Академический Документы
Профессиональный Документы
Культура Документы
com
MOCK EXAM 1
LEVEL I CFA
Copyright 2012 soleadea.com
www.soleadea.com
Contents
Questions 1 through 18 relate to Ethical and Professional Standards ................................................... 2
Questions 19 through 32 relate to Quantitative Methods ..................................................................... 8
Questions 33 through 44 relate to Economics ...................................................................................... 11
Questions 45 through 68 relate to Financial Statement Analysis ......................................................... 14
Questions 69 through 78 relate to Corporate Finance ......................................................................... 19
Questions 79 through 90 relate to Equity Investments ........................................................................ 22
Questions 91 through 96 relate to Derivative Investments .................................................................. 25
Questions 97 through 108 relate to Fixed Income Investments ........................................................... 27
Questions 109 through 114 relate to Alternative Investments ............................................................ 30
Questions 115 through 120 relate to Portfolio Management .............................................................. 31
CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products
or services offered by Soleadea.
CFA Institute, CFA, and Chartered Financial Analyst are trademarks owned by CFA
Institute.
The exam lasts for 180 minutes. There is always one correct answer for each question. You may score
1 point for every correct answer. If your answer is incorrect or you omit a question, you receive
0 points.
1. George, a CFA candidate, works in the City. At a firm luncheon he meets Raoul, one of his
colleagues from his previous work and a CFA charterholder. Raoul asks George whether he
heard that Cloud Airlines are about to declare its insolvency next week. According to the
Code and Standards, George:
a. must wait till the next week before he uses the information.
b. must not use the information as he has no reasonable basis to use it.
c. is permitted to use the information but only for the benefit of his clients and not his
own.
2. JJ & Brothers is a family business run by brothers holding the CFA designation. Erik, one of
the brothers working on a high managerial position, tells Samantha Fey, the employee of JJ
& Brothers and a CFA candidate, to carry out one of some major transactions the old way.
If Samantha does as she is told, she will disregard the current change in law that has just
been introduced. When she said that to Erik, he replied that she will most certainly find the
way, and besides its been just a couple of days since the new regulation is in force and not
everybody knows it should apply. She decides to consult Johannes, the senior brother,
about the matter. Johannes tells Samantha, to her greatest disappointment, that Erik is the
one to decide about all this. What should Samantha do in this situation?
a. Samantha should dissociate from the activity and even consider handing in her
resignation in order to comply with Standard I (A).
b. Samantha should carry out the transaction the way her employer wants her to, but
she should keep it secret so as not to violate Standard I (A).
c. Samantha should act the way her employer wants her to because if she does not
she will violate Standard IV (A) by not being loyal to her supervisor.
3. Lee Burgman, CFA, is an investment adviser. During the first meeting with her client, Lee
thoroughly interviewed him and gathered all the necessary information, including his
profile, investment objectives, constrains and benchmarks. The IPS was accepted by the
client and no amendments were introduced to the IPS for three months. Investment
advisers in the firm where Burgman works are obliged to update the IPS for their clients on
a semi-annual basis. After three months from the first meeting, the client came to Burgman
dissatisfied with her services because he lost some money on one of the investment Lee
advised to him. He also said that he lost his job two weeks ago and accused Lee of
unsuitability of her actions. In this situation, which of the following statements is the most
appropriate under Standard III (C)?
a. Lee violated the Standard because she failed to determine the suitability of the
investment.
b. Lee did not violate the Standard because she performed all her duties to the client
thoroughly.
c. Lee violated the Standard because she should have updated the clients IPS before
taking any investment actions.
5. Which of the following statements most likely holds under the Code and Standards?
a. Members and Candidates must never accept gifts or gratuities from their clients.
b. Members and Candidates may accept gifts or gratuities from their clients up to a
certain limit established by the firm.
c. Members and Candidates must never accept gifts from their clients but they may
accept gratuities unless they exceed a certain limit established by the firm.
6. Naomie Kowalsky, CFA, was hired as an equity analyst in a corporate finance department of
an investment services firm for three years. Last month, there were dismissals in the firm
and she lost her job. She had worked on the project on TrackMontains, Inc. In this situation,
Standard I (C) will be breached if:
a. other employees of the department use the project on TrackMontains, Inc.
b. Naomie issues the project under her name to use it when applying for a new job.
c. employees of the department use Naomies project for further research without
giving her name.
7. Kayah is a Level I candidate in the CFA Program. To prepare herself well for the exam she
registered to Soleadea. Yesterday she sat for the exam. After the exam she logged in to the
portal and wrote a post: Hello everyone. I closed the door of the exam room about two
hours ago and ever since I just cant stop being satisfied with myself. I must say that I was
well prepared for the exam and I feel I did a good job. The exam wasnt as tough as I
expected it to be, though I was surprised that they care so much about Standard VII. I
thought there would be fewer questions on this. I hope everyone is at least as happy as I
am. All the best to you all and see you soon in Soleadea Level II preparation workspace.
Which statement is the most adequate according to the Standards?
a. Kayah violated Standard VII (A) by breaking the Candidate Pledge.
b. Kayah did not violate Standard VII (A) because her intent was just to share her
opinion with other Soleadians.
c. Kayah did not violate Standard VII (A) because she did not disclose any material
information or specific details about the exam.
9. The management of Tyres & Trunks, Plc. hired an analyst to provide a recommendation for
the firm. The analyst works at a local brokerage and is a CFA charterholder. He is asked to
participate in an automotive event organized by Tyres & Trunks, Plc. The company arranges
accommodation and covers the costs of travel. What is the best course of action for the
analyst to follow?
a. He should not participate in the event because it will compromise his
independence and objectivity.
b. He should take part in the event but he should pay for his travel and
accommodation by his own in order to avoid a potential conflict of interest.
c. He should take part in the event and accept the arranged accommodation because
otherwise he will not be able to fulfill his duties to the client prudently.
10. Ingrid Thoe, CFA, in an experienced manager of a hedge fund. A new high-net-worth client
wants to invest in the fund. Thoe has noticed that Ernesto, the manager responsible for the
new clients assets, acts to the detriment of other clients. Ingrid wishes to consult with her
supervisor. Thoes supervisor reassures her that everything is under control and that
theres nothing to be worried about. Thoe is not satisfied, however, with the conversation.
In order to remain in compliance with the Standards, it would be best if Thoe:
a. communicated her concerns to the compliance officer at the firm.
b. remained her loyalty to the supervisor and follow his instructions concerning the
hedge fund regardless of her mixed feelings.
c. reported the potential unethical activity to the appropriate regulator immediately
after the conversation with her supervisor.
11. Which of the following statements is the most appropriate according to Standard
II (A)?
a. Trading on inside information is permissible only in the short run.
b. If information is disclosed to a wide group of analysts during firm meetings it is
made public.
c. Even if an investment research report is considered material it does not have to be
made public before it is used.
13. Management boards of animGuard and Protect Environment had a verbal agreement
concerning the acquisition of animGuard by Protect Environment. It turned out, however,
that annual reports of animGuard were not as good as the managing directors of Protect
Environment had expected. In this case, the acquisition was withheld. Meg Torres, one of
the managing directors at animGuard and a CFA charterholder, let the journalist speculate
about the acquisition during a phone conversation she had after the decision was made.
She was hoping that the speculations will strengthen the position of the animGuards
stock, which will in consequence draw Protect Environment managements attention to
animGuard once again and help finalize the intended acquisition. In this situation Meg
Torres most likely:
a. violated Standard II (B) by letting the journalist speculate.
b. violated Standard II (B) by undermining the integrity of the market.
c. did not violate Standard II (B) because she did not spread any misleading
information.
14. Dominique Beautier, CFA, works in an investment banking firm and is responsible for
conducting derivative transactions. One of his clients, the CEO of Prosperity, Inc., has many
long call options on the shares of CVAC, Inc. left in his portfolio and the maturity date is
drawing near. The CEO of Prosperity, Inc. happens to be a good friend of Dominiques
supervisor and Dominique is asked to somehow attract other clients so that they bought
the options before their maturity is due. Beautier decides to carry out a number of
transactions between the accounts of those of his clients who already possess the CVAC
shares. Which of the following statements is the most adequate according to the Standards?
a. Beautier breached Standard II (B) by carrying out deceitful transactions.
b. Beautier did not breach any of the Standards because he fulfilled his duty by taking
care of his clients interests, which is a top priority in the profession.
c. Beautier remained in compliance with Standard III (C) as he carried out the
transactions only between the accounts of the clients who already possessed the
CVAC shares.
16. According to Standard III (B), fair dealing in disseminating investment recommendations
and taking investment actions means that:
a. clients should always be provided with the same investment service.
b. clients should always be informed about new recommendations and offerings at
exactly the same time.
c. clients should never be deprived of objective treatment in relation to their
investment objectives and circumstances.
17. Eleonora Abramovi, an independent research analyst and a CFA candidate, sought
prospective clients. Her first action was to obtain from a prospective client an e-mail
consent to receiving her offering. She also sent a form on client objectives that the
interested individuals were to fill in and send back to Eleonora so that she was able to
prepare an individualized offering for the prospective client. Some of the individuals filled
in the form and send it back. Theo Czech, a hedge fund manager and a friend of Eleonora,
asked her to let him see her e-mail correspondence with the prospective clients that send
her the filled-in form. In order to remain in compliance with Standard III (E), Eleonora
should:
a. not allow Theo to see the e-mail correspondence with her prospective clients by
any means.
b. allow Theo to see the e-mail correspondence but only if the prospective client
consents to the disclosure.
c. allow Theo to see the e-mail correspondence but only if he promises that he will
not use the information in any way.
19. According to Chebyshevs inequality, what percentage of observations lies within two-
standard-deviation interval around the mean?
a. No less than 75 percent
b. No less than 89 percent
c. No more than 75 percent
20. What is the appropriate test statistic concerning a single mean, if population variance is
unknown, the sample is small, and population is approximately normally distributed?
a. t-Test
b. Chi-square test
c. z-Test alternative
21. An investor wants to deposit $435 000 in a bank account. The bank pays a stated annual
rate of 15 percent. What is the effective annual rate using continuous compounding?
a. 15.00 percent
b. 16.08 percent
c. 16.18 percent
22. Which of the following statements is the most accurate for a positively skewed distribution?
a. Mode is bigger than mean.
b. Mean is bigger than median.
c. Median is bigger than mode.
24. An analyst stated that decreasing a sample size will increase the width of a confidence
interval and decrease the standard error. The analysts statement is incorrect with respect
to:
a. both the standard error and the confidence interval.
b. the confidence interval, but correct with respect to the standard error.
c. the standard error, but correct with respect to the confidence interval.
a. 12.5 percent
b. 14.2 percent
c. 16.2 percent
27. Regarding normal distribution, which of the statements given below is the least accurate?
a. Excess kurtosis of normal distribution is equal to zero.
b. Normal distribution contrary to lognormal distribution is positively skewed.
c. A linear combination of three normal random variables is normally distributed.
28. An analyst describing the binomial distribution assumptions stated that the probability of
success is constant for all trials, and that trials are independent. The analysts statement is
correct with respect to:
a. both the constant probability of success and independent trials.
b. neither the constant probability of success nor independent trials.
c. the constant probability of success but not with respect to independent trials.
29. An analyst stated that the geometric mean is good for reporting past returns on a portfolio,
and that the arithmetic mean is good for calculating the average return on a portfolio over
one period horizon. The analysts statement is correct with respect to:
a. both.
b. the arithmetic mean return, but incorrect with respect to the geometric mean
return.
c. the geometric mean return, but incorrect with respect to the arithmetic mean
return.
31. Regarding covariance and correlation, an analyst stated that covariance between random
variable A and random variable B has the same value that covariance between random
variable B and random variable A, and that correlation is a measure of the linear
relationship between two random variables. The analysts statement is correct with regard
to:
a. both covariance and correlation.
b. neither covariance nor correlation.
c. covariance, but incorrect with regard to correlation.
32. An analyst estimates that Precious Bank quarterly revenues will come in between 150
million and 270 million US dollars. Every outcome from this range is equally probable. What
is the probability that revenues are going to be greater than 200 million dollars?
a. 42 percent
b. 50 percent
c. 58 percent
Where:
demand
price A
income
price B
Holding all other things constant, increases by 1. Which of the following statements is
the least accurate?
34. The nominal GDP is equal to $55,240,000 and the real GDP is equal to $52,040,000. The GDP
deflator is closest to:
a. 94
b. 100
c. 106
36. Which of the following statements regarding market structures is the least accurate?
a. Under imperfect competition, total revenue is a linear function of quantity.
b. Under imperfect competition, the marginal revenue line is below the price line.
c. Under imperfect competition, the marginal revenue line is below the average
revenue line.
Exchange rate
USD/EUR 1.3250
CHF/EUR 1.2090
The amount of Swiss Franc (CHF) that an investor will receive for $120,000 is closest to:
a. CHF 109,494
b. CHF 131,514
c. CHF 192,231
38. Which of the following is least likely one of the primary factors of production?
a. Labor
b. Capital
c. Technology
40. If the cross-price elasticity of demand between two goods is positive it is most likely that
these two goods are:
a. substitutes.
b. Giffen goods.
c. complements.
Y aggregate income
R real interest rate
a. Y=3370.5-15.9r
b. Y=3609.6-15.9r
c. Y=4008.0-15.9r
Where:
yearly demand
price of margarine
monthly income
price of butter
Monthly income is equal to 3000, the price of butter is 3 and the price of margarine
is 4. The price elasticity of demand for butter is closest to:
a. 2.6
b. -0.4
c. -0.3
47. Fox&Lee Co. depreciates equipment on a straight-line basis at a rate of 12.5 percent per
year. Equipment costs incurred amount to $10 million, and the residual value is equal to $0.
The depreciation for tax purposes equals 14 percent per year. The difference between the
carrying amount and tax base in Year 1 is closest to:
a. $125,000
b. $140,000
c. $150,000
48. Regarding fraud triangle, which of the following is least likely an example of fraud risk
factor related to incentives or pressures?
a. New accounting requirements
b. High turnover of board members
c. Management personal guarantees of debts of the entity
49. BringIt Ltd. earns revenue before receiving cash but has not recognized the revenue yet.
Which of the below is most likely correct?
a. Adjusting entry involves reducing the liability as cash is paid.
b. Adjusting entry involves reducing the liability while recording revenue.
c. Originating entry involves recording revenue and establishing an asset.
50. According to IAS No. 1, which of the following is least likely one of the general features
characteristic of the preparation of financial statements:
a. Accrual basis
b. Fair presentation
c. Offsetting of all assets and liabilities
52. JJ&C, Plc. has entered a three-year construction contract for $8 million. It is probable that
cost will be recovered but given uncertainty of future price of materials, technology and
labor outcome cannot be measured reliably. The following table gives information about
expenditures related to this construction contract:
53. The cost of property is equal to $5 million. The total sales price is $7 million. The buyer pays
a down payment of $1 million. The rest of the sales amount is to be received in the next
three years. There is a serious risk that the buyer will not be able to make all payments. How
much profit will be recognized attributable to the down payment if the installment method
is used?
a. $0
b. $286,000
c. $710,000
58. The table below presents information about a company (U.S.GAAP is assumed):
60. On 1 January 2009, a company issues a seven-year bond with a par value equal to
$1,000,000 and an annual coupon equal to 8 percent. The sales proceeds are equal to
$902,632. The carrying amount of the bond at 31 December 2013 assuming the effective
interest method would be closest to:
a. $950,263
b. $965,289
c. $981,818
61. The company producing wooden toys sells 10 toys at $50 per toy and ships them to the
customer. Payments are due in 14 days no payments have been made yet. Cost of goods
sold increases by $400. Which of the below least likely occurs?
a. Revenue increases by $500.
b. Inventory decreases by $400.
c. Accounts receivable increases by $100.
63. Which of the following terms is least likely synonymous with the term accounting profit:
a. Pretax income
b. Taxable income
c. Income before taxes
Recognizing requires:
67. Regarding financial statement analysis framework, which of the below is least likely one of
the output of process data?
a. Ratios and graphs
b. Financial data tables
c. Adjusted financial statements
Income statement
Revenues 19
Variable Operating Costs 13
Fixed Operating Costs 3
Operating Income 3
Interest 1
Net income 2
Calculate the degree of total leverage:
a. 1.5
b. 2
c. 3
70. Companys fixed operating costs are equal to $12.3 million and fixed financial costs are
equal to $8.1 million. Variable cost per unit is $40 and the price per unit is $55. The
operating breakeven point is closest to:
a. 540,000 units
b. 820,000 units
c. 1,360,000 units
73. Who is responsible, according to corporate governance, for delivering complete, accurate
and reliable financial information to shareowners?
a. Audit committee
b. Board of directors
c. Compensation committee
75. An analyst stated that if the net present value (NPV) is higher or equal to 0 then the
profitability index (PI) is always bigger or equal to 1 and that the discounted payback
period (DPP) is always shorter or equal to the payback period (PP). Are the statements most
likely correct or incorrect?
a. Both statements are incorrect.
b. Statement 1 is incorrect and Statement 2 is correct.
c. Statement 1 is correct and Statement 2 is incorrect.
76. The annual cost of trade credit assuming a 365-day year for terms 2.5/10 net 35 is closest to:
a. 30%
b. 43%
c. 45%
77. Which of the statements below regarding cost of capital is the most accurate?
a. The beta of debt is equal to 1.
b. The business risk of a project is sales risk plus operating risk.
c. Investment opportunity schedule is an upward-sloping curve.
Revenues $250,000
Cost of goods sold $130,000
Gross profit $120,000
Selling, general and administrative expenses $50,000
Operating income $70,000
Interest expense $10,000
Earnings before tax $60,000
Taxes $24,000
Net income $36,000
All elements of income statement are sales-driven, except for tax burden and interest
burden. Companys tax rate in 2013 will increase to 45% and interest expenses will remain
at the same level as in 2012. If expected growth rate of revenues is 10 percent, 2013 pro
forma net income is closest to:
a. $36,300
b. $36,850
c. $41,880
79. The table below presents information about the companys preferred stock:
Par value $80
Dividend rate 8%
Yield on comparable preferred stock 10.5%
Price $60
The preferred stock is:
a. overvalued.
b. well priced.
c. undervalued.
81. Which of the following is least likely one of Porters five forces?
a. Threat of new entrants
b. Bargain power of customers
c. Currency regime in a given country
83. An investor buys 200 stocks of company A on margin. The leveraged ratio is 2 and the stock
price is equal to $8. If the maintenance margin requirement is 30%, the investor will receive
margin call when the stock price is closest to:
a. $4.0
b. $5.2
c. $5.7
86. The table below presents information about the companys stock:
87. The companys financial year ends on 31 of December. The table below presents
information about the companys net income and total shareholders equity:
91. The price of the stock is $45. The European call option with the exercise price $42 and the
time to expiration 1 year is priced $6. The annual risk-free rate is equal to 5 percent. Based
on put-call parity, the price of the European put option with the exercise price $42 and the
time to expiration 1 year is closest to:
a. $1.0
b. $3.0
c. $5.1
a. Yes Yes
b. No Yes
c. Yes No
95. An investor purchases futures contract priced at $150. The initial margin is $22 and the
maintenance margin requirement is $15. The following table presents the end-of-day
prices over the next six days:
Day Price
1 $160
2 $155
3 $142
4 $130
5 $120
6 $144
What is the ending margin account balance on Day 6:
a. $16
b. $34
c. $46
97. An investor buys a corporate bond with 5.5-year maturity and $100 face value. The full price
of the bond is $110.30 and accrued interest is $5.50. The dirty price of the bond is closest to:
a. $104.80
b. $110.30
c. $115.80
99. Which of the following bonds is characterized by the smallest interest rate risk?
a. Inverse floater with the maturity of 6 years.
b. Option-free floater with the maturity of 5 years.
c. Option-free coupon bond with the maturity of 5 years.
100. An investor is considering the purchase of two bonds and he wants to add one of them to
his portfolio. One bond is tax-exempt with a yield of 6.40%, the other is taxable with a yield
of 8.50%. At what marginal tax rate would the investor be indifferent to the choice
between the two bonds for his portfolio?
a. 25%
b. 35%
c. 75%
101. Which of the embedded options given below is most likely beneficial for an issuer?
a. Put option
b. Call option
c. Conversion privilege
103. Regarding theories of the term structure of interest rates the least accurate statement is:
a. The pure expectation theory can be used to justify any shape of the yield curve.
b. One of the variants of the preferred habitat theory is the market segmentation
theory.
c. According to the liquidity preference theory, the term structure of interest rates
depends, among other things, on expectations about future interest rates.
105. An analyst stated that duration can be defined as the first derivative of bonds value with
respect to its yield and a measure of interest risk. Are the statements most likely correct or
incorrect?
a. Both statements are correct.
b. Statement 1 is incorrect and Statement 2 is correct.
c. Statement 1 is correct and Statement 2 is incorrect.
106. The table below provides different kind of spreads for a putable bond:
108. If the yield to maturity (YTM) is 5% and coupon is 6% and reinvestment rate is going to be
5.5%, then:
the realized return will be bigger than YTM? the bond sells at discount?
a. Yes Yes
b. No Yes
c. Yes No
110. Which of the following biases in hedge fund performance in hedge fund database an
investor suffers from when hedge fund managers decide whether they want to be included
in databases or not?
a. Backfilling bias
b. Survivorship bias
c. Self-selection bias
114. Which of the following statements regarding FOF (fund of funds) is least likely correct?
a. FOFs invest in hedge funds.
b. Small investor can purchase FOFs for a reasonable amount of money.
c. One of the disadvantage of FOFs is that they do diversify investors portfolio.
a. 0.0029
b. 0.0480
c. 13.3300
116. Regarding portfolio management, which of the following statements is least likely correct?
a. The capital market line is a specific example of the capital allocation line.
b. A person with risk aversion coefficient of 3 has greater risk tolerance than a person
with risk aversion coefficient of 4.
c. Assuming the same capital allocation line, the optimal portfolio for an investor with
risk aversion coefficient of 2 has greater expected rate of return than the optimal
portfolio for an investor with risk aversion coefficient of -1.
117. An analyst describing different types of risk stated that the market risk and unsystematic
risk of the portfolio can be reduced by diversifying the portfolio. The analysts statement is
correct with respect to:
a. both.
b. market risk, but incorrect with respect to unsystematic risk.
c. unsystematic risk, but incorrect with respect to market risk.
a. overvalued.
b. undervalued.
c. fairly valued.