CFA Practice Exam 1

When comparing ethical standards with legal standards, which of the following statements is most appropriate?

The investment profession most likely builds and maintains trust by:

According to CFA Institute, which of the following best describes the motivation for codifying an investment firm's belief system?

The most appropriate reason why trust is needed in the investment profession is so that investment managers can:

The CFA Institute's Professional Conduct staff (PCS) finds that Simon Perret, CFA, has violated the Standards. Perret rejects the PCS's proposed sanctions. Which of the following is most likely to occur?

Which of the following is one of the six elements of the CFA Institute's Code of Ethics? Members and candidates must:

Standard VI(C) of the Standard of Professional Conduct on Conflicts of Interest most appropriately requires Members and Candidates to:

An investment management firm most likely can claim compliance with the Global Investment Performance Standards (GIPS) if it:

An investment firm has multiple subsidiaries across countries. The subsidiaries have different business names but operate under the same brand name. When defining the firm to claim compliance with GIPS standards, which subsidiaries should the firm most appropriately include?

For Global Investment Performance Standards (GIPS®) compliant firms, which of the following best describes the purpose of composite construction?

Based on the GIPS fundamentals of compliance, a firm must define:

Stephanie Williams, CFA, is the portfolio manager of the Lantern Latin American Equity Fund (LLAEF). LLAEF is a mutual fund that invests exclusively in stocks listed in Central and South America. While attending her daughter's gymnastics practice, Williams discusses LLAEF with Jeffrey Jones, who also has a daughter in the class. Jones states that he is a conservative investor, investing primarily in a balanced fund, and has never considered investing in Latin American equities before. Williams gives a very optimistic assessment of the economic conditions in the region and states that Latin American equities are among the most undervalued globally. Williams says, "I believe Latin America is likely to be the best performing emerging market region in the world over the next few years. This fund is a 'no brainer' and adds great diversification benefits to any portfolio." Has Williams most likely violated Standard III(C) Suitability?

Fulvio Lombardi, CFA, a research analyst, recently left Primo Investment, where he had published research on Breve Latte Inc. (BLI). Lombardi joins Risultati Research and uses publicly available information and material from management's latest earnings release to create a new research report on BLI based on updated information. The public information includes material from Twitter posts and online blogs by BLI's chief executive officer and chief financial officer. Lombardi verifies the information in the social media sources when possible and feels comfortable including them in his analysis. Since these tweets and blogs are hosted on electronic servers and are easily accessible, Lombardi does not see the need to maintain them in his files, yet he keeps documentation of personal notes, articles, and other research documents. Lombardi publishes the report without obtaining permission from or citing his former employer. Which of Lombardi's actions are most likely in compliance with Standard V(C) Record Retention?

Rachel Barrett, CFA, is in charge of calculating and disseminating the investment performance of client accounts. In her calculations, she identifies a material error due to a reporting system failure. Due to this error, the past performance of the firm's largest client, a large endowment, was understated: the client realized a gain instead of a reported loss. If the endowment's trustees discover this error, it is unclear if the trustees will terminate Barrett's firm. If they do terminate, her firm will lose a significant amount of revenue and Barrett's bonus would be negatively affected. Standard III(A) Loyalty, Prudence, and Care, most likely:

Christine Hansen, CFA, works as an investment advisor at a large regional bank. Many of Hansen's larger clients can benefit from comprehensive estate planning, including the need for various trusts and insurance policies. For the trust work, Hansen refers these clients to an outside law firm, and for their insurance needs, she refers them to the bank's internal insurance subsidiary. Hansen receives a one-time $100 bonus for every insurance policy sold by the subsidiary on her referral. The law firm is a corporate sponsor of the local professional basketball team and gives Hansen two courtside tickets for each referral. With regard to Standard VI(C) Referral Fees, Hansen is required to disclose:

Liam Haughton, CFA, is an investment strategist at Joffery Securities, Ltd. (JSL). Through his meticulous research, he develops an algorithm that delivers exceptional risk-adjusted performance using a complex trading process. JSL wants to market this discovery as an additional service to its current and prospective clients. Haughton prepares the communication to advise clients about the algorithm and strategy but is concerned that most clients will be unable to comprehend it. He does not detail his algorithm, valuation models, or asset allocation structures in his communications. He believes clients need to know the changes in the portfolio and how they impact performance. Haughton settles on discussing how the three biggest trades impact performance in his monthly report. With respect to Standard V(B) Communication with Clients and Prospective Clients, Haughton most likely:

Matthew Beck, CFA, recently joined an investment management firm as a senior analyst after many years of working in the same role for a competitor. Beck's spouse is a director of a publicly traded company that Beck will cover for his new employer. His spouse has been a director for several years, and Beck wrote analyst reports about the company for his previous employer. Beck also serves as a trustee for the youth soccer association in his town. Part of his responsibilities as a trustee is to coordinate the association's fundraising efforts, but Beck does not directly solicit money. The association is a relatively new entity, and Beck anticipates a significant time commitment for the next several months. Standard VI(A) Disclosure of Conflicts most likely requires Beck to disclose to his new employer:

Halim Gamal, CFA, is a research analyst at Nile Capital Bank (NCB). He conducts independent research on health care companies and participates in group research on the industry with other NCB analysts. Gamal meets with the research group to discuss the impact of a new law on the industry. Most of the analysts expect the regulations written to enforce the new law to create unintended consequences that will shrink health care industry profits. Although Gamal believes the basis for the group's conclusion is reasonable and adequate, he thinks the law will ultimately benefit the industry. The most senior NCB health care analyst writes the report for the group with a conclusion drawn for the majority. Gamal does not ask that his name be removed from the report despite disagreeing with the conclusion. Has Gamal violated Standard V(A) Diligence and Reasonable Basis?

"Krishan Patel, CFA, a senior analyst at CityStock, conducts due diligence of Specialty Products Corp. (SPC) and determines that it is a compelling buy and that the stock price will soon increase. Patel hesitates to recommend SPC since CityStock places a five-day blackout period on all recommended stocks. Instead, he purchases 300 shares of SPC for his account without sharing his analysis and recommendation with CityStock. SPC's price subsequently drops by 30%. Patel reviews his analysis and, still convinced that SPC is a great buying opportunity, submits his analysis and buy recommendation to the investment committee at CityStock. Patel most likely violates Standard VI(B) Priority of Transactions:"

"Olga Ivanova, CFA, plans to leave her employer, Vector Advisors LLC (""Vector""), since they allow advisors to invest only in traditional assets. Ivanova plans to start her own investment advisory business where she can take riskier strategies. She has not signed a noncompete agreement with Vector. Before she leaves Vector, Ivanova: Searches for office space, on weekends, for the new company, Completes forms and begins the process to get the new company registered, and Calls Sergey Aslanov, her golf partner, to convince him to be her first client. Ivanova recently solicited Aslanov's business on behalf of Vector, but to date Aslanov has remained undecided about whether he will become a client. Has Ivanova most likely violated Standard IV(A) Loyalty?"

Long Ming often places her taxable account trades with Jiang Bai, CFA at Pheng Securities, Inc. Ming asks Bai for retirement advice. Bai has no experience in giving retirement advice but does have a preexisting relationship with Insights Financial Planning (Insights) and refers Ming to Insights. After reviewing Insights' suggested retirement plan, Ming speaks with Mao Yi, CFA at Insights and is considering signing a client contract. As part of the referral arrangement between Pheng and Insights, Yi would direct Ming's retirement account trades to Bai instead of her firm's preferred broker. According to Standard VI(C) Referral Fees, which of the following must disclose the referral arrangement to Ming before she signs the contract?

Bull Advisors, based in Country Y, expanded its operations to Country X, where securities laws and regulations are less strict than either CFA Institute's Code and Standards or Country Y's laws and regulations. One of Bull's advisors, Joseph Telluci, CFA, travels to Country X to meet with a client. In a rush to meet with the client before she leaves for vacation, Telluci does not familiarize himself with Country X's securities laws and regulations. After the meeting, he begins the investment management process on behalf of the client based on the laws, regulations, and rules of Country Y and the Code and Standards. Has Telluci most likely violated Standard I(A) Knowledge of the Law?

Sofia Giordano, CFA, is a private tutor for Candidates taking the CFA exam. Her marketing materials state that her program includes "tips and strategies to pass the CFA exam." She continually works to make the program's practice exams more realistic. The day after the end of the most recent CFA exam period, Giordano sends a follow-up email to her students, congratulating them on getting through the exam and asking them which specific topics, in each domain, were tested so she can improve next year's practice exams. Giordano most likely violates Standard VII(A) Conduct as Participants in CFA Institute Programs:

Kyle Trainor, CFA, publishes a popular investing newsletter. In the most recent edition he recommends that subscribers buy Ambit Holdings (AHC). Trainor has owned AHC for many years and would like to sell it, but he believes that AHC is undervalued at its current price of $25 per share. His recommendation is based on interviews with AHC's executives as well as his own independent research, and he believes that AHC's price will double when it releases its year-end earnings next month. He includes a few details of his research, using phrases such as "I have heard that earnings will be very strong" and "Many people think that this stock will SOAR." He also discloses his ownership of AHC stock. Based on his recommendation, many subscribers buy AHC stock, which causes the price to rise. Before AHC releases its year-end earnings, Trainor sells his entire AHC position at a price of $45 per share. After AHC releases its earnings report, its price continues to rise, peaking at $64 per share before declining. Did Trainor most likely violate Standard II(B) Market Manipulation?

Karl Mahler, CFA, creates a mutual fund in Country A, where he is a resident. Mahler intends to sell the security in both Country A and Country B. The laws of Country A are more strict than the laws of Country B, and the laws of both countries are more strict than the Code and Standards. When selling the mutual fund in Country B, Mahler must adhere to the:

"Calvin Wurtz, CFA, is the founder and CEO of Florenz Equities, an asset management firm specializing in small-cap stocks. The firm's marketing materials display its average compounded returns over 5, 10, and 15 years. The materials include the following statements: Statement 1: ""Average returns for each time period shown in these materials include returns from both currently active accounts and accounts that were terminated during that period."" Statement 2: ""We present average return data gross of management fees."" The materials do not specify the dates when accounts were terminated. The materials state that the firm does not comply with Global Investment Performance Standards® (GIPS). Has Wurtz violated Standard III(D) Performance Presentation with respect to Florenz's marketing materials?"

Wang Pei Han, CFA, is an independent investment consultant. Among her clients are the investment fund for Bright Life Insurance (BLI) and the personal investment account for the fund's manager, Li Jie. Wang is contacted by the CFA Institute Professional Conduct Program (PCP) regarding her own potentially unethical, but not illegal, activity. The PCP is requesting information about the fund and Li's investment account to support its investigation. Local law requires that information about illegal activity be disclosed to authorities but does not mandate any specific action otherwise. Given that BLI and Li are clients, to comply with Standard III(E) Preservation of Confidentiality, Wang's most appropriate action is to provide the PCP information about:

"Erik Johansen, CFA, and Claire Olsen, CFA, decide to start their own fund. They create a marketing brochure that includes the following: ""Claire Olsen, CFA, a self-employed investor, has developed a proprietary model focused on growth stocks. The model achieved a simulated annualized return of 15% over the past five years."" ""Erik Johansen, CFA, averaged a 12% annual return from 20X1 to 20X7 while working as a portfolio manager at his prior employer, Henderson Bank."" Johansen received written approval from Henderson to use the return data. Based on this information, have Johansen and Olsen most likely violated Standard III(D) Performance Presentation?"

Hudson Bright, CFA, just received his certificate in quantitative finance. As part of his studies, he developed training modules for financial modeling. Soon after receiving his certificate, Bright joins QED Consulting, a quantitative analysis consulting firm, and posts news about his certificate and new job on social media. The local CFA Society president sees his post and asks him to teach financial modeling classes. After determining that the time commitment will not hinder his performance at QED, Bright agrees to teach a monthly, one-hour class for 6 months at €500 per class. He advises QED of his plans in an email that states, "I am writing to inform you that I have agreed to partner with the local CFA Society to teach financial modeling classes. Please contact me with any questions." He does not receive a response and begins teaching the classes. Has Bright most likely violated Standard IV(A) Loyalty to Employer?

Sonja Hossi, CFA, recently started her own investment research firm, Hossi Investor Research (HIR). Throughout her career, Hossi has been a well-known analyst in the paper industry. The chief financial officer (CFO) of Metsa, a company in the pulp sector of the industry, contacts Hossi and asks her if HIR will publish a Metsa-prepared research report that recommends Metsa as a "buy"; HIR currently rates Metsa as a "hold." The CFO offers to pay Hossi her standard flat fee to publish the report under her name. After conducting her own due diligence, Hossi believes that the upgrade is appropriate. She makes some minor changes to the report's wording, but otherwise publishes it "as is" with herself as author and recommending Metsa as a "buy." She also discloses that she was paid by Metsa. Has Hossi most likely violated Standard I(C) Misrepresentation?

Naomi Jorgensen, CFA, a broker at Belton Financial, Inc., currently has a sell rating on Alpha Pharmaceuticals, Inc. (API) due to its lackluster pipeline of therapeutics. Derek DiGravio, CFA, an investment banker at Belton, is helping API with its next round of funding and believes that if API receives an additional cash infusion, it will be very successful. DiGravio suggests to Jorgensen that she should reconsider her rating. To comply with Standard I(B) Independence and Objectively, Jorgenson's best course of action is to:

A bank offers a certificate of deposit (CD) with a stated annual rate of 7% compounded continuously. The CD's effective annual rate is closest to:

A borrower has entered into a fully amortizing, 4%, 30-year fixed mortgage with monthly payments. The principal is GBP 200,000. At the end of 5 years, the borrower wants to change the payments so that the mortgage will be completely paid off in another 15 years. The adjusted monthly payment (in GBP) needed to pay off the mortgage in the borrower's time frame (Years 6–20) is closest to:

An investor receives a research report that analyzes two securities through a simple linear regression. The study discloses the coefficient of determination (R2) and the sum of squares error (SSE). To estimate the accuracy of the model using an absolute measure of the errors, the investor will most likely need to know the:

"After running a simple linear regression, a trader analyzes the resulting residual plot: Based on only the residual plot, this regression model most likely violated which of the following linear regression assumptions?"

An analyst determines that a return distribution has the same mean, standard deviation, and skewness as a normal distribution, but has an excess kurtosis of 2.2. If an analyst incorrectly assumes the returns are normally distributed, then in this analysis, extreme values would most likely be:

For a given series of returns, the variable that will cause the largest difference between the returns' arithmetic mean and geometric mean is:

The expected value of a random variable is most likely a(n):

"An analyst estimates a joint probability function of two assets' returns during good, average, and poor business conditions: The covariance of returns is closest to:"

"There is a 0.6 probability that a portfolio manager will add a new asset to an existing portfolio. If the manager adds the asset, then there is a 0.9 probability that the overall portfolio will beat its benchmark. If the manager does not add the asset, then there is a 0.7 probability that the portfolio will beat its benchmark. If the portfolio beats its benchmark at the end of the year, the probability that the manager bought the new asset is closest to:"

Given that continuously compounded returns are normally or approximately normally distributed, asset prices are:

If a cumulative distribution function of a random variable indicates that P(X < a) is equal to P(X ≤ a), then the distribution is most likely:

"A semiconductor company wants to estimate how many of the computer chips it produces each month will be defective and creates a distribution based on multiple samples of 100 months of past manufacturing data. Based on its analysis of the data, the company believes that: the historical mean monthly defects is a good estimate of the expected number of defects each month going forward; and the variance of the sample distribution would not decrease by changing the sample size. Based on this information, the sample mean is best described as an estimator that is:"

A sample containing 49 bonds has a mean maturity of 10 years. If the underlying population is normally distributed with a variance of 4, then a 95% confidence interval for the population mean will have an upper limit closest to:

An analyst finds that a sample of 16 returns has a mean of 6.5% and a standard deviation of 12%. The population variance is unknown, and the population distribution is assumed to be nonnormal. If the analyst performs a hypothesis test that the population mean is 6%, then the analyst's most appropriate conclusion is that:

"An analyst wants to statistically determine whether the mean monthly returns of two large funds are significantly different. The monthly returns from the two funds are assumed to be independent of each other. The population variances are unknown but assumed to be equal. For a hypothesis test at a 0.1 level of significance, the critical value is closest to:"

An analyst performs a hypothesis test on the correlation of monthly returns of Fund A and Fund B. The null hypothesis is that the returns are uncorrelated with each other. Increasing the number of observations used in the test most likely results in an increase in the:

The cross-price elasticity between complementary goods is most likely:

"An analyst has collected pertinent data and estimated a demand curve function for annual sales of imported vehicles (Qm): Additionally, the analyst has estimated the average price of imported vehicles (Pm) at €40,000, the average price of domestically produced vehicles (Pd) at €25,000, and regional household income (I) at €46,000. The own-price elasticity of demand is closest to:"

"An analyst gathers current price and cost information about a firm operating in a perfectly competitive market: Based only on this information, which of the following is the firm's optimal course of action in the long run?"

Profit-maximizing monopolists most likely attempt to produce a level of output at which marginal cost equals:

If firms' supply curves can be used to determine the optimal, profit-maximizing price, those firms are most likely operating in:

A recessionary gap most likely results from which of the following?

A country has a budget deficit of EUR 10 billion and a foreign trade surplus of EUR 5 billion. All else being equal, domestic savings will most likely exceed domestic investment by:

If an economy has stabilized GDP growth and moderate inflation, it is most likely in which of the following phases of the business cycle?

"An analyst compiles the following consumption basket data: The February 20X5 Laspeyres inflation rate is closest to:"

A developing economy has a target exchange rate for its currency. The inflation rate in the developing economy drops below the inflation rate in the target currency. Central bank action to defend the target exchange rate is most likely to result in a decrease in the developing economy's:

A country pursues tight fiscal policy and easy monetary policy for several years. Which of the following are the most likely consequences for the size of the public and private sectors relative to the country's GDP?

A country has a current account deficit due to a low rate of private savings. Which of the following is most likely to finance this current account deficit?

A US investor receives a dividend payment from a French company. The dividend is most appropriately classified as a:

All else being equal, if the domestic price level decreases relative to the foreign price level, the real exchange rate between the two currencies, when quoted as domestic currency per unit of foreign currency, will most likely:

A dealer quotes the 6-month forward exchange rate between the euro (EUR) and the US dollar (USD) at USD/EUR 1.1550. The dealer also quotes the 6-month forward points as a percentage at 1.4%. The spot exchange rate for USD/EUR is closest to:

If the consumer price index (CPI) in the United Kingdom rises more than the CPI in India, the real INR/GBP exchange rate most likely:

Income statement elements most likely reflect:

An auditor for a US publicly traded company most likely expresses an opinion on a company's:

Which of the following is most likely a general reporting requirement under IFRS?

Which of the following statements is most accurate regarding financial reporting standard-setting bodies and regulatory authorities?

Expenses shown on the income statement are least appropriately grouped by:

"An analyst reviews a company's fiscal year-end common-size income statement: There are no other operating costs. If the annual research and development expense is ¥150 billion, then the company's operating profit is closest to:"

When a company purchases treasury stock:

If a company repurchases shares of its own common stock, then the company most likely:

"An analyst gathers the following information: Based on this information, and assuming there are no other current assets, the company with the largest quick ratio is most likely:"

With respect to the cash flow statement, dividends paid can be most appropriately classified as an:

A company prepares its statement of cash flows using the indirect method. Which section of the statement of cash flows will interest expense most likely impact?

"An analyst completes the following DuPont analysis on two companies: Compared with Company Y, Company X mostly likely has a:"

"An analyst collects the following information about a company: For the year ended 20X5, the company's total asset turnover (TAT) is closest to:"

If inventory unit costs are increasing, a LIFO liquidation will least likely result in a(n):

Unlike companies that comply with US GAAP, a company reporting under IFRS can disclose in its financial statements the amount of:

"At the beginning of 20X2, a company reporting under US GAAP purchases a patent for USD 20 million with no residual value and a useful life of 10 years. At the end of 20X3, the company determines that the patent's expected cash generation is lower due to changes in the law. It estimates the following: If the company uses straight-line amortization, the 20X3 impairment charge the company records is closest to:"

In 20X7, a firm reported earnings before interest and taxes (EBIT) of €32.2 million, interest expense of €3.5 million on its income statement, and interest paid of €3.1 million on its cash flow statement. The footnotes also revealed that if the firm had no capitalized interest in 20X7, depreciation expense would change by €450,000. After factoring in all effects of capitalized interest, the analyst recalculated the interest coverage ratio to be 7.5 times. The amount of capitalized interest reported by the firm in 20X7 is closest to:

An increase in the statutory tax rate will most likely:

A company that reports under US GAAP presents its 20X3 deferred tax assets valuation allowance at $10,000. In 20X4, it is reported at $0. All else equal, the reduction in the valuation allowance most likely signals that the company expects:

A company reporting under US GAAP leases a factory building under a long-term operating lease contract. On the income statement, the ongoing expenses pertaining to the lease should most appropriately be reported:

A manufacturing company maintains a defined benefit plan for its employees who are directly involved in the manufacturing process. The company most appropriately recognizes contributions made for those employees:

Which of the following circumstances would least likely result in a company issuing financial reports considered to be of low quality?

A company sells a homogeneous product and many of its sales are on credit. An analyst is reviewing the company's financial statements for the past three years. Which of the following would an analyst least appropriately consider to be a warning sign concerning the company's financial reporting?

A portfolio manager creates a screen to identify securities that have the lowest ratio of market price to earnings per share. The manager is most likely a:

For credit analysis, an analyst should most appropriately focus on:

At a shareholders' annual general meeting (AGM), which of the following most likely requires a supermajority vote?

An investor who invests only in the alternative energy subsector is most likely employing which environmental, social, and governance implementation approach?

The manager of an environmental, social, and governance (ESG) fund wants to construct a portfolio with sector weightings approximating those of broad-based indexes. Based only on this information, which of the following ESG investing styles is most appropriate for this portfolio?

If senior management is compensated with stock options, that would most likely provide an incentive for it to pursue which of the following strategies?

VWhich of the following is correct according to the pecking order theory? Managers prefer:

A company plans to retool an automobile factory to produce a new model to replace the existing model. Which of the following is most appropriately considered an opportunity cost?

A coal company is purchasing a five-year license to dig a new mine. It will start excavation when the price of coal justifies it. The option is best described as a:

A company is considering the introduction of a new product and expects that, as a result, sales of its existing products will decrease. This is best described as a(n):

A company improved its operating cycle this fiscal year. If the company significantly increased its days of inventory on hand (DOH) over the same period, then the company most likely decreased its:

Which of the following factors is most likely considered a drag rather than a pull on a company's liquidity position?

A company has a constant growth rate. All else being equal, if that growth rate increases, according to the dividend discount model (DDM), the company's cost of equity capital most likely:

Company A's common stock is trading at its intrinsic value as estimated by the Gordon growth model. This valuation implies that the dividend growth rate used in the model is most likely:

Which of the following is most likely characteristic of a firm in its mature life cycle phase?

A company has positive operating profits and constant fixed costs and contribution margins. As the number of units produced and sold increases, the company's degree of operating leverage (DOL) most likely:

A company has a degree of operating leverage of 2.6 and a degree of financial leverage of 1.5. If units sold increases by 5%, the percentage change in net earnings will be closest to:

Two companies have identical sales figures (price and volume) and identical fixed interest costs. If the companies have different fixed operating costs, they will most likely have different:

Which retirement plan most likely obligates the employer to provide future benefits?

A tax-sensitive investor would like to invest $10 million in a portfolio of small-cap stocks. Which pooled investment vehicle would be most appropriate for this investor?

"Two investors each initially invest ¥6 million in the same fund, which earns 5% during Year 1. At the beginning of Year 2: Investor X invests an additional ¥8 million to the fund, and Investor Y invests an additional ¥9 million to the fund. The fund's return is −2% in Year 2. After two years, which of the following best describes the investors' returns?"

In portfolio management, it is assumed that the expected return is:

When predicting the expected return of a security, the slope coefficient of the market model most likely represents the security's:

If an asset has a beta that is equal to the average beta of all assets, then its risk level is most likely:

A client's ability to take risk is most likely determined by the client's:

Which of the following best describes the Investment Guidelines section of the investment policy statement?

The halo effect is most closely associated with which market anomaly?

Using derivatives to modify a company's currency risk is best described as which of the following types of risk modification?

Relative strength analysis most appropriately measures:

The entire process of confirming new transactions in a distributed ledger is known as:

"A limit order book contains the following information for a stock: The market bid-ask quote is most likely:"

A trader has BRL 20,000 and wants to buy on margin to obtain a large stock position. If the local brokerage firm has an initial margin requirement of 0.25, then the maximum total value of stocks that can be purchased is closest to:

An investor uses ¥90,000 equity to purchase 100 shares of a stock at a leverage ratio of 2.5. If the maintenance margin is 25%, then the trigger price for a margin call (in ¥) is closest to:

An investor buys 5,000 shares of a stock for $25 per share, on 40% margin. If the maintenance margin requirement is 20%, then the investor will receive a margin call at a price closest to:

Which of the following best describes an aggregate fixed-income index? The index includes:

Once a security market index has been established, rebalancing is most likely a concern for a(n):

"An analyst has gathered the following information about a market-capitalization-weighted index: The price return of the index is closest to:"

Active management is most likely to outperform passive management on a risk-adjusted basis when markets are:

An individual regularly deposits base salary earnings into a savings account but invests all bonuses in a passive, broad market index fund. The individual views the base salary as a safety net to support current consumption while wanting to capture the market return with bonuses. Based on this information, the behavioral bias best exhibited by the individual's behavior is:

A high-growth stock soars 300% over a two-year period. After conducting due diligence, an investor buys the stock, which subsequently underperforms the market by 40% over a short period of time. The investor believes the market is pricing the stock irrationally and continues to hold it. Based on the information provided, which of the following biases is best exemplified by the investor's behavior?

Which of the following statements best describes a feature of callable common shares? Callable common shares give:

Voting rights attached to sponsored depository receipts most likely belong to:

Which of the following best describes a characteristic of preference shares?

An industry is characterized by excess capacity, frequent price wars, and technological substitutions. This industry is most likely in which of the following life-cycle stages?

An industry that is in the mature life-cycle stage most likely exhibits:

A company that primarily produces toothpaste is most likely classified in which of the following sectors?

The two-stage dividend discount model is most appropriate for a company expecting:

"An analyst has gathered the following information about a company: Using the two-stage dividend discount model, the terminal value of the high-growth stage is closest to:"

"An analyst gathers the following information about the stock of a company and its industry: The company's justified forward price-to-earnings (P/E) ratio is the same as the industry average. The company's dividend payout ratio is closest to:"

When considering multiplier models for evaluating public companies, which of the following factors is most likely an advantage of using the enterprise value/EBITDA ratio, compared to using the P/E ratio?

The terms in a bond indenture that require the issuer to make interest payments at specific periods are known as:

A five-year amortizing bond has a face value of $1,000. If it was issued at par with a yield-to-maturity of 5.18% and pays investors $160 annually at the end of Years 1 through 4, the total payment in Year 5 is closest to:

Which of the following statements least likely applies to an original issue discount (OID) bond on an annual basis?

An analyst is classifying bonds within the global fixed income market. Which of the following is least likely a valid distinction for the analyst to use?

A large corporate issuer issued $50 million to the general public in a new bond offering two years ago. Using the same offering circular, the company just issued an additional $30 million in new bonds, most likely due to a:

Typically, corporate bonds are most likely issued through a(n):

Theoretically, all bonds on a par curve are least likely to have the same:

"An analyst has compiled the following data about a bond that has an embedded call option and matures in 8 years: If an option pricing model determines that the value of the embedded call is 208 basis points/year, the option-adjusted spread for the bond (in basis points/year) is closest to:"

A 4%, annual-pay bond is currently priced at 105 per 100 of par value. It has three years to maturity and is callable at a price of 102.5 at the end of Year 1 and 100.5 at the end of Year 2. The yield-to-worst is the bond's:

A floating-rate note (FRN) with semiannual interest of LIBOR + 0.7% receives a credit upgrade. As a result, the discount margin is 45 basis points on the reset date two years from maturity. LIBOR is 2%. Based only on this information, on the reset date, the FRN will most likely be priced at:

Which of the following is least likely a benefit of securitization?

In the context of securitization, describing a special-purpose entity (SPE) as "bankruptcy remote" most likely refers to the:

An arbitrage collateralized debt obligation (CDO) holding a portfolio of fixed coupon bonds is funded in part by a floating rate senior tranche. The interest rate mismatch of fixed rate collateral versus a floating rate tranche is:

A bond matures in 3 years and pays a 7% annual coupon. The bond is currently trading at 104.0469 per 100 par value with a 5.50% yield-to-maturity. The Macaulay duration of the bond is closest to:

A callable bond's coupon rate is 100 basis points (bps) below yields-to-maturity on noncallable bonds having the same time to maturity and credit risk. If market yields decline by 200 bps, the callable bond's effective duration most likely:

A noncallable bond has a 6% YTM based on annual compounding. The bond has an annual modified duration of 18.868 and an annual convexity of 372.027. If the bond's yield is expected to increase to 6.20%, the expected price change is closest to:

An investor buys a bond that matures in exactly 20 years. The bond pays a 6% annual coupon, is trading at an 8% YTM, and is priced at 80.3637 per 100 par value. Assuming a constant reinvestment rate of 8%, if the bond is held until maturity which of the following sources most likely contributes the largest portion of the investor's total return?

Which of the following best describes loss severity for a debt instrument?

A high-yield bond issuer has a "top-heavy" capital structure. The owner of the company's senior unsecured debt most likely has a:

If an investor is most concerned about being able to legally enforce payment of principal and interest in the event of default, which of the following bonds represents the least appropriate investment choice?

When losses on a long futures position result in a margin call, the amount due is most likely the money required to:

The cash amounts due on the payment dates of a currency swap are best described as the:

A European put option with an exercise price of €85 is selling for €5. At expiration, if the profit for the short position is €2, then the underlying spot price is closest to:

On the day of expiration, a European call option with an exercise price of USD 50 has an underlying asset with a value of USD 57. If USD 2 was paid to purchase the option, the call buyer's profit is closest to:

Which of the following best describes the maximum potential gains and losses on a short put at expiration?

If the credit protection buyer of a credit default swap (CDS) chooses a cash settlement after a credit event, the required payment from the credit protection seller is most likely:

"An analyst observes the following market data for one American put option: This option's moneyness is best described as:"

An asset has a spot price of CNY 48 and its one-year cost of carry is CNY −1.20. If the risk-free rate is 3%, the forward price of the asset is closest to:

All else being equal, for a one-year forward contract initiated six months ago, an increase in the storage costs of the underlying asset implies that the contract's value to the long party most likely:

A forward contract is created on a nondividend-paying stock. At contract initiation, the contract's value is most likely:

If interest rates are negatively correlated with futures prices, an increase in interest rate volatility most likely increases the prices of:

An investor can most closely create a synthetic short position in a 30-day forward rate agreement (FRA) on 60-day LIBOR by simultaneously:

Which of the following is most likely a limitation of using appraisal indexes to measure returns to real estate?

A new hedge fund is formed, and the managing principals seed the fund with €10 million. During the initial marketing phase, the hedge fund receives €50 million in capital commitments and the fund is launched. At the end of Year 1, total assets under management are €25 million. The management fee for Year 1 is most likely calculated on:

Risk management "best practices" dictate that greenfield infrastructure construction risk mitigation should most likely include:

A feature of mezzanine debt is that it most likely:

An investor most appropriately uses the Sharpe ratio as the risk-adjusted return measure for a hedge fund when the fund's:

In commodity futures markets, futures prices are more likely to be in contango when:

At the time of a merger announcement, a hedge fund manager purchases stock of the target company and shorts the stock of the acquirer. Which type of hedge fund strategy best characterizes this approach?

The high-water mark used for incentive fee calculation is most likely based on a fund's:

A small private equity fund is looking to exit a large investment at the highest potential valuation while generating positive publicity. Which of the following exit strategies is most appropriate for the fund?

At year-end, a private equity fund has returned 10% and has an 8% hurdle rate and a 20% performance fee with a catch-up clause. Based on only this information, the performance fee earned by the general partner is closest to:

Compared to investing in a single hedge fund, which of the following is most likely an advantage of investing in a fund-of-funds?

A portfolio manager is seeking an alternative investment to diversify a pension portfolio. If the investment is actively managed, liquid, and a variant of a global macro strategy, it is most likely a: