minus one standard deviation, 95% will lie between the mean plus or minus two standard deviations, 99.7% will lie between the mean plus or minus three standard deviations.Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 3, pp. 144-145."&&&&Class@SS02.1&1&&&0&1&N&0&N.N.N.N
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CFA120.025&mcs&0&N&Interest is compounded quarterly and $1 million is invested today and will be worth $1.2 million in one year's time. The annual interest rate is closest to:&18.64%.&17.82%. ;20.00%.;21.91%.;&"LOS: Study Session 2-1-A-e If the annual rate is r, the quarterly rate is (r/4), and the number of periods is 4.\\\mock1-028.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 1, pp. 9-10."&&&&Class@SS02.2&1&&&0&1&N&0&N.N.N.N
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CFA120.026&mcs&0&N&The forecast rate of return for a portfolio has the following probability distribution: Rate of Return Probability -10.0% 0.10 0.0% 0.25 +10.5% 0.50 +25.0% 0.15The variance of the rate of return is closest to:&0.0095.&0.0760.;0.0974.;0.2760.;&"LOS: Study Session 2-1-D-k \\\Mock1-031.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 4, pp. 194-96."&&&&Class@SS02.0&1&&&0&1&N&0&N.N.N.N
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CFA120.027&mcs&0&N&"A Treasury bill has 170 days to maturity and is selling at $97,000 with a face value of $100,000. The bank discount yield is closest to:"&2.05%.&1.14%.;1.42%.;2.05%.;&"LOS: Study Session 2-1-B-f The yield on a bank discount basis is given by \\\mock1-033.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 2, pp. 72-74."&&&&Class@SS02.1&1&&&0&1&N&0&N.N.N.N
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CFA120.028&mcs&0&N&The following data is given on the number of people holding driving licenses: Holding Not holding driving license driving licenseAge 60 and under 38 24Age over 60 10 12What is the probability of randomly selecting a person over 60 who holds a driving license?&11.9%.&22.6%.;37.5%.;71.6%.;&"LOS: Study Session 2-1-D-f The Rule of Multiplication for events, A and B, that are not mutually exclusive, is:P(A and B) = P(A)P(B|A) = (22/84) x (10/22) = 11.9%Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 4, pp. 185-186."&&&&Class@SS02.2&1&&&0&1&N&0&N.N.N.N
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CFA120.029&mcs&0&N&Which of the following statements is CORRECT?&The alternate hypothesis should always contain the equals sign. &The alternate hypothesis is the hypothesis being tested.;A Type II error is rejecting the null hypothesis when it is true.;The alternate hypothesis should always contain the equals sign. ;&"LOS: Study Session 3-1-C-b The null hypothesis is the hypothesis being tested. A Type I error is rejecting the null hypothesis when it is true. The null hypothesis should always contain the equals sign.Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 7, pp. 326-327."&&&&Class@SS03.0&1&&&0&1&N&0&N.N.N.N
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CFA120.030&mcs&0&N&An analyst runs a linear regression on the annual rise in London house prices and the rise in the FTSE 100 index over the same year. The regression has an intercept of -3% and a slope of the regression line of 1.3. If the FTSE 100 index is forecast to rise by 15% this year what is this year's expected performance of London house prices?&16.5%.&11.1%.;15.6%.;22.5%.;&"LOS: Study Session 3-1-D-l The expected performance is given by Y = a + b X = -3% + (1.3 x 15%) = 16.5%Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 8, pp. 395-398."&&&&Class@SS03.1&1&&&0&1&N&0&N.N.N.N
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CFA120.031&mcs&0&N&"A normal distribution has a mean of 7 and a variance of 3, the z-value of an observation of 8 is closest to:"&0.58.&0.33.;1.73.;3.00.;&"LOS: Study Session 3-1-A-o \\\mock1-027.png\\\this is the number of standard deviations of an observation above or below the mean.Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 5, pp. 250-257."&&&&Class@SS03.2&1&&&0&1&N&0&N.N.N.N
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CFA120.032&mcs&0&N&"A company is a clock manufacturer and the manager wishes to check that the average number of clocks produced has not fallen significantly below the mean of 100 clocks per day. The distribution is normal and the standard deviation is 5 clocks per day. The manager looks at a sample of 100 days' production and finds that the mean production volume is 98, he should conclude that: "&there is evidence that the production levels have declined at the .01 significance level.&the sample is not sufficiently large to arrive at a conclusion.;there is insufficient information provided to arrive at a conclusion.;there is no evidence that the production levels have not declined at the .01 significance level.;&"LOS: Study Session 3-1-C-l define H0 : the mean production is greater than or equal to 100 clocks per day.H1 : the mean production is less than 100 clocks per day.Calculate the z- value: \\\mock1-029.png\\\This is a one-tailed test so the critical value of z at the .01 significance level is 2.33. If the computed z value lies outside these ranges reject the null hypothesis and accept the alternative. In this case z falls outside the range at the .01 significance level. Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 7, pp. 339-342."&&&&Class@SS03.0&1&&&0&1&N&0&N.N.N.N
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CFA120.033&mcs&0&N&"The population is defined as high schools in a city; the number of students in a school is between 200 and 1,000 with a mean of 700 students. A sample of five schools is taken and the mean number of students in the sample is 750. The sampling error is:"&10&-50;-10;10;&"LOS: Study Session 3-1-B-b \\\mock1-030.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 6, pp. 287."&&&&Class@SS03.1&1&&&0&1&N&0&N.N.N.N
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CFA120.034&mcs&0&N&"There is a 30% chance of it raining on any given day and the chance of whether it rains or not is assumed to be the same each day, and independent of the previous day's weather. The probability, over four days, of it raining on exactly one day is closest to? "&30.0%.&10.3%.;25.0%.;30.0%.;&"LOS: Study Session 3-1-A-h Apply the Binomial Probability Distribution where we are solving for P(1).\\\mock1-032.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 5, pp. 236-242."&&&&Class@SS03.2&1&&&0&1&N&0&N.N.N.N
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CFA120.035&mcs&0&N&The standard deviation of a population is 25 and the size of a sample taken from the population is 40. The standard error of the sample mean is closest to:&0.625.&0.125.;0.253.;0.625.;&"LOS: Study Session 3-1-B-g \\\mock1-035.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 6, pp. 291-295."&&&&Class@SS03.0&1&&&0&1&N&0&N.N.N.N
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CFA120.036&mcs&0&N&"Large samples are taken from a normal population, the sample mean is 25 and the sample standard deviation is 5. The 95% confidence interval for the population mean is closest to:"&between 15.2 and 34.8.&between 12.1 and 37.9.;between 20.0 and 30.0.;between 15.0 and 40.0.;&"LOS: Study Session 3-1-B-h The 95% confidence interval is given by sample mean plus or minus 1.96 standard deviations. \\\mock1-036.png\\\Reference: DeFusco, McLeavey, Pinto and Runkle, Quantitative Methods for Investment Analysis, 2nd edition, Ch. 6, pp. 297-303."&&&&Class@SS03.1&1&&&0&1&N&0&N.N.N.N
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CFA120.037&mcs&0&N&Which of the following is an automatic stabilizer in terms of stimulating demand in a recession?&Progressive income tax.&Increase in national defense spending.;Reduction in corporate profit tax rates.;Increase in government infrastructure spending.;&"LOS: Study Session 4-1-B-e Automatic stabilizers stimulate demand during a recession and restrain demand during a inflationary boom without the government needing to change fiscal policy using legislation.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 12, pp. 277-278."&&&&Class@SS04.2&1&&&0&1&N&0&N.N.N.N
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CFA120.038&mcs&0&N&New classical economists believe that:&a reduction in marginal tax rates will not affect aggregate demand.&a reduction in marginal tax rates will lead to a decrease in aggregate demand.;a reduction in marginal tax rates will lead to an increase in aggregate demand.;a reduction in marginal tax rates will lead to either an increase or decrease in aggregate supply depending on whether the economy is in recession or not. ;&"LOS: Study Session 4-1-B-c New classical economists believe that a reduction in tax rates will have little effect on demand since participants will increase their saving in anticipation of higher tax rates in the future.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 12, pp. 273-275."&&&&Class@SS04.0&1&&&0&1&N&0&N.N.N.N
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CFA120.039&mcs&0&N&The required reserve ratio has been reduced from 15% to 12% as part of the government's monetary policy. The potential deposit expansion multiplier is closest to:&8.33.&3.00.;12.00.;33.33.;&"LOS: Study Session 4-1-C-d The potential deposit expansion multiplier is 1/required reserve ratio which is 1/ 0.12 = 8.33.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 13, pp. 304-305."&&&&Class@SS04.1&1&&&0&1&N&0&N.N.N.N
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CFA120.040&mcs&0&N&A long period of rapid money supply growth will:&expand real output and reduce unemployment.&have no impact on the economy.;expand real output and increase inflation.;expand real output and reduce unemployment.;&"LOS: Study Session 4-1-D-e The first impact of rapid money supply growth will be to reduce real interest rates and stimulate aggregate demand. However over time buyers and providers of resources will adjust prices upwards so real wages and profit margins will be unchanged, leaving real output unchanged. The only long-term effect will be higher prices and higher nominal interest rates (since inflation is higher). Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 14, pp. 329-333."&&&&Class@SS04.2&1&&&0&1&N&0&N.N.N.N
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CFA120.041&mcs&0&N&"Real GDP (gross domestic product) growth has been averaging 3.0% per annum over the last three years, but interest rates have been rising steadily. A supporter of the adaptive-expectations hypothesis believes that: "&GDP will grow by 3% next year since the best indicator of the future is recent data. &forecasts of future economic data are never accurate.;interest rate rises mean that GDP growth is likely to be less than 3% next year.;the consensus of economic decision makers' forecasts will be the best indicator of future GDP growth.;&"LOS: Study Session 4-1-E-d Under adaptive expectations forecasters will expect GDP growth during recent periods to be repeated. Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 15, pp. 356-358."&&&&Class@SS04.0&1&&&0&1&N&0&N.N.N.N
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CFA120.042&mcs&0&N&If the price elasticity of demand for a product is relatively inelastic it means that:&price and total expenditures on the product will move in the same direction.&an increase in price does not lead to a reduction in the amount purchased.;total expenditure on the product will remain constant as the price changes.;a percent increase in price leads to a larger percent reduction in the amount purchased.;&"LOS: Study Session 5-1-A-d If sales are inelastic the percent change in sales is less than the percent change in price so the price change will have a greater impact on total expenditures than the quantity change. This means that the price and total expenditures on the product will move in the same direction.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 19, pp. 464-467."&&&&Class@SS05.1&1&&&0&1&N&0&N.N.N.N
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CFA120.043&mcs&0&N&Economic profits:&are generally more than accounting profits.&take into consideration explicit costs only.;take into consideration implicit costs only.;are generally more than accounting profits.;&"LOS: Study Session 5-1-B-e Accounting profits do not take into consideration the implicit cost components (i.e. the opportunity cost of the resources used) whereas economic profits consider both explicit and implicit costs, therefore accounting profits are generally higher than economic profits. Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 20, pp. 482-484."&&&&Class@SS05.2&1&&&0&1&N&0&N.N.N.N
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CFA120.044&mcs&0&N&In competitive price-searcher markets: &firms have downward-sloping demand curves.&there is little competition.;there are high entry barriers.;there is the potential for participants to make long-term economic profits.;&"LOS: Study Session 5-1-D-a Competitive price-searcher markets are competitive with low entry barriers which means in the long-term firms will earn normal (zero economic) profits. Firms will have downward-sloping demand curves.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 22, pp. 526-529."&&&&Class@SS05.0&1&&&0&1&N&0&N.N.N.N
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CFA120.045&mcs&0&N&An oligopoly is all of the following EXCEPT:&III. a market where there are often substantial economies of scale.&I. a price-searcher market.;II. a market where there are high barriers to entry.;III. a market where there are often substantial economies of scale.;&"LOS: Study Session 5-1-E-b Actually IV. refers to a monopoly.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 23, pp. 551-552."&&&&Class@SS05.1&1&&&0&1&N&0&N.N.N.N
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CFA120.046&mcs&0&N&The following are all examples of factors that create entry barriers to an industry EXCEPT:&oligopolies.&patents.;government licensing.;regulations that limit access to an industry.;&"LOS: Study Session 5-1-E-a The four important factors are economies of scale, government licensing, patents and control over essential resources. Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 23, pp. 546-547."&&&&Class@SS05.2&1&&&0&1&N&0&N.N.N.N
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CFA120.047&mcs&0&N&When firms are price takers the market supply curve will:&"slope upwards to the right in the short run, and the direction of the slope in the long run will depend on the industry.&slope upwards to the right in the short run, and be horizontal in the long run.;slope downwards to the right in the short run, and be horizontal in the long run.;slope downwards to the right in the short run, and the direction of the slope in the long run will depend on the industry.";&"LOS: Study Session 5-1-C-f Firms will increase supply if the price rises so the supply curve slopes upwards to the right. The long run supply curve will slope upwards to the right in increasing-cost industries, downwards to the right in decreasing-cost industries, and be horizontal in constant-cost industries.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 21, pp. 512-519."&&&&Class@SS05.0&1&&&0&1&N&0&N.N.N.N
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CFA120.048&mcs&0&N&One year interest rates in the US are 6% and in Switzerland are 4% and the spot rate is SFR/US$ = 1.71. If interest rate parity holds then the SFR/US$ forward rate is closest to:&1.68.&1.55.;1.74.;1.89.;&"LOS: Study Session 6-2-A-j \\\mock1-047.png\\\ This means that if you hold US$, earning a higher rate of interest, you will get less SFR in a forward transaction compared with a spot transaction.Reference: Solnik and McLeavey, International Investments, 5th edition, Ch. 1, pp. 16-21."&&&&Class@SS06.1&1&&&0&1&N&0&N.N.N.N
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CFA120.049&mcs&0&N&An unanticipated shift to a more restrictive monetary policy under a flexible exchange rate system would be expected to lead to all of the following EXCEPT:&an appreciation in the exchange rate.&a capital inflow.;a rise in real interest rates.;an appreciation in the exchange rate.;&"LOS: Study Session 6-2-B-d A contraction in money supply will reduce demand, dampen inflation and increase real interest rates. This will encourage capital inflow which will lead to an appreciation in the currency. Lower demand will decrease imports which will lead to a higher current account surplus but the capital inflow will take place more quickly. The capital inflow leads to a rise in the capital account and therefore a decline in the current account. Reference: Solnik and McLeavey, International Investments, 5th edition, Ch. 2, pp. 38-41."&&&&Class@SS06.2&1&&&0&1&N&0&N.N.N.N
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CFA120.050&mcs&0&N&Which of the following statements is CORRECT with respect to tariffs and import quotas on a product?&Both quotas and tariffs benefit domestic producers of the product.&The government benefits from both tariffs and quotas.;Tariffs do not affect consumers but quotas mean that consumers will be paying too high aprice for the product.;Quotas do not affect consumers but tariffs mean that consumers will be paying too high a price for the product.;&"LOS: Study Session 6-1-dDomestic producers, in both cases, will be able to expand output and sell at a higher price. In the case of tariffs the government will gain extra revenue from the tariff, in the case of quotas the overseas producers will be able to sell a small amount of the product at a high price. In both cases the consumer will pay a higher price for the product.Reference: Gwartney, Stroup, Sobel and Macpherson, Economics: Private and Public Choice, 10th edition, Ch. 17, pp. 408-410."&&&&Class@SS06.0&1&&&0&1&N&0&N.N.N.N
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CFA120.051&mcs&0&N&"Minimum liabilities for an underfunded pension plan appear in the balance sheet, using U.S. GAAP, as:"&stockholders' equity.&an asset.;a liability.;an item between liabilities and stockholders' equity.;&"LOS: Study Session 7-1-A-jLiabilities related to an underfunded pension plan are now recorded in stockholders' equity.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 2, p. 66. "&&&&Class@SS07.1&1&&&0&1&N&0&N.N.N.N
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CFA120.052&mcs&0&N&"If a company declares and pays a dividend of $10 million, and pays interest of $25 million it will, under U.S. GAAP, "&decrease the financing cash flow by $10 million and decrease the investing cash flow by $25 million.&decrease the financing cash flow by $35 million.;decrease the investing cash flow by $10 million and decrease the financing cash flow by $25 million.;decrease the financing cash flow by $10 million and decrease the investing cash flow by $25 million.;&"LOS: Study Session 7-1-B-ePayment of dividends is included in financing cash flow. Interest payments are an operating cash flow.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 3, pp. 78-79."&&&&Class@SS07.2&1&&&0&1&N&0&N.N.N.N
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CFA120.053&mcs&0&N&A provision for environmental remediation would normally be classed under U.S. GAAP as: &an adjunct account item.&an operating expense.;an extraordinary item.;an adjunct account item.;&"LOS: Study Session 7-1-A-hA provision for environmental remediation is usually classed as a nonrecurring item. Extraordinary items must be both unusual in nature and infrequent in occurrence (as well as being material). Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 2, pp. 52-56."&&&&Class@SS07.0&1&&&0&1&N&0&N.N.N.N
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CFA120.054&mcs&0&N&A firm is using the percentage-of-completion method rather than the completed contract method to account for a major construction project it is working on. Until the contract is completed this will have the following impact on its financial statements:&increase cash flows.&increase liabilities.;reduce total assets.;increase cash flows.;&"LOS: Study Session 7-1-A-gThe percentage-of-completion method recognizes revenues and costs in proportion to the percentage of work completed, income is higher throughout the project and liabilities will be lower as income is a larger offsetting item. Cash flow under both methods will be the same.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 2, pp. 40-44. "&&&&Class@SS07.1&1&&&0&1&N&0&N.N.N.N
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CFA120.055&mcs&0&N&"Walton Publishing Inc., uses U.S. GAAP and has announced the following financial data: $ millionCash payment for salaries 30 Rent expense 6Purchase of equipment 10 Repurchase of common stock 12Cash collection from customers 85Cash payment to suppliers 40Depreciation expense 10Sale of land 6Cash flows from operating and investing activities are:"&"$9 million from operating, ($4 million) from investing.&$19 million from operating, ($4 million) from investing.;$15 million from operating, ($16 million) from investing. ;$19 million from operating, ($10 million) from investing.";&"LOS: Study Session 7-1-B-b\\\mock1-056.png\\\Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 3, pp. 75-82. "&&&&Class@SS07.2&1&&&0&1&N&0&N.N.N.N
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CFA120.056&mcs&0&N&The following financial information is given for a company: Net profit margin = 6% Operating profit margin = 15% Financial leverage multiplier = 1.6 Total asset turnover = 2.5 Tax retention rate = 0.65 The return on equity is closest to: &24.0%.&2.3%.;39.0%.;there is insufficient information given to calculate the return on equity.;&"LOS: Study Session 8-1-creturn on equity = net profit margin x total asset turnover x financial leverage = 0.06 x 2.5 x 1.6 = 24.0%Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, pp. 334-337."&&&&Class@SS08.0&1&&&0&1&N&0&N.N.N.N
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CFA120.057&mcs&0&N&Which of the following is NOT an example of financial shenanigans which would inflate current period net income? &writing off merger costs as special charges.&extending the amortization period for goodwill.;capitalizing rather then expensing marketing costs.;moving to percentage of completion method to account for products that have not been delivered to the client.;&"LOS: Study Session 8-3-aWriting off merger costs as special charges would not increase current period income.Reference: Howard Schilit (McGraw-Hill, 2002), Financial Shenanigans, ""Searching for Shenanigans"", 2nd edition, Ch. 2, pp. 24-27 "&&&&Class@SS08.1&1&&&0&1&N&0&N.N.N.N
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CFA120.058&mcs&0&N&Islington Inc.'s breakdown of current assets and liabilities is as follows:\\\mock1-063q.png\\\The quick ratio is closest to: &1.07.&0.17.;1.25.;1.67.;&"LOS: Study Session 8-1-bQuick ratio = (cash + marketable securities + receivables)/ current liabilities = 445/415 = 1.07Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, pp. 323-324. "&&&&Class@SS08.2&1&&&0&1&N&0&N.N.N.N
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CFA120.059&mcs&0&N&Islington Inc.'s breakdown of current assets and liabilities is as follows:\\\mock1-063q.png\\\Islington Inc.'s cash ratio is closest to:&0.17.&0.06.;0.71.;1.07.;&"LOS: Study Session 8-1-bCash ratio = (cash + marketable securities)/ current liabilities = 70/415 = 0.17Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, p. 324. "&&&&Class@SS08.0&1&&&0&1&N&0&N.N.N.N
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CFA120.060&mcs&0&N&A company's net annual sales for a period were $15 million and receivables at the beginning of the year were $1.2 million and at the end of the year were $1.5 million. The average receivables collection period was closest to:&32.85 days.&11.11 days.;32.40 days.;36.50 days.;&"LOS: Study Session 8-1-b\\\mock1-067.png\\\Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, pp. 324-327. "&&&&Class@SS08.1&1&&&0&1&N&0&N.N.N.N
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CFA120.061&mcs&0&N&"If a firm has earnings per share of $2.20, a dividend pay out ratio of 30%, return on capital of 12% and return on equity of 10%, the sustainable potential growth rate is: "&7.0%.&3.0%.;8.4%.;15.4%.;&"LOS: Study Session 8-1-bThe sustainable growth rate = earnings retention rate x ROE = 0.70 x 0.10 = 7.0%Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, pp. 348-350. "&&&&Class@SS08.2&1&&&0&1&N&0&N.N.N.N
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CFA120.062&mcs&0&N&"A company had 500,000 common shares and $3,000,000 of a 6% convertible bond issue which was outstanding throughout the last accounting period. The convertible bond is convertible into 20 shares per $1,000. If the company's net income was $5,000,000 and the tax rate was 30%, the diluted earnings per share were closest to:"&$9.15.&$8.93.;$10.00.;$10.25.;&"LOS: Study Session 8-2-gDiluted earnings per share \\\mock1-077.png\\\If no dilution earnings per share would be $10.00Reference: Kieso, Weygandt, Warfield, Dilutive Securities and Earnings per Share, Intermediate Accounting, 11th edition, Ch. 16, pp. 794-796."&&&&Class@SS08.0&1&&&0&1&N&0&N.N.N.N
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CFA120.063&mcs&0&N&If a company has a very high net fixed asset turnover compared to its competitors this could be explained by:&"I. the company is using older, and in many cases fully depreciated, machinery. &II. the company has too much capital invested in assets for the size of its revenue.;III. the company has bought a large amount of new machinery to support future growth.;IV. the company uses capital leases rather than operating leases for all of its machinery. ";&"LOS: Study Session 8-1-dtotal fixed asset turnover = net sales/average net fixed assets II. and III. are not correct since they would imply that too many assets are being used.IV. is not correct since it would imply that the asset value was potentially higher than its competitors.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 10, pp. 327-328. "&&&&Class@SS08.1&1&&&0&1&N&0&N.N.N.N
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CFA120.064&mcs&0&N&If a company makes write downs due to impairments of long-lived assets this will:&decrease deferred tax liabilities and increase the total asset turnover.&increase deferred tax liabilities and increase the total asset turnover.;increase deferred tax liabilities and decrease the total asset turnover.;decrease deferred tax liabilities and decrease the total asset turnover.;&"LOS: Study Session 9-1-C-eImpairment losses are not recognized for tax purposes until the asset is disposed of and therefore deferred tax will be reduced. Impairment write downs will lead to reduction in asset values and therefore an increase in the total asset turnover.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 8, pp. 277-278. "&&&&Class@SS09.2&1&&&0&1&N&0&N.N.N.N
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CFA120.065&mcs&0&N&A company builds new operating facilities and pays for the construction with new borrowings. Under U.S. accounting rules the firm should: &capitalize the interest costs of the new borrowing.&expense the interest costs associated with the borrowing.;expense or capitalize the costs associated with the new borrowing depending on the company's internal policy.;capitalize the costs associated with the borrowing using an interest rate that is the company's average cost of debt.;&"LOS: Study Session 9-1-B-bWhen specific borrowing can be identified to pay for the building work then the interest costs of that borrowing should be capitalized. (If no specific borrowing use the average interest cost of debt).Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 7, pp. 233-235. "&&&&Class@SS09.0&1&&&0&1&N&0&N.N.N.N
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CFA120.066&mcs&0&N&"A company buys a piece of machinery for $100,000 and it estimates the life of the machine to be four years after which it will have a salvage value of $10,000. Using the double-declining-balance method of depreciation what will be the depreciation charge in the fourth year?"&2500&5625;6250;18000;&"LOS: Study Session 9-1-C-aDepreciation expense will be:Year 1 1/2 x ($100,000) = $50,000Year 2 1/2 x ($100,000 - $50,000) = $25,000Year 3 1/2 x ($100,000 - $75,000) = $12,500Year 4 1/2 x ($100,000 - $87,500) = $6,250Note: Year 4 has been reduced to $2,500 since at this point the value of the machinery has reached its salvage value.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 8, pp. 260-262. "&&&&Class@SS09.1&1&&&0&1&N&0&N.N.N.N
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CFA120.067&mcs&0&N&Computer Retailers Inc. provided the following data regarding its scanner purchases and sales over the year. 1st January Beginning inventory of 120 scanners at cost of $70 each 1st March Purchase of 500 scanners at cost of $65 each.1st September Purchase of 200 scanners at cost of $60 each.31st December Ending inventory of 200 scanners.Which of the following statements is CORRECT regarding the use of LIFO or FIFO to account for inventories over the year? &"The COGS is lower under LIFO than FIFO.&The net income is lower under LIFO than FIFO.;The ending inventory under LIFO is $13,600 which is lower than under FIFO.;The ending inventory under LIFO is $12,000, which is higher than under FIFO.";&"LOS: Study Session 9-1-A-a Under LIFO the ending inventory 200 scanners, 120 @ $70 and 80 @ $65 = $13,600. This is higher than under FIFO ($12,000). Since the prices of scanners are falling the COGS will be lower under LIFO and net income will be higher. Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 6, pp. 193-195. "&&&&Class@SS09.2&1&&&0&1&N&0&N.N.N.N
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CFA120.068&mcs&0&N&Which of the following statements is CORRECT regarding the straight-line depreciation method? &It is the most frequently used method of depreciating assets in the U.S. &It depreciates assets in proportion to their use.;It compensates for the rising repair costs as an asset ages.;It is often used to reduce the tax burden immediately after an asset is purchased.;&"LOS: Study Session 9-1-C-aA refers to the units of production method. B and D refer to accelerated depreciation methods. Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 8, pp. 259-260. "&&&&Class@SS09.0&1&&&0&1&N&0&N.N.N.N
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CFA120.069&mcs&0&N&A deferred tax liability should be: &treated as an addition to stockholders' equity if the temporary differences giving rise to the liability are unlikely to reverse.&treated as an addition to stockholders' equity if the temporary differences giving rise to the liability are likely to reverse.;treated as a deduction from stockholders' equity if the temporary differences giving rise to the liability are likely to reverse.;treated as a deduction from stockholders' equity if the temporary differences giving rise to the liability are unlikely to reverse.;&"LOS: Study Session 10-1-A-eIf a deferred tax liability is unlikely to be paid the associated tax expense, from an analyst's viewpoint, should not have been deducted as an expense. This would have increased net income and stockholders' equity.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 9, pp. 304-306. "&&&&Class@SS10.1&1&&&0&1&N&0&N.N.N.N
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CFA120.070&mcs&0&N&"A company enters into a 6-year lease agreement to lease a machine; the machine has a fair value of $100,000. The agreement specifies that: 1. The economic life of the machine is estimated to be ten years. 2. The lessee will pay lease payments that have a present value of $80,000. 3. The lessee has no rights to purchase or receive the machine at the end of the lease period.The lease should be classified by the lessee as: "&an operating lease since none of the requirements for it to be treated as a capital lease have been met.&a capital lease since the lease term is greater than 50% of the economic life of the machine.;a capital lease since the lessee will benefit from the use of the machine for more than 5 years. ;a capital lease since the present value of the lease payments is more than 75% of the fair value of the machine.;&"LOS: Study Session 10-1-C-aA lease meeting any of the following conditions must be treated as a capital lease. 1. terms for transfer or purchase of ownership 2. lease term equal or more than 75% of the economic life 3. present value of lease payments equal to or more than 90% of the fair value. Since none of these are met it should be treated as an operating lease.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 11, p. 367. "&&&&Class@SS10.2&1&&&0&1&N&0&N.N.N.N
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CFA120.071&mcs&0&N&"A company enters into a lease agreement to make lease payments of $5,000 at the end of each year for the next three years. It is treated as a capital lease and the discount rate used is 8%. The asset is depreciated using the straight-line method. The principal repayment in the first year will be closest to?"&3969&1031;3800;5325;&"LOS: Study Session 10-1-C-bThe present value of the lease is $12,885. The interest expense in the first year will be 8% of $12,885 which is $1,031. Deduct this from the lease payment of $5,000 to arrive at the principal repayment of $3,969.Depreciation is only included if calculating the total expense.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 11, pp. 368-371."&&&&Class@SS10.0&1&&&0&1&N&0&N.N.N.N
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CFA120.072&mcs&0&N&Which of the following is an example of off-balance-sheet financing?&take-or-pay contracts.&capital leases.;zero coupon bonds.;consolidated finance companies.;&"LOS: Study Session 10-1-C-dOnly take-or-pay contracts are an example of off-balance-sheet financing. A take-or-pay contract is off-balance-sheet financing when a firm enters into a long-term commitment through the contract but does not record any resulting liabilities on the balance sheet.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 11, pp. 376-383."&&&&Class@SS10.1&1&&&0&1&N&0&N.N.N.N
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CFA120.073&mcs&0&N&Deferred income tax expense is:&III. an accrual of income tax expense expected to be paid in future years.&I. taxes payable less income tax expense.;II. a tax return liability resulting from current period taxable income.;IV. a balance sheet amount representing expected future cash outflows to pay income tax.;&"LOS: Study Session 10-1-A-aI. is not correct, deferred income tax expense is income tax expense less taxes payable.II. is the deferred tax liability.IV. is the taxes payable.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 9, p. 292. "&&&&Class@SS10.2&1&&&0&1&N&0&N.N.N.N
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CFA120.074&mcs&0&N&In a sales-type lease the sales revenue reported at the beginning of the lease on the lessor's financial statements is:&the present value of the lease payments. &the sum of the lease payments.;there is no sales revenue reported.;the present value of the lease payments plus the present value of the residual value.;&"LOS: Study Session 10-1-C-fThe sales revenue reported at the beginning of the lease on the lessor's financial statements is the present value of payments they will receive from the lease agreement.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 11, pp. 387-390. "&&&&Class@SS10.0&1&&&0&1&N&0&N.N.N.N
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CFA120.075&mcs&0&N&When a bond issuer makes a coupon payment for a bond that was issued at a discount it will:&overstate cash flow from operations and understate financing cash flows.&understate cash flow from operations and overstate financing cash flows.;overstate cash flow from operations and understate investing cash flows.;understate cash flow from operations and overstate investing cash flows.;&"LOS: Study Session 10-1-B-aThe coupon payment will be counted as a cash flow from operations although it can be argued that the interest component should be seen as a larger cash outflow from operations and the increase in principal as a financing cash flow inflow.Reference: White, Sondhi and Fried, The Analysis and Use of Financial Statements, 3rd edition, Ch. 10, pp. 328-329. "&&&&Class@SS10.1&1&&&0&1&N&0&N.N.N.N
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CFA120.076&mcs&0&N&The bird-in-the-hand theory with respect to dividend policy states that:&a company should retain earnings since it will help avoid having to raise capital externally for expansion.&a company should retain dividends to increase its growth rate.;investors prefer the certainty of a lower tax rate on capital gains than the higher tax rate on income.;a company should retain earnings since it will help avoid having to raise capital externally for expansion.;&"LOS: Study Session 11-1-G-aThe bird-in-the-hand theory says that investors prefer to receive money today rather than uncertain payments in the future.Reference: Brigham and Houston, Fundamentals of Financial Management, 8th edition, Ch. 14, pp. 542-544. "&&&&Class@SS11.2&1&&&0&1&N&0&N.N.N.N
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CFA120.077&mcs&0&N&When calculating cash flows for capital budgeting analysis:&opportunity costs should be included.&sunk costs should be included.;gross interest payments should be included since the cost of capital includes the cost of debt.;interest payments net of tax should be included since the cost of capital includes the after-tax cost of debt.;&"LOS: Study Session 11-1-D-bSunk costs should not be included since they are not an incremental cash flow.The weighted cost of capital includes the cost of debt so the cash flow available for bond and equity holders should be used i.e. before interest payments.Reference: Brigham and Houston, Fundamentals of Financial Management, 8th edition, Ch. 11, pp. 425-427. "&&&&Class@SS11.0&1&&&0&1&N&0&N.N.N.N
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CFA120.078&mcs&0&N&"Burwood Company has a common stock price of $30.00. The current reported earnings per share are $2.00 and dividends per share are $0.80. The return on equity is 12%. The company is considering raising funds through an equity issue, if issuing costs are 3% the cost of new equity will be closest to:"&10.06%.& 2.95%.; 9.87%.;10.06%.;&"LOS: Study Session 11-1-B-bThe growth rate is the earnings retention rate multiplied by the ROE, this is 7.2%.Next year's dividends will be $0.80 x 1.072 = $0.858\\\mock1-075.png\\\Reference: Brigham and Houston, Fundamentals of Financial Management, 8th edition, Ch. 9, pp. 360-362. "&&&&Class@SS11.1&1&&&0&1&N&0&N.N.N.N
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CFA120.079&mcs&0&N&The managers of a company are reviewing a project that will cost $12 million. The cash flows from the project will be $5 million at the end of the first year and $10 million at the end of the second year. Thereafter the company may not have similar projects available to invest in. The cost of capital is 10%. The managers should&accept the project since the net present value is positive.&reject the project since the net present value is negative.;accept the project since the internal rate of return is above the cost of capital. ;reject the project since the internal rate of return is below the cost of capital.;&"LOS: Study Session 11-1-C-bIn this example we cannot apply the IRR method since the question indicates that cash flows will not be able to be reinvested in similar projects with the same IRR. The NPV method gives \\\mock1-076.png\\\or use a financial calculator.This is positive so the project should be accepted.Reference: Brigham and Houston, Fundamentals of Financial Management, 8th edition, Ch. 10, pp. 405-407. "&&&&Class@SS11.2&1&&&0&1&N&0&N.N.N.N
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CFA120.080&mcs&0&N&As a company increases its financial leverage then:&expected earnings per share will be the same regardless of whether debt or equity financing is used.&expected earnings per share will increase since debt is cheaper than equity.;expected earnings per share will decrease as the company's risk has increased.;expected earnings per share will be the same regardless of whether debt or equity financing is used.;&"LOS: Study Session 11-1-F-hAs the financial leverage increases then the risk to both debt holders and equity investors will increase. This will mean that the interest rate that the company needs to pay on its debt will rise and the required rate of return of equity investors will also increase. Initially increasing the financial leverage will increase the expected earnings per share but at some point the cost of capital will increase so that earnings per share start to decline.Reference: Brigham and Houston, Fundamentals of Financial Management, 8th edition, Ch. 13, pp. 504-508. "&&&&Class@SS11.0&1&&&0&1&N&0&N.N.N.N
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CFA120.081&mcs&0&N&The investor policy statement: &outlines an investor's objectives and constraints.&is only relevant to individual investors.;specifies the minimum return that is guaranteed to the investor.;outlines the investment manager's philosophy and decision-making process.;&"LOS: Study Session 12-1-B-bA policy statement helps the investor specify realistic goals and in setting the goals become more aware of the risks of investing. It is a valuable way of communicating with the portfolio manager. It also helps set the benchmark against which performance can be measured.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 2, pp. 40-42."&&&&Class@SS12.1&1&&&0&1&N&0&N.N.N.N
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CFA120.082&mcs&0&N&Which of the following factors would be likely to push up the nominal risk-free rate? &A rapidly growing economy.&A fall in the cost of funds.;An increase in the supply of capital.;A fall in the expected level of inflation.;&"LOS: Study Session 12-1-A-bA rapidly growing economy will increase demand for capital and provide opportunities for investors to earn a high rate of return, which will push up required rates of return by the suppliers of capital.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 1, pp. 16-19."&&&&Class@SS12.2&1&&&0&1&N&0&N.N.N.N
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CFA120.083&mcs&0&N&Which of the following is NOT an assumption of capital market theory?&Investors are influenced by both rational and irrational factors.&Investors have the same time horizon. ;Investors can borrow at the risk-free rate of return. ;Investors wish to maximize the risk/return utility of their investments. ;&"LOS: Study Session 12-1-D-aCapital market theory assumes investors are rational and select portfolios on the efficient frontier. Behavioral finance and technical analysis have moved on from traditional capital market theory and say that investors are influenced by rational and irrational factors. Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 8, pp. 238-240."&&&&Class@SS12.0&1&&&0&1&N&0&N.N.N.N
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CFA120.084&mcs&0&N&Which of the following statements is CORRECT?&Betas are always greater than or equal to 1.&The beta of the market is 0.;Beta is a measure of unsystematic risk.;Betas are always greater than or equal to 1.;&"LOS: Study Session 12-1-D-gA is not correct; the beta of the market is 1. B is not correct; beta is a measure of market risk. C is not correct, betas can be negative. Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 8, pp. 246-250."&&&&Class@SS12.1&1&&&0&1&N&0&N.N.N.N
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CFA120.085&mcs&0&N&Investors in the consolidation phase of their life cycle will generally:&have a long time horizon and are looking to hold moderate risk investments. &have small net worth so they are looking for low risk investments.;have reached the end of their working life and the focus is on preservation of capital. ;earn less than they are spending so they will adopt a very conservative investment policy. ;&"LOS: Study Session 12-1-B-dIn the consolidation phase individuals are typically in the second part of their working life, have few debts and earnings exceed expenses. They still have a long time horizon (20 years plus) and can take on moderate risk. Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 2, pp. 37-38."&&&&Class@SS12.2&1&&&0&1&N&0&N.N.N.N
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CFA120.086&mcs&0&N&"A portfolio has 70% invested in asset A and 30% in asset B, the assets have standard deviations of 3% and 5% respectively. The correlation between the two assets is 0.8. The standard deviation of the combined portfolio is closest to:"&3.42%.&2.51%.;11.70%.;19.10%.;&"LOS: Study Session 12-1-C-f\\\mock1-114.png\\\Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 8, p. 241."&&&&Class@SS12.0&1&&&0&1&N&0&N.N.N.N
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CFA120.087&mcs&0&N&The optimal portfolio for an investor is represented by:I. The market portfolio.II. The point where the securities market line is tangent to the efficient frontier.III. The point where his/her highest utility curve is tangent to the efficient frontier.IV. The point on the efficient frontier that represents the best risk-return trade-off for the investor.&I and III only.&I only.;II only.;I and III only.;&"LOS: Study Session 12-1-C-hThe utility curves represent the trade off between risk and return; the optimal portfolio will be where the highest utility curve touches the efficient frontier.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 7, pp. 229-230."&&&&Class@SS12.1&1&&&0&1&N&0&N.N.N.N
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CFA120.088&mcs&0&N&In capital markets theory unsystematic risk is:&II. unique risk.&I. total risk.;III. market risk.;IV. undiversifiable risk.;&"LOS: Study Session 12-1-D-dI. includes systematic and unsystematic risk and III. and IV. refer to systematic risk. Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 8, pp. 243-247."&&&&Class@SS12.2&1&&&0&1&N&0&N.N.N.N
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CFA120.089&mcs&0&N&A U.S. investor is considering international diversification. Which of the following statements is CORRECT?&Higher returns can be achieved for the same level of risk as investing solely in the U.S. market.&Higher returns may compensate for the additional risk of purchasing overseas securities. ;Markets which have a higher correlation with U.S. market returns will generally generate higher returns.;Investing in markets with low correlations to the U.S. market return will be most effective in increasing returns.;&"LOS: Study Session 12-1-C-fA U.S. investor, by investing in markets which provide returns which have a low correlation with the U.S. market returns, can usually achieve higher returns for the same level of risk. Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 7, pp. 219-224."&&&&Class@SS12.0&1&&&0&1&N&0&N.N.N.N
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CFA120.090&mcs&0&N&"The stock analyst in your firm has completed his forecasts for Kensington Corp. and Paddington Inc. The current share prices are $85 and $56 respectively, and he forecasts that a year from now the share prices will have risen to $102 and $60 respectively, each stock will make a dividend payment of $2 at the end of the year. The betas of the stock are 1.5 and 0.9, the expected market return over the next year is 15% and the risk free rate is 6%. On the basis of the analyst's forecast: "&Kensington Corp. is undervalued and Paddington Inc. is overvalued.&Kensington Corp. and Paddington Inc. are both overvalued.;Kensington Corp. and Paddington Inc. are both undervalued.;Kensington Corp. is overvalued and Paddington Inc. is undervalued.;&"LOS: Study Session 12-1-D-hUsing CAPM the estimated return for Kensington Corp. is 6% + 1.5 (15% - 6%) = 19.5%. The analyst is forecasting a return of 22.4% (from capital gain plus dividend) so the stock looks undervalued.The estimated return for Paddington Inc. is 6% + 0.9 (15% - 6%) = 14.1%. The analyst is forecasting a return of 10.7% so the stock looks overvalued.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 8, pp. 247-252."&&&&Class@SS12.1&1&&&0&1&N&0&N.N.N.N
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CFA120.091&mcs&0&N&"If the standard deviations of the returns of two assets are 1.5% and 6.0%, and the covariance between the two assets is 5.2, then the correlation coefficient between the returns is closest to:"&0.58.&0.06.;0.47.;1.73.;&"LOS: Study Session 12-1-C-e\\\mock1-119.png\\\Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 7, pp. 217-218."&&&&Class@SS12.2&1&&&0&1&N&0&N.N.N.N
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CFA120.092&mcs&0&N&Which of the following is NOT a limitation of the Capital Asset Pricing Model? &Empirically there is no evidence that betas are linked to stock returns.&It considers only systematic risk.;Estimates of betas are not always accurate.;It assumes portfolios are sufficiently well diversified to eliminate unsystematic risk.;&"LOS: Study Session 12-1-D-eThere is some evidence that stock returns are linked to their beta.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th Edition Ch. 8, pp. 247-252."&&&&Class@SS12.0&1&&&0&1&N&0&N.N.N.N
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CFA120.093&mcs&0&N&An index is constructed using the unweighted geometric mean of the holding period returns of the constituents of the index. This means that:&an investor with equal dollar amounts invested in each stock in the index will outperform the index in a rising market. &price movements of a stock with a high price will be more important than movements of a stock with a low price.;an investor with equal dollar amounts invested in each stock in the index will see the value of the shares move exactly in line with the index.;price movements of a stock with a large market capitalization will be more important than movements of a stock with a small market capitalization.;&"LOS: Study Session 13-1-B-aThe geometric mean will be less than the arithmetic mean (or equal if each share moves by an identical amount in each time period) in a rising market.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 5, pp. 155-156. "&&&&Class@SS13.1&1&&&0&1&N&0&N.N.N.N
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CFA120.094&mcs&0&N&The U.S. over-the-counter market is a market for which of the following shares? I. Shares which are listed on an exchange. II. Shares which are not listed on an exchange.III. Shares that are quoted on the NASDAQ National Market System.&II and III only.&II only.;III only.;II and III only.;&"LOS: Study Session 13-1-A-fThe OTC market includes the trading of all shares that are not listed on an exchange and also includes the third market, which is trading of listed shares outside an exchange. It includes shares traded on the NASDAQ National Market System (NMS), on the NASDAQ system outside NMS and outside NASDAQ.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 4, pp. 120-122. "&&&&Class@SS13.2&1&&&0&1&N&0&N.N.N.N
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CFA120.095&mcs&0&N&"On a U.S. exchange, specialists are: "&III. employees of a stock exchange who are responsible for stabilizing stock prices. &I. employees of a stock exchange who act as brokers to other members.;II. employees of a member firm who buy and sell shares for the firm's clients.;III. employees of a stock exchange who are responsible for stabilizing stock prices. ;&"LOS: Study Session 13-1-A-gII. refers to commission brokers.I. and III. are not correct since they are members rather than employees of a stock exchange.Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition, Ch. 4, pp. 131-132. "&&&&Class@SS13.0&1&&&0&1&N&0&N.N.N.N
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CFA120.096&mcs&0&N&Which of the following statements is CORRECT regarding the earnings number used in the price to earnings measure? &It is important to use an earnings number that includes both recurring and nonrecurring earnings.&Earnings are one of the most stable accounting numbers over time.;Earnings are less subject to manipulation than other financial accounting numbers.;It is important to use an earnings number that includes both recurring and nonrecurring earnings.;&"LOS: Study Session 14-4-aCumulative numbers such as book values tend to be the most stable. Cash flows are generally regarded as least subject to manipulation.Nonrecurring earnings should not be included since they do not reflect the underlying earnings of the company. Reference: John D. Stowe, Thomas R. Robinson, Jerald E. Pinto, and Dennis W. McLeavey (AIMR, 2003), ""Introduction to Price Multiples,"" pp. 7-14. "&&&&Class@SS14.1&1&&&0&1&N&0&N.N.N.N
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CFA120.097&mcs&0&N&"A company has a dividend retention ratio of 60%, dividends are expected to grow by 3% per annum and the investors' required rate of return is 8%. The theoretical price earnings ratio is: "&8.0.&5.0.;12.0.;12.5.;&"LOS: Study Session 14-1-AP/E = D/[E(k - g)] = 0.4/(0.08 - 0.03) = 8.0Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 11, pp. 388-391."&&&&Class@SS14.2&1&&&0&1&N&0&N.N.N.N
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CFA120.098&mcs&0&N&The Herfindahl index measures: &industry concentration. &profitability of an industry.;market share of the industry leader. ;number of companies in an industry.;&"LOS: Study Session 14-2-dThe Herfindahl index measures the industry concentration, it is the sum of the squares of the market shares of all the firms in the industry. Reference: International Investments, Solnik and McLeavey, 5th edition, Ch. 6, pp. 265-266."&&&&Class@SS14.0&1&&&0&1&N&0&N.N.N.N
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CFA120.099&mcs&0&N&Which stage of the industry life cycle is characterized by the following? 'Sales growth is not accelerating but is higher than the growth rate of the economy; profitability is stabilizing as competitors enter the industry'.&Mature growth. &Decline.;Market maturity.;Rapid accelerating growth.;&"LOS: Study Session 14-2-cMature growth is the third stage in the industry life cycle. Sales growth rates are slowing but are still higher than GDP growth and competition has intensified putting pressure on margins. Reference: International Investments, Solnik and McLeavey, 5th edition, Ch. 6, pp. 264-265."&&&&Class@SS14.1&1&&&0&1&N&0&N.N.N.N
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CFA120.100&mcs&0&N&"An analyst forecasts that a company will pay a dividend of $3.50 for the next three years and dividends will grow at 4% thereafter. If investors' required rate of return is 8%, the value of the company is closest to: "&$67.88.&$64.19.;$66.40.;$67.88.;&"LOS: Study Session 14-1-A-eDiscount back the first three years dividends at 8% to get $3.24, $3.00 and $2.78.Thereafter apply the DDM to give value of the shares at the end of the third year as 3.50(1.04)/(0.08 - 0.04) = $91 which discounts back to $72.24.The value of the company = $3.24 + $3.00 + $2.78 + $72.24 = $81.26Reference: Reilly and Brown, Investment Analysis and Portfolio Management, 7th edition Ch. 11, pp. 382-384."&&&&Class@SS14.2&1&&&0&1&N&0&N.N.N.N
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CFA120.101&mcs&0&N&The implication of liquidity preference theory is that:&the yield curve tends to be upward sloping reflecting investors' preference for shorter-term maturities.&an on-the-run issue tends to have a lower yield than an off-the-run bond issue. ;the yield curve tends to be downward sloping when investors expect the inflation rate to decline.;the yield curve tends to be upward sloping when pension funds actively increase the duration of their portfolios.;&"LOS: Study Session 15-1-D-cThe liquidity preference theory asserts that investors require compensation for holding long-term bonds.Therefore the yields for longer-term bonds should be progressively higher as their maturities lengthen.""Liquidity"" here refers to interest rate risk, the more the interest rate risk, the less the liquidity. Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 4, pp. 100-102."&&&&Class@SS15.0&1&&&0&1&N&0&N.N.N.N
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CFA120.102&mcs&0&N&"The following are all factors that affect the yield spread of a bond, EXCEPT:"&the principal amount of the bond.&the expected liquidity of the issue.;the government's monetary policy.;the issuer's industry (cyclical or non-cyclical).;&"LOS: Study Session 15-1-D-hUnless there is a change in the ability of the issuer to redeem the bonds at maturity, the principal amount does not affect the yield spread. Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 4, pp. 105-104."&&&&Class@SS15.1&1&&&0&1&N&0&N.N.N.N
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CFA120.103&mcs&0&N&If an investor's marginal tax rate is 30% and a tax-exempt bond yield is 8% then the tax-equivalent yield for the investor is closest to:&11.4%.&5.6%. ;8.0%.;26.7%.;&"LOS: Study Session 15-1-D-ltax-equivalent yield = tax-exempt yield/(1 - marginal tax rate) = 8%/0.7 = 11.4%Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 4, pp. 108-109."&&&&Class@SS15.2&1&&&0&1&N&0&N.N.N.N
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CFA120.104&mcs&0&N&If a bond is non-refundable it means that:&the bond cannot be redeemed prior to maturity unless the issuer can issue new debt at a lower yield.&the bond cannot be redeemed prior to its maturity date.;the bond cannot be exchanged with another bond of similar credit rating.;the bond cannot be redeemed prior to maturity unless the issuer can issue new debt at a lower yield.;&"LOS: Study Session 15-1-A-fA refunding protection clause prevents redemption from certain sources, and in particular from the proceeds of other debt issues sold at a lower funding cost.Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 1, pp. 11-14."&&&&Class@SS15.0&1&&&0&1&N&0&N.N.N.N
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CFA120.105&mcs&0&N&As yields increase the rate of decline in the price of a bond starts to slow it is likely that the bond&contains an embedded put option.&carries a bank guarantee.;carries a sovereign guarantee.;contains an embedded call option.;&"LOS: Study Session 16-1-C-eAs rates rise, the price of bonds decline but the price decline of bonds with embedded put options will be less than that of option-free bonds. Investors will be looking to exercise their put options so the price will stabilize close to the put price.Guarantees do not affect the price behavior of bonds in this manner.Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 7, pp. 227-228."&&&&Class@SS16.1&1&&&0&1&N&0&N.N.N.N
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CFA120.106&mcs&0&N&"As interest rates decline to below the coupon rate on a bond with an embedded call option, the bond is likely to exhibit:"&negative convexity.&negative duration.;positive convexity. ;price decompression.;&"LOS: Study Session 16-1-C-dAs yields decline the rate of price appreciation slows for a callable bond as the risk of the bond being called increases, this leads to negative convexity.Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 7, pp. 224-227."&&&&Class@SS16.2&1&&&0&1&N&0&N.N.N.N
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CFA120.107&mcs&0&N&The following data has been gathered Years to Spot rate maturity (BEY) 1 8.54% 1.5 7.82% 2 7.50% 2.5 6.85% 3 6.07% 3.5 5.78% 4 5.56%The 6-month forward rate two and half years from now is closest to:&2.22%.&0%.;3.13%.;6.25%.;&"LOS: Study Session 16-1-B-mThis is a negatively sloping spot-yield curve, so it is to be expected that the forward rate would be lower.The six-month forward rate two and half year from now = 2 x 1.11% = 2.22%Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 6, pp. 190-193."&&&&Class@SS16.0&1&&&0&1&N&0&N.N.N.N
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CFA120.108&mcs&0&N&"A straight bond without any call features has a remaining life of three years, has a 12% coupon rate payable annually, and has a yield to maturity of 10.5%. If the one- and three-year spot rates are 8.0% and 10.7%, respectively, then the two-year spot rate is closest to:"&9.4%.&9.0%.;10.5%.;10.7%.;&"LOS: Study Session 16-1-B-gThe following relationship must hold:Price using yield-to-maturity calculation = price of bond using spot rates\\\mock1-103.png\\\Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 6, pp. 178-183."&&&&Class@SS16.1&1&&&0&1&N&0&N.N.N.N
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CFA120.109&mcs&0&N&The following data has been gathered6-month spot rate 8.54%6-month forward rate 6 months from now 7.25%6-month forward rate 1 year from now 6.95%The 1.5-year spot rate is closest to:&7.58%.&3.79%.;6.95%.;8.54%.;&"LOS: Study Session 16-1-B-m\\\mock1-104.png\\\The 1.5 year spot rate is therefore closest to: 2 x 3.79% = 7.58%Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 6, pp. 193-194."&&&&Class@SS16.2&1&&&0&1&N&0&N.N.N.N
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CFA120.110&mcs&0&N&"A bond is traded at par and yields 9.5% to maturity. The term to maturity is 20 years, the modified duration is 8.8 and the convexity is 62. If the yield to maturity rises by 150 basis points the bond price will be closest to:"&88.2.&85.4.;86.8.;114.6.;&"LOS: Study Session 16-1-C-g\\\mock1-105.png\\\Trading at par, the price of the bond is 100.The combined effect of both duration and convexity: 100 - 13.20 + 1.395 = 88.195Reference: Fabozzi, Fixed Income Analysis for the Chartered Financial Analyst(r) Program, 2nd edition, Ch. 7, pp. 228-231 and 239-240."&&&&Class@SS16.0&1&&&0&1&N&0&N.N.N.N
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CFA120.111&mcs&0&N&"A call option on a stock has a strike price of $30.00, the stock is trading at $34.00 and the price of the call option is $5.00. The option is:"&$4.00 in-the-money.&$1.00 out-of-the-money. ;$4.00 out-of-the-money. ;$9.00 out-of-the-money.;&"LOS: Study Session 17-1-D-bThe call option is in-the-money since the strike price is below the stock price, and the difference between the two prices is $4.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 5, pp. 164."&&&&Class@SS17.1&1&&&0&1&N&0&N.N.N.N
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CFA120.112&mcs&0&N&Which of the following combination of factors will tend to lead to the highest price of a call option?&"A low strike price, high volatility and a long time to expiry.&A low strike price, low volatility and low interest rates.;A high strike price, low volatility and a short time to expiry.;A low strike price, high interest rates and a short time to expiry.";&"LOS: Study Session 17-1-D-k, l and pThe profit on a call option will be determined by the difference between the stock price and the strike price, the lower the strike price the higher the potential profit. A longer time to expiry gives the holder a longer period in which the shares can move above the strike price so the option will be worth more. High volatility and high interest rates also increase the value of call options.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 7, pp. 418-425."&&&&Class@SS17.2&1&&&0&1&N&0&N.N.N.N
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CFA120.113&mcs&0&N&A palm oil plantation owner wishes to protect himself against a fall in the price of palm oil. To do this he could:&I. sell forward contracts for palm oil.&II. buy forward contracts for palm oil. ;III. sell call options giving the right to buy palm oil.;IV. buy call options giving the right to buy palm oil.;&"LOS: Study Session 17-1-B-aII. is not correct since buying more palm oil will increase the loss if the palm oil price falls.III. is correct to the extent that if the price falls he will keep the premiums, but the returns will not be dependant on the size of the fall in the palm oil price.IV. is not correct, he is concerned about a price fall and a call option will only have value if the price rises.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 2, p. 32."&&&&Class@SS17.0&1&&&0&1&N&0&N.N.N.N
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CFA120.114&mcs&0&N&"A firm enters into a plain vanilla interest rate swap agreement to receive a fixed rate of 6%, and pay 1 year LIBOR. Semi-annual payments will be made in arrears. The swap covers a ten year period and is based on a notional principal of $100 million. The 1 year LIBOR rate at the time of agreement is 6.5%, at the end of six months is 7%, and at the end of the first year is 7.5%. The net payment that the firm receiving the fixed-rate payments receives/pays at the end of the first year is closest to: "&pays $0.50 million.&pays $0.75 million.;receives $0.75 million.;receives $0.50 million.;&"LOS: Study Session 17-1-E-fThe payment is $100 million x (7% - 6%)(180/360) = $0.5 million.If a 365 day year had been used, the closest answer remains $0.5 million.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 5, pp. 278-285."&&&&Class@SS17.1&1&&&0&1&N&0&N.N.N.N
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CFA120.115&mcs&0&N&"An investor deposits an initial margin of $100,000 for a futures trade and the first day he loses $5,000 on the trade, the next day he loses a further $20,000. If the maintenance margin is $80,000 then:"&"he will receive a margin call on the second day to pay a variation margin of $25,000.&there is no requirement on either day to pay a variation margin.;he will receive a margin call on the second day to pay a variation margin of $5,000.;he will receive margin calls on the first day to pay a variation margin of $5,000 and on the second day to pay a variation margin of $20,000.";&"LOS: Study Session 17-1-C-fA variation margin must be paid if the investor's equity falls to below the maintenance margin requirement and he must bring the equity in his account back to the initial level. In this case the equity falls to below $80,000 on the second day so he must make up the difference of $25,000 in variation margin.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 4, pp. 86-90."&&&&Class@SS17.2&1&&&0&1&N&0&N.N.N.N
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CFA120.116&mcs&0&N&"A trader writes a European put option on a stock, the stock's current price is $75, the option premium is $6 and the exercise price is $74. At the expiration of the option the stock price is $65. The profit/loss of the option writer is: "&loss of $3.&loss of $9.;profit of $3.;profit of $9.;&"LOS: Study Session 17-1-D-fThe writer has received the premium of $6, but the loss when the option is exercised is $9 ($74 minus $65) giving an overall loss of $3.Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 4, pp. 176-178."&&&&Class@SS17.0&1&&&0&1&N&0&N.N.N.N
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CFA120.117&mcs&0&N&The clearinghouse of a futures exchange does all of the following EXCEPT: &makes margin calls to members holding futures positions.&accepts margin deposits from members.;acts as counterparty to each transaction on the exchange.;makes margin calls to members holding futures positions.;&"LOS: Study Session 17-1-A-dThe clearinghouse does not intentionally take positions in futures or act as market maker. Reference: Chance, Analysis of Derivatives for the CFA(r) Program, (AIMR, 2003), Ch. 1, pp. 4-5."&&&&Class@SS17.1&1&&&0&1&N&0&N.N.N.N
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CFA120.118&mcs&0&N&The price paid to purchase shares in an open-end investment company is usually: &the net asset value of the shares less the sales charge.&a discount to the net asset value of the shares.;a premium to the net asset value of the shares.;the net asset value of the shares less the sales charge.;&"LOS: Study Session 18-1-aAn open-end fund trades at the net asset value per share, plus buyers pay a front-end load or sales charge on purchases and/or a redemption fee on sale. A closed-end fund trades at a discount or premium to net asset value.Reference: Solnik and McLeavey, International Investments, 5th edition Ch. 8, pp. 374-377."&&&&Class@SS18.2&1&&&0&1&N&0&N.N.N.N
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CFA120.119&mcs&0&N&A Mortgage Real Estate Investment Trust (REIT) is characterized by all of the following EXCEPT:&it holds a diversified portfolio of real estate investments.&it is a comparable investment to a bond.;the property portfolio is managed by professionals. ;it holds a diversified portfolio of real estate investments.;&"LOS: Study Session 18-1-gKeep in mind that REITs are closed end investment companies that are traded on stock exchanges.Reference: Solnik and McLeavey, International Investments, 5th edition, Ch. 8, p. 388."&&&&Class@SS18.0&1&&&0&1&N&0&N.N.N.N
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CFA120.120&mcs&0&N&"The annual net operating income from a property is $75,000 and the owner makes mortgage payments of $23,000 per annum. If the value of the property is estimated to be $900,000 then the market capitalization rate is closest to:"& 8.33%.& 5.78%.;12.00%.;17.31%.;&"LOS: Study Session 18-1-kMarket value = net operating income/market capitalization rate Market capitalization rate = $75,000/$900,000 = 8.33%The mortgage payments are not deducted from the operating income.Reference: Solnik and McLeavey, International Investments, 5th edition Ch. 8, pp. 391-392."&&&&Class@SS18.1&1&&&0&1&N&0&N.N.N.N
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