CFA Practice Exam 2

Which of the following best describes an illegal but ethical activity?

Which of the following situational influences is most likely to challenge ethical behavior?

If a professional organization has standards of conduct in addition to its code of ethics, the purpose of the standards is most likely to describe:

A framework for ethical decision-making will most likely be effective when:

According to The Code of Ethics, members and candidates are most likely required to:

According to Standard IV Duty to Employers, all members and candidates must:

The CFA Institute's Professional Conduct staff identifies a member as the subject of a written complaint. According to the CFA Institute Bylaws and Rules of Procedure for Professional Conduct, which of the following is most likely the Professional Conduct staff's next step?

Parkhurst Investment Advisors (PIA) is a fee-based provider of stock selection and asset allocation advice to large, defined-benefit pension plans. It does not manage assets but maintains detailed records on its recommendations. For the last 12 years, PIA has created composites from the different portfolios that it has recommended to its clients. In its advertising literature, PIA displays each year's return for its composites, both gross of and net of a hypothetical 1% annual fee, as well as the return for each composite's benchmark. Can PIA claim compliance with the Global Investment Performance Standards (GIPS)?

To claim compliance with Global Investment Performance Standards (GIPS), a firm most likely will state that it:

Which of the following most accurately describes a reason why the Global Investment Performance Standards were developed?

If an investment firm has its GIPS compliance verified, the verifier must attest that the firm is compliant at the:

Andrei Ostrovsky, CFA has been employed as an advisor at Bolshoi Investments Inc. (BII) for several years. His employment agreement does not include a "noncompete" clause or termination policies. Ostrovsky decides to leave BII and start a new advisory firm. Prior to giving notice to his employer, Ostrovsky spends a few weekends setting up his new office. There he "connects" with as many of his clients as he can on social media, which is easy as he knows their names. Before leaving BII, he does not mention his departure from BII or his plans for his new firm to any client, on or off social media. One day after leaving BII, he posts a notice on a social media site that he has left BII and that he would be happy to continue to advise his former clients at his new firm. With regards to Standard IV(A) Loyalty, has Ostrovsky most likely violated the Standard?

Grace Chang, CFA, keeps two social media accounts: one for personal use and one firm-approved business account used for client engagement, which is monitored by her employer, Canyon Investments. After three years at Canyon, during which Chang has connected with all her clients through her business account, Chang decides to leave Canyon for LVL Bank. Canyon asks Chang to delete the business account before leaving. However, Chang confirms that she has not signed a noncompete agreement with Canyon and, upon starting at LVL, Chang updates her business account to reflect her new employer and continues to maintain both accounts. Has Chang most likely violated Standard IV(A) Loyalty?

Donota Rosa, CFA, currently works with her best friend and supervisor Maria Danek, CFA, at Broadwick Investment Partners (BIP). BIP is a private equity firm with award-winning funds. Each of BIP's funds has a $20 million investment minimum for new investors. After working with Danek for two years, Rosa leaves BIP to start her own firm. Six months later, Danek helps Rosa by convincing BIP's management to waive the $20 million investment minimum exclusively for Rosa's clients, but the exclusivity will last for only one month. Rosa clearly remembers how well BIP managed its funds and, based on her memory, is convinced it is an ideal investment for clients. Grateful for this assistance and to meet the one-month deadline, she quickly jumps at the opportunity and immediately recommends BIP's funds. With respect to the Standard V(A) Diligence and Reasonable Basis, does Rosa most likely violate the Standard?

"Rahul Agarwal, CFA, is the Chief Investment Officer of Bagh Capital. He is having lunch with a group of prospective clients and passes out a summary of the company's performance. The summary mentions that the firm was able to generate returns of 25% last year, 18% annualized over the past three years, and 15% annualized over the past five years. The returns exclude several portfolios that Bagh closed last year due to underperformance. The summary does not mention the exclusions but notes that it is limited in nature and that a detailed presentation is available upon request. By distributing this summary to clients, does Agarwal most likely violate Standard III(D) Performance Presentation?"

"Stuart Grimaldi, CFA, is the compliance officer for a large hedge fund with several hundred employees. Grimaldi has implemented a comprehensive set of rules for employees to comply with applicable laws and regulation. He appropriately updates the rules and communicates all changes to the employees. He also holds regular meetings to advise employees of different compliance issues. The fund permits employees to maintain investment accounts with outside firms but requires the employees to send Grimaldi duplicate confirmations for all trades. The rule applies for accounts that the employee establishes in his or her own name as well as those for immediate family members such as a spouse, domestic partner, children, or parents. About half of the employees have outside accounts. Grimaldi does not regularly check the confirmations but believes that the employees are complying with the rule. Recently, an employee tried to circumvent the rule by having his neighbor open an account at another firm, with the employee directing the trades made in the account. Grimaldi was not aware of this activity until the neighbor who ""owned"" the account was charged with insider trading. The neighbor then implicated the employee who was directing the trades. Of the following, the most appropriate statement is that Grimaldi violated Standard IV(C) Responsibilities of Supervisors with respect to:"

One day after taking Level II of the CFA exam, Guyton Wyll visited a website used by several thousand CFA candidates and posted the following to a thread visible to candidates at all levels: "I can't believe that CFA Institute recommended that we study for more than 300 hours when they asked such easy questions on most topics. But the Ethics questions were so subjective, and I can't remember that any of them dealt with the Standards...really unfair!" Did Wyll's post most likely violate Standard VII(A)–Conduct as Participants in CFA Institute Programs?

The CEO of PrimeHealth, Inc., a publicly traded pharmaceutical company, hosted a conference call for approximately 15 analysts from 10 different investment banks. One of the listeners was Paula Pressly, Level II CFA candidate. The CEO of PrimeHealth announces that the company has received regulatory approval to sell its latest cancer drug. The CEO tells the assembled participants that he anticipates additional revenues of $3 billion this year, which he estimates will grow at 10% per year. After the call, but before the CEO's information has been widely distributed, Pressly buys 100 shares of PrimeHealth for her account. At the same time, she also calls her father and advises him to buy PrimeHealth stock, but he does not act on her advice. Which of the following most accurately describes any violations by Pressly of Standard II(A) Material Nonpublic Information?

"Sarah Cohen, CFA, is a portfolio manager at Mountain Peak Capital (MPC) and manages the firm's multi-cap equity growth fund. Cohen often directs the firm's trading desk to place orders through certain brokerage firms that have assisted her in idea generation or in investment decision-making. Cohen has recently agreed to enter into a new soft dollar relationship with Large-Cap Capital (LCC) for research services. Cohen sends a large order for a thinly traded small-cap stock to the firm's trading desk. Cohen usually prefers small-cap stock trades to be directed to Small-Cap Specialists, Inc. (SCSI), as they are better able to source liquidity (ie, find buyers and sellers) to fill these trades than most of their competitors. The trader suggests the order be routed through LCC to help satisfy MPC's new soft dollar commitment. LCC can execute the order, but it would likely be at market prices, and the large order size will almost certainly negatively affect the execution. After discussing the situation with the firm's trader, Cohen instructs the trader to send the order to LCC. Cohen most likely violates Standard III(A) Loyalty, Prudence, and Care, by:"

Christina Wilkerson, CFA, is a portfolio manager for a well-known asset management firm. All managers include a brief biography on the firm's website. Wilkerson's entry reads: "The CFA program afforded me a wide range of knowledge on diverse financial instruments and concepts. I have held the CFA designation since 2011 and passed each level on my first attempt. For each level, my scores in the topics of Fixed Income and Alternative Investments rated in the highest category in CFA Institute's grading system." Assuming that all assertions in her entry can be verified, which of the following best describes whether Wilkerson's entry complies with Standard VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program?

Matt Fabiano, CFA, is the senior portfolio manager at Marco Investment Advisors (MIA). All of MIA's clients gave Fabiano discretion over their accounts and, as part of his service, he directs trades to a number of brokerage firms. Fabiano discovers that if he trades exclusively with Strollo Brokerage Inc. (SB), MIA could participate in SB's client referral program, allowing MIA to serve more clients. Based on MIA's analysis, Fabiano concludes that clients are neither harmed by nor benefit from using SB as a broker. With respect to Standard III(A) Loyalty, Prudence, and Care, if Fabiano trades exclusively with SB, most likely he:

Stephanie Chang, CFA, is a financial advisor to individual clients for SMF Investments (SMF). She also manages the account of her father, who is a client of SMF. SMF secures a portion of shares for the oversubscribed initial public offering (IPO) of Trek Corp and assigns the IPO shares to its financial advisors to allocate to their clients' portfolios. After reviewing Trek's suitability for her clients' portfolios, Chang concludes that she would allocate 2,500 shares to her clients, including 100 to her father. She also likes Trek for her personal portfolio and wants to allocate 300 shares for herself. However, she receives only 2,000 shares of Trek from SMF. To avoid violating Standard III(B) Fair Dealing, Chang should most likely allocate IPO shares to her nonfamilial clients:

Jacqueline Dumont, CFA, is an adviser to high-net-worth clients. For over 20 years, she advised Marc and Denise Paraguet, who divorced three years ago. As a condition of the divorce, all of their joint accounts were closed, and their assets were divided between them. After the divorce was settled at the end of 20X1, Denise Paraguet remained Dumont's client for one year, then ended their advisory relationship and moved her investments to another firm. Marc Paraguet, who remains a client of Dumont's, recently asked Dumont for information about Denise's investment activities during 20X2, when she was still Dumont's client. To comply with Standard III(E) Preservation of Confidentiality, which of the following is Dumont's best course of action?

Trevor Halcott is a practicing lawyer and a CFA charterholder. He meets with the legal team of a potential client, Smith & Smith, Inc., to discuss a case that involves derivatives and portfolio management. At the beginning of the meeting, he hands out business cards that give his name as "Trevor Halcott, JD, CFA." Later, he tells the legal team, "completing the CFA Program greatly improved my knowledge of portfolio management and derivatives." Has Halcott violated most likely VII(B) Reference to CFA Institute, the CFA Designation, and the CFA Program?

Margareta Schiffrin, CFA, is an investment adviser at a firm that advises high-net-worth clients and has adopted the CFA Institute's Code and Standards. Schiffrin informs the firm's compliance director that she just attended the World Cup alpine ski finals as a guest of one of the firm's long-standing clients, who had been pleased with his portfolio's superior performance. Regarding Standard I(B) Independence and Objectivity, did Schiffrin most likely violate the Standard?

Bao Pham, CFA, is an investment adviser serving high–net worth retail clients. Several of Pham's younger clients prefer using instant messaging to communicate with him. Pham often receives requests and investment questions from clients via his personal phone and social media accounts. Pham does not forward any of these items to his firm since he considers them personal. The firm has no stated policy on data collection via personal devices or social media. Does Pham's conduct most likely comply with Standard V(C) Record Retention?

Stephen Cutler, State Treasurer, is responsible for overseeing the teachers' pension plan. Cutler hires Louise Gartner, a consultant, to advise the state on investments. Gartner hires Valarie Norton, CFA to manage the pension plan. Norton delivers investment reports to Cutler and Gartner on a semiannual basis. Under Standard III(A) Loyalty, Prudence, and Care, the client(s) to whom Norton most likely owes a duty of loyalty is (are):

"Kalim Emara, Level I CFA Candidate, works for a national nonprofit charity and is responsible for investing the organization's surplus funds. Due to the recent retirement of the charity's chief financial officer, Emara has been assigned to temporarily take on some additional responsibilities regarding management accounting and internal auditing. These additional responsibilities have reduced the amount of time Emara can devote to investment research. To comply with the equity allocation guidelines of his organization's investment policy, Emara invests in a popular broad-based equity index fund without performing any specific evaluation of the fund. Emara is also an activist with a community group that opposes a regional hospital's plan to close down its local emergency services. Emara has been arrested twice while participating in weekend protests of the hospital's plans. Based on this information, has Emara most likely violated Standard I(D)?"

Zhang Yong, CFA, is a CFA Institute volunteer who is helping create material for the upcoming Level III CFA exam. Zhang meets with CFA Institute staff and other question writers and is assigned to write an essay question about portfolio management for a college endowment fund. At dinner one night, Zhang tells his friend, Li Min, CFA, about the question he is working on. Li manages the endowment fund of a local university, and Zhang believes that Li can provide helpful insight. Has Zhang most likely violated Standard VII(A) Conduct as Participants in CFA Institute Programs?

"Deshawn Walker, CFA, and Jevon Glover, MD, grew up together and remain close friends today. Walker is a manager at Primary Partners Associates (PPA) and works on the Small Cap Sciences Fund, which focuses on health-care securities with great upside potential. Glover recently left his medical practice and now works for a sell-side securities firm where he is researching Cancer Advances Corp. (CAC), a company that uses artificial intelligence to design cancer drugs. CAC has yet to become profitable, but Glover feels optimistic based on its pipeline. He strongly suggests that Walker take a position in CAC since he expects the company to outperform. Walker conducts thorough due diligence and concludes that CAC is riskier than its peers but also that the company could see significantly higher returns if regulators approve certain drugs. Therefore, he deems CAC appropriate for the Small Cap Sciences Fund. Regarding the purchase of CAC stock for the fund, Walker will most likely comply with Standard VI(A) Disclosure of Conflicts if he:"

Zoey Baines, CFA, works in the investment management division of a large bank. As part of the bank's incentives for driving revenue growth, it offers Baines $300 for each investment management client she refers to either the bank's banking or financial planning divisions. At year end, the employee with the most referrals receives an additional $5,000 bonus. Baines does not share her compensation structure with her clients since she feels her compensation is a private matter. Does Baines most likely violate Standard VI(C) Referral Fees?

Five annual deposits of £1 million each will be made to an account that earns 4% annually. If the first deposit is made today, then the value of the account at the end of five years will be closest to:

A retiree will begin taking withdrawals of NOK 50,000 per year from an investment account 15 years from today. The payments will last for 20 years. The retiree also wants to have NOK 100,000 remaining in the account at the end of the withdrawal period. If the discount rate is 7%, the lump sum (in NOK) that must be invested today to satisfy both retirement goals is closest to:

A trader runs a linear regression model and calculates a prediction interval. The trader reviews the results, then runs a second model based on the same data set and calculates a significantly narrower prediction interval. Based only on this information, the trader most likely:

An analyst runs a regression with 30 observations, producing the following regression model: Y = 0.53 + 0.85 X + e. The analyst wants to test, at a 5% significance level, if Y will change by more than 0.50 for each one-unit change of X. Additional data that the analyst needs to perform this test is most likely the:

For a positively skewed distribution, most likely the

"The annual returns for a mutual fund over the past 12 years are shown in the table below: The 7th decile return for this fund is closest to:"

An investor holds two funds: Fund A and Fund B. The investor wants to forecast the probability that Fund A will outperform Fund B each year for the next two years. If each year's performance is independent, which probability rule should the analyst use?

There is an 80% chance that a hedge fund's return will exceed its benchmark this year. There is a 90% chance that the fund manager will earn higher total compensation than last year if the fund's return exceeds the benchmark. Suppose that the overall probability that the manager will earn higher total compensation this year is 73%. Which of the following statements is most accurate?

A fund has 200 bonds. Forty of them are investment grade; the remainder are high-yield bonds. The current manager has added 35% of the investment-grade bonds and 80% of the high-yield bonds to the fund. The probability that a randomly selected security is either an investment-grade bond or any bond that was not added by the current manager is closest to:

Which of the following is most likely a discrete random variable?

An investment's return has a normal distribution with a mean of 13.6%. If the value of its cumulative distribution function (CDF) at 12.2% is 0.0808, then the value of its CDF at 15% is closest to:

An analyst draws a large sample of data from a nonnormally distributed population. If the population variance is known, then the most appropriate type of statistic for calculating the reliability factor is the:

An analyst takes a sample of 200 observations from a population of a stock's daily price changes. The population is normally distributed, and its variance is unknown. The sample has a mean of $1.16 and its variance is 0.8649. The degree of confidence that the population's mean price change falls between 1.1383 and 1.1817 is closest to:

A nonparametric test can be most appropriately applied to which of the following?

An analyst performs hypothesis tests on 20 samples from a group of small-cap stocks but is concerned about the multiple testing problem. Five samples have a p-value below the significance level of 10%, ranging from 0.0351 to 0.0784. Based on this information, the most appropriate decision is to classify these five results as:

A t-test is conducted to determine whether a population mean is significantly different from zero, using a sample mean of 0.3, a sample standard deviation of 1.1, and a sample size of 40. The test fails to reject the null hypothesis. This hypothesis test is most likely a:

A marketing consultant finds that the income elasticity of Product X is 0.27. Based only on this information, the consultant's most appropriate conclusion is that Product X is:

A firm is facing market prices that are below average total cost but above average variable cost. The optimal action for the firm in the short run is most likely to:

When the price of a good with a downward-sloping demand curve changes, the substitution and income effects have opposite results. The good is most likely a(n):

If a market has low barriers to entry and numerous competitors selling differentiated products, the market's structure is best described as:

For a firm operating under perfect competition, the short-run supply function is best described as the:

Using the expenditure approach to measure gross domestic product (GDP), which of the following is least likely to result in a decline of GDP?

"An analyst gathers the following economic data used to calculate GDP: All else being equal, the economy's amount of net exports (in RUB billions) for this year is closest to:"

Which of the following statements is least likely consistent with the New Classical school's theory on the business cycle?

When the commercial banking system holds significant excess reserves, which of the following central bank actions is most likely to affect commercial banks' base lending rates?

The advantage of automatic stabilizers over discretionary fiscal policy is that they most likely:

A Polish consulting company has Polish citizens that reside and provide consulting services in Romania. A Romanian manufacturer has factories in Poland that produce furniture. Which of the following statements is most accurate? Income generated from the:

Trading bloc members would most likely use a common currency in a:

When a country uses dollarization as a currency regime, which of the following is the most likely consequence?

If spot exchange rate quotes are 0.1427 CAD/SEK and 0.1366 CAD/NOK, the no-arbitrage SEK/NOK spot rate is closest to:

The USD/GBP spot rate is 1.3075, and the one-year USD/GBP forward rate is 1.3266. If the one-year USD risk-free interest rate is 4.00%, then the one-year GBP risk-free interest rate is closest to:

"An analyst compiles the following consumption basket data: Based on this information, the July 20X7 Paasche price index value is closest to:"

The purpose of management's commentary in the annual report is most likely to:

Which of the following best describes the objective of financial statement audits?

An analyst is responsible for monitoring developments in financial reporting standards. Which of the following is least likely to help the analyst?

According to the International Accounting Standard Board's Conceptual Framework for Financial Reporting, useful information is most likely enhanced if it is also:

A manufacturer will voluntarily increase the useful lives of several different types of equipment it uses in its manufacturing process. The change will be effective for the current year. To account for this change in its financial statements, the company is most likely required to:

At the end of its fiscal year, a company has net income of $8,750,000 and 1,000,000 weighted average common shares outstanding. It also has 200,000 shares of convertible preferred shares. Each preferred share pays a dividend of $15 per share and is convertible into two shares of the company's common stock. There are no other potentially dilutive securities. The company would most appropriately report diluted earnings per share of:

A tech company develops and sells hardware for high-speed internet applications. It has completed its research for a new router and received a patent. The company now plans to develop a prototype and has purchased specialized equipment for the manufacturing process. Under US GAAP, which of the following costs can the company capitalize?

At the beginning of the year, a company has £157,000 gross accounts receivable (AR) and £5,000 allowance for doubtful accounts. During the year, it recognizes credit sales of £525,000 and a bad debt expense of £15,000. It also collected £435,000 in cash from its customers. If the company writes off £8,000 as uncollectable, then the year-end balance for net AR is closest to:

A parent company has purchased 80% of a subsidiary's common stock. When reported on the consolidated balance sheet, the parent company's noncontrolling interest most likely:

Assume an analyst knows only a company's earnings before interest and taxes. If the company reports under US GAAP and the analyst wanted to derive the company's cash from operations, which of the following would the analyst least likely need to consider?

A company sells equipment that has a net book value of NOK 190,000 for a price of NOK 200,000. If the company prepares the statement of cash flows using the indirect method, the adjustment to deduct the NOK 10,000 gain on this sale should most accurately appear in the cash flow from:

Which of the following is the best use of ratio analysis for a company?

"An analyst collects the following annual data for a company: Which of the following best describes how the company's efficiency compares with the industry?"

When inventory unit costs decrease, the LIFO reserve is most likely to:

"A company using US GAAP begins the fiscal quarter with no inventory. The following inventory transactions are then recorded for the quarter: If the company uses a perpetual inventory system and reports under the LIFO method, the ending inventory (in $) is closest to:"

If the value of a patent has been impaired, the impairment is most appropriately accounted for:

At the beginning of this year, a company purchased electronic goods that cost €120,000 and chose to expense the purchase instead of capitalizing it. The electronics have a useful life of 3 years with zero salvage value, and the company uses straight-line depreciation. The company reports €300,000 in revenue each year and is taxed at 25%. There are no other expenses aside from the purchase cost and corporate tax. Based only on this information and compared to capitalizing the asset, expensing the asset most likely results in:

With respect to its deferred tax items, under both IFRS and US GAAP a company can report:

In the third quarter of this year, a company that reports under US GAAP prepays a vendor $25,000 for software subscription services that will not begin until next year. The company will not recognize any expense for financial reporting purposes until the software service starts. However, the tax laws allow the company to deduct the full amount this year on their tax return. If the company's tax rate is 20%, the gross impact of this transaction in this year is most likely a $5,000 increase to:

A company uses the effective interest rate method to account for all noncurrent debt obligations. It issued a 3-year, $5 million face value bond with semiannual coupon payments. At the time of issue, the market rate of interest was 7%. If the company pays coupon interest of $300,000 in Year 1, the carrying value of the bonds at the end of Year 1 is closest to:

Under US GAAP, a lessee reports periodic payments for the second year of a finance lease. Compared to using an operating lease, the lessee will most likely report:

A company reports a significant increase in earnings per share (EPS) for fiscal year 20X8. An analyst examining the annual financial statements determines that the increase arises mostly from sales of noncore fixed assets. The statements are GAAP-compliant in all respects, and the footnotes provide significant details about the sales. The financial statements most likely represent:

Which of the following is most likely considered a warning sign in a company's financial reporting?

An analyst back-tests data to create a portfolio of bank stocks. However, many financial institutions have merged over the last five years. Which of the following issues should an analyst most appropriately be concerned about?

A portfolio manager screens all the companies in a global equity index. Each company that passes the screen must have a positive net profit margin, a return on equity greater than 20%, and a price-to-earnings (P/E) ratio of less than 15. The requirement that companies must have a positive net profit margin most likely functions as a(n):

Company XYZ has evolved into a company with significant debt, moderate revenue growth, and steady positive cash flow. Its stock price is consistently undervalued by the market. Based on only this information, XYZ's current scenario is most advantageous for which of the following stakeholder groups?

The founder of Company P, who owns 51% of the company, chooses to buy materials from Firm S, which is owned by a family relative. Firm S charges 25% above current market price for its products, which are of ordinary quality. In this scenario, conflicts of interest are most likely to arise between Company P's:

A company's operating cycle lengthens as a result of extending its credit terms from 30 to 90 days. This is least likely to cause concern for the company's:

A company operates at its target capital structure. If its actual capital structure then diverges from the target, which of the following factors is least likely the cause? All else being equal, the company:

According to Modigliani-Miller Proposition I without taxes, if a company reduces the amount of debt in its capital structure, most likely the company's:

Which of the following most accurately describes the opportunity cost of funds used in net present value (NPV) analysis of investment projects?

A manufacturer is evaluating a plan to replace an existing product with a new product. For the capital budgeting decision, an externality is most appropriately considered to be the company's:

An automobile manufacturer has a factory producing low-margin compact cars. The company is considering converting the factory to the production of luxury sedans, financed by borrowing the necessary funds. The company is also considering selling the factory. Using net present value (NPV) analysis, which of the following is least likely an incremental cash flow for investing in luxury sedan production?

"An analyst gathers the following data for a company: Based on this information, the days of inventory on hand (DOH) is closest to:"

Companies can most likely shorten their cash conversion cycle and generate funds internally by increasing days of:

Analysts most appropriately use the company's weighted average cost of capital to determine a project's:

A company's capital consists of debt of $120 million and equity of $100 million. The company is launching a new product line, which will be financed with $20 million of debt and $10 million of equity. Using the pure-play method, which of the following debt-to-equity values is the most appropriate for calculating the project's beta?

A company issued 1 million shares of fixed-rate perpetual preferred stock five years ago. Each share was issued at £50 and pays a dividend of £1.50. At that time, the company also had 20 million common shares trading at £55 that paid a dividend of £1.10. Management plans on issuing new preferred shares a month from now at £60 per share with the same preferred dividend yield as the previous issuance. The preferred dividend per share on the new issuance is closest to:

"A company provides the following data (in RUB): If the company produces and sells 50,000 units, the total contribution margin from those units is closest to:"

A CFO meets with a finance manager and states, "I want to know the effect on our forecasted net earnings in response to increases in units sold." The most appropriate metric that the manager should use to conduct the analysis is:

A mining company sold 3,000 kilos of gold last year at a price of €45,000 per kilo and at a variable cost of €33,000 per kilo. The company had €150,000,000 in fixed operating costs and €60,000,000 in fixed financing costs. All else equal, in order to break even, the company must increase sales by an amount closest to:

In its appeal to mass affluent investors, which of the following has been most disruptive to the wealth management industry?

Which of the following best describes the roles of buy-side and sell-side firms?

"An analyst has gathered the following data to calculate the expected return of an asset: The asset's expected return is closest to:"

"The following diagram shows indifference curves for investors with different risk aversions: It is most likely that:"

If a portfolio is fully diversified, it most likely eliminates which type of risk(s)?

The rationale for combining the risk-free asset with a risky portfolio is that the correlation between the two assets is:

A client's low willingness to take risk most likely results from which of the following?

Which of the following is most likely an advantage of using an investment policy statement?

A classically trained fundamental buy-side analyst has done extensive company-specific due diligence on a cyclical industrial company. A portfolio manager questions the analyst's bullish forecast, citing weak recent macroeconomic data and falling bond yields. The analyst contacts the company's CFO, who reiterates the earnings and revenue guidance, thus validating the analyst's bullish view despite these other factors. The analyst most likely displays which of the following behavioral biases?

Which of the following is the most appropriate risk management measure for an equity option contract?

One assumption of technical analysis is:

Machine learning may be most appropriate for data analysis if:

A company will receive Singaporean dollars (SGD) in 45 days and immediately convert it to Australian dollars (AUD) on receipt. To hedge the currency risk, which of the following positions is most appropriate for this company?

An employee of a manufacturing firm is tasked with trading derivatives on behalf of the company. These transactions should limit loss due to price changes of raw materials used in the company's manufacturing process. As an ancillary result of this activity, the employee may occasionally make an unintended additional trading profit for the company. The employee is best described as a:

"An investor bought 500 shares of stock on margin at the beginning of the year and sold them all at year-end: Assume that dividends and interest are paid at year-end. If the leverage ratio is 4 and the call money rate is 6%, then the investor's total rate of return over this period is closest to:"

For an investor wanting to make a long-term bullish bet on gold, which of the following is the best reason to go long on a futures contract rather than buying physical gold?

In managing a security market index, reconstitution most likely refers to changing:

The divisor used to calculate the value of a price-weighted stock index is most appropriately adjusted if a constituent company's stock:

An analyst uses the return on the Tokyo Stock Price Index over the last 10 years as an input to the CAPM to determine the expected return of a stock. This is an example of using a securities market index as a(n):

A market that is informationally efficient is most likely one where security prices:

Which of the following is most likely to decrease market efficiency?

If securities markets are semi-strong-form efficient, this most likely implies that:

"A business student gathers the following information on a company: If return on equity (ROE) is calculated using average amounts from the balance sheet, then the ROE in 20X3 most accurately:"

A foreign company is considering listing its shares on a US exchange as an American depository receipt (ADR). The company wants to raise capital in the near future through a public offering of the ADR. Which of the following is the most appropriate type of ADR to meet this need?

A company uses the proceeds from newly issued bonds to buy back common shares. Holding all else constant, including the common dividend per share, if return on equity increases, the increase is most likely the result of:

Within the context of strategic industry analysis, a global industry that is most likely benefiting from technological and demographic influences is:

Which of the following industries will most likely experience revenue declines in a recession?

An industry is characterized by high bargaining power of suppliers and low barriers to entry. Based on strategic analysis from Porter's five forces, this industry most likely exhibits:

The long-term growth stage of the two-stage dividend discount model is most appropriately valued using the:

A key assumption relating justified forward P/E ratio to company fundamentals using the Gordon growth model is that a stock's:

"An analyst has gathered the following information: Using the two-stage dividend discount model, the long-term growth rate is closest to:"

"An analyst gathers per-share information about a company's stock: According to the two-stage dividend discount model, the asset's intrinsic value is closest to:"

One year after it was issued, an investor purchases a tax-exempt, coupon-paying bond for less than its face value and holds it to maturity. The most likely tax consequence for the taxpayer is:

Assuming there are no changes in the credit risk of the issuer, an increase in the volatility of interest rates will least likely have an impact on the price of a:

The original issue discount tax provision most likely applies to a(n):

One characteristic of a leveraged inverse floater is that a change in the coupon interest rate is:

With respect to principal repayment structures, a serial maturity bond is most similar to a:

When a hedge fund engages in a reverse repurchase agreement, which of the following is the most likely purpose?

A zero-coupon bond has 5 years to maturity. If the market discount rate is 6%, and assuming semiannual compounding, the bond's price per 100 of par value is closest to:

A change in which of the following is mostly likely to influence the benchmark component of a bond's yield-to-maturity?

A two-year floating rate note is priced at 98 per 100 par value and pays interest quarterly based on the three-month LIBOR. It has a discount margin of 50 basis points (bps) and uses a 30/360 day-count convention. If the three-month LIBOR is 3% throughout the life of the bond, the quoted margin is closest to:

A noncallable bond is currently trading at par. Its required yield-to-maturity (YTM) falls by 10 basis points (bps) and its new price is 101. If its YTM had instead increased by 10 bps, which of the following would be the best estimate of its price?

An analyst finds that a mortgage pass-through security issued three years ago has a prepayment rate of 200 PSA. The analyst's most appropriate conclusion is that the:

Which of the following is most likely a credit enhancement for commercial mortgage-backed securities (CMBS)?

In a nonagency residential mortgage-backed security (RMBS) where a significant portion of the securitized mortgages are nonrecourse and underwater, bondholders are most likely exposed to:

"An analyst has collected information on three bonds, each of which matures in 10 years and uses an annual compounding convention: Which of the bonds most likely has the shortest Macaulay duration?"

An investor is evaluating several callable bonds. The investor believes short-term interest rates are likely to rise significantly, but intermediate and long-term rates will be stable. Which of the following types of duration would be most appropriate for evaluating the risk of the bonds given the expected flattening of the yield curve?

A noncallable bond that pays a 6% annual coupon has exactly 4 years until maturity. The bond is priced at 98.2871 per 100 par value and has a 6.50% YTM. Assuming a 10–basis point change in YTM, the bond's approximate modified duration is closest to:

An investor buys a bond that matures in 22 years. The bond has a 7% coupon rate and pays semiannually. The investor's price was 112.1271 when the bond's YTM was 6%. Before the next coupon date, the bond's YTM rises to 8% and stays at that level until the bond is sold at the end of 6 years. If the reinvestment rate over the period is 8%, the investor's annualized rate of return over the 6-year investment horizon is closest to:

The credit risk of nonsovereign government revenue bonds is most likely based on:

According to this data, which of the following ratios is highest?

"A credit analyst gathers the following data on a company: Based on this information, which year resulted in the lowest FCF after dividends/debt ratio?"

The named third party of a credit default swap suffers a credit event that results in payment to the credit protection buyer. The event is least likely to be which of the following?

Which of the following instruments is least likely to be classified as a contingent claim?

Which of the following forward commitments is least likely to expose investors to default?

On the day of expiration, a European put option's underlying asset has a price of GBP 83. The option's exercise price is GBP 76, and the put buyer paid GBP 3 to purchase the option. The payoff to the put buyer is closest to:

An investor sells a European call for GBP 3 with a strike price of GBP 50. Based only on this information, which of the following best describes the investor's loss potential?

An investor sells a European put with a strike price of EUR 100 for EUR 5. At expiration, the underlying stock is trading at EUR 90. Based only on this information, the investor's profit (in EUR) is closest to:

An increase in the risk-free interest rate is most likely to cause the arbitrage-free value of European equity put option to:

An asset has a one-year forward price of £98, and its one-year cost of carry has a present value of £2.25. If the risk-free rate is 2%, the current arbitrage-free spot price of the asset is closest to:

When the market price of the underlying asset is 49, a trader sells a call option with a strike price of 55 for a premium of 6. At the time of the initial sale, the option is most likely:

A one-year forward contract was initiated two months ago on a non–dividend-paying stock. If the contract's value has decreased since initiation, then most likely the asset's:

A trader analyzes a European put and call, with the same strike price and expiry, on a stock that pays no dividend. The trader notes that put-call parity does not hold: The price of a protective put is less than the price of a fiduciary call. To profit from this condition, the trader would most appropriately:

Arbitrage-free pricing of forward contracts is most likely when the difference between the forward and spot prices reflects the underlying asset's:

If venture capitalists are investing in a company by providing funds to initiate commercial production, which of the following best describes the company's financing stage?

Which of the following best describes an attractive feature of unitranche private debt?

Using internal models to value the assets in a fund's portfolios is most likely for which of the following?

Which measure of private equity industry performance is most likely to be overstated?

Within the context of a new hedge fund, which of the following best describes founders' shares? Founders' shares entitle early fund investors to:

A private equity fund with a leveraged buyout focus is most likely to invest in:

Compared with an individual hedge fund, a fund of funds will more likely:

An investor is conducting due diligence on a hedge fund. Which of the following is most likely to be readily available? Information on the fund's:

For performance appraisal of alternative investments, one advantage of using the IRR instead of the multiple of invested capital (MOIC) is that the IRR:

A hedge fund is subject to a margin call and is unable to post additional collateral. The most likely outcome is that the:

"An analyst has compiled the following spot and futures pricing data for a commodity: Which of the following best describes the commodity's spot and futures prices?"

For the general partner in a private equity or venture capital fund, which of the following waterfall distribution methods is most advantageous compared to the others?