CFA Level I Mock Test I

8/13/2019 CFA Level I Mock Test I

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CFA Level I Mock Test I

Question1Marks: 1

Which of the following is not a characteristic of open-end fund?

Choose one answer.

a. It stands ready to redeem shares at the closing value on anytrading day.

b. The liquidity is determined in the open market.

c. The share price of an open end fund will always be equal to netasset value (NAV).

Question2Marks: 1

Which of the following is not a characteristic of closed-end fund?

Choose one answer.

a. Its shares are traded in the secondary market.

b. Terms like load and no-load is not applicable.

c. The share price of a closed- end fund will always be equal tonet asset value (NAV).

Question3Marks: 1

An investor purchases a small residential building .The value of the property based on

income method using the following figures:Annual Rental income: $ 400,000Annual operating expenses: $ 250,000

Investors tax rate : 25%Financing percentage : 90%Holding period : 8 years

Market Capitalization rate: 20%

Choose one answer.

a. $ 750,000

b. $ 600,000

c. $ 562,500

Question4Marks: 1


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Which of the following costs is least likely associated with closed end funds?

Choose one answer.

a. Issuance cost

b. Redemption cost

c. Load and no-load

Question5Marks: 1

An investor wants to estimate the value of a piece of land using hedonic price model.The following data pertains to the sale of comparable real estate properties.

The land is 5 Kms away from the market, has a vacancy rate of 6% and its size is

25,000 square feet.The estimated appraised value of the land is closest to:

Choose one answer.

a. $1,578,000

b. $3,470,000

c. $1,758,000

Question6Marks: 1

The term balanced stage in venture capital financing includes:

Choose one answer.

a. Formative Stage and Second Stage

b. Second Stage and Third Stage

c. Formative Stage and Later Stages

Question7Marks: 1


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A company ABC ltd has the following schedule of cash flows

The IRR for the company is closest to?

Choose one answer.

a. 16.97%

b. 17.4%

c. 16.4%

Question8Marks: 1

Which of the following statements is correct?

Choose one answer.

a. IRR method assumes that the cash flows could be invested atprojects IRR.

b. Discounted payback method is a good measure of profitability

c. Pay back method is not a good measure of liquidity of a firm.

Question9Marks: 1


Choose one answer.

a. Business risk is a combination of operating and financial risk

b. Business risk is a combination of sales and financial risk

c. Business risk is a combination of operating and sales risk

Question10Marks: 1

In the dividend payment chronology the date on which shareholders of record are

designated to receive the dividend is known as

Choose one answer.

a. Ex- dividend date

b. Holder of record date


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c. Payment date

Question11Marks: 1

A company borrows some funds to repurchase shares then which of the followingstatement is correct?

Choose one answer.

a. If the after-tax cost of borrowed funds is less than earningyield of the share before repurchase then after repurchase EPS ofthe company will fall.

b. If the after-tax cost of borrowed funds is more than earningyield of the share before repurchase then after repurchase EPS ofthe company will fall.

c. Share repurchase does not affect EPS.

Question12Marks: 1

If a firm wants to develop a pro forma financial statement then the first step that ittakes is?

Choose one answer.

a. Estimate the interest and dividends payment for the next

period.

b. Estimate future revenue growth

c. Estimate the increase in share price of the company for thenext period.

Question13Marks: 1

Which of the following statements is correct in case of takeover defences?

Choose one answer.

a. Provision that gives rich severance package for top managers wholose their jobs as a result of a takeover is known as green mail.

b. Provisions that grant rights to existing shareholders in the event acertain percentage of a companys share are acquired is known asPoison Pill.

c. Provision of use of corporate funds to buy back the shares of ahostile acquirer at a premium to their market value is known asgolden parachutes.

Question14


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Marks: 1

Which of the following is most unlikely a purpose of post audit as a part of capitalbudgeting process?

Choose one answer.

a. To generate concrete ideas for future investment.

b. To improve operations of a firm

c. To revise the original forecast to match actual results

Question15Marks: 1

A firm is determining the after tax cost of debt in its WACC calculation. It has recentlyissued a bond for $956 for 15 years with the semi-annual coupon payment of 10%. The

bond has a face value of $1,000. If the marginal tax rate is 35 percent the after taxcost of debt which the company should use is.

Choose one answer.

a. 10.6%

b. 6.88%

c. 8.68%

Question16Marks: 1

Consider the following situation:

Australian U.S dollar-denominated 10 year government bond yield = 8.3%10 year U.S Treasury bond yield = 5.2%

Annualised standard deviation of Australian stock index = 35%Annualised standard deviation of Australian U>S dollar denominated 10 yeargovernment bond = 25%

Then the country risk premium is closest to:

Choose one answer.

a. 4.34%

b. 5.34%

c. 3.44%

Question17Marks: 1

Compared to forward contract, future contracts are most likely more:

Choose one answer.


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a. Liquid

b. Standardized

c. Larger in size

Question18Marks: 1

Funds that are deposited into the account to bring it back to initial margin in a future

contract is known as:

Choose one answer.

a. Maintenance margin

b. Settlement fund

c. Variation margin

Question19Marks: 1

Which of the following is least likely a characteristic of a Treasury bond futurescontract?

Choose one answer.

a. Short has the option to deliver any of the several bonds thatwill satisfy the delivery terms of the contract.

b. The long pays futures price at expiration times the conversion

factor.

c. The long pays face value multiplied by the conversion price.

Question20Marks: 1

A stock is selling at $ 50; a 3 months call at $ 60 is selling for $2 whereas a 3 monthsput at $60 is selling for $ 14.The risk free rate is 6%. Considering these figures the gainwhich can be made through arbitrage is:

Choose one answer.

a. $2.87

b. $ 2

c. $ 0 ( No arbitrage possible)

Question21Marks: 1

Which of the following will most likely increase the value of a European put option?


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Choose one answer.

a. Decrease in the exercise price

b. Increase in volatility of an asset or interest underlying theoption.

c. Increase in the time to expiration.

Question22Marks: 1

Which of the following is most likely a characteristic of a fixed for fixed currency swap?

Choose one answer.

a. Notional principal is swapped at initiation.

b. Interest payments are netted out and .net amount is paid by

one who owes it.

c. At the term of the contract notional principals are netted outand the net amount is paid by the one who owes it.

Question23Marks: 1

Which of the following statements is least likely true?

Choose one answer.

a. Demand for gasoline is elastic in short run because no

substitutes are available.

b. Demand for toothpaste is relatively inelastic as compared todemand for automobiles

c. Price elasticity of demand for most goods is greater in long runthan in short run

Question24Marks: 1

A good whose demand increases with increase in income is most likely known as:

Choose one answer.

a. Inferior good

b. Normal good

c. Necessities

Question25Marks: 1


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Which of the following statements is most likely correct?

Choose one answer.

a. The cross elasticity of demand for a substitute is less thanzero and income elasticity for a inferior good is greater than

zero

b. The cross elasticity of demand for a substitute is less than

zero and income elasticity for a inferior good is also less thanzero

c. The cross elasticity of demand for a substitute is more than

zero and income elasticity for a inferior good is less than zero

Question26Marks: 1

Price taker firms in a competitive environment are characterised by the followingexcept.

Choose one answer.

a. They face perfectly elastic demand curves.

b. They can make normal profits by selling their outputabove market price.

c. They are small relative to the size of the total market.

Question27Marks: 1

Let P1 denote the intersection of MC and AVC curve and P2 represent the intersection ofMC and ATC curve in a pure competitive market then.

Choose one answer.

a. At P1, economic profit is zero.

b. At P2, economic profit is zero.

c. At P2, normal profit is zero.

Question28

Marks: 1Monopolist environment is characterised by the following except

Choose one answer.

a. Focus on highest price so as to maximise profits.

b. Focus on earning maximum profits.


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c. Possibility of earning positive economic profits in the long run.

Question29Marks: 1

The price P in a monopolistic environment is given by

Choose one answer.

a. Intersection of MC and Demand curve

b. Intersection of MC and MR curve

c. Price on per the demand curve as per the quantity given by theintersection of MC and MR Curve.

Question30Marks: 1

In the average cost pricing form of regulation the following happens except:

Choose one answer.

a. Increased allocative welfare.

b. Increased output and decreased price.

c. The point of intersection of marginal cost (MC) with the demandcurve gives the price and quantity.

Question31Marks: 1

Marginal cost pricing is associated with the following except

Choose one answer.

a. Government subsidy to the firm owner

b. The point of intersection of MC with the demand curve gives theprice and quantity.

c. Price (P) > ATC

Question32Marks: 1

Kinked demand curve model is based on the following assumption

Choose one answer.

a. Increase in a firms product price will be followed by itscompetitors, but a decrease will not.

b. Increase in a firms product price will not be followed by its


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competitors, but a decrease will.

c. Demand above kink price (PK) is less elastic and below PK is

more elastic.

Question33Marks: 1

Dominant firm oligopoly model is characterised by the following except

Choose one answer.

a. Dominant firm has the marginal revenue curve below demandcurve.

b. Remaining firm are price takers.

c. Price is set through the collusion between all the firms.

Question34Marks: 1

Consider an agreement between India and Sri Lanka over tea exports. The expectedpayoff matrix is given below. Outcome is most likely:

Choose one answer.

a. Both India and Sri Lanka comply

b. India defaults and Sri Lanka complies

c. India complies and Sri Lanka defaults

Question35Marks: 1

Which of the following is least likely a characteristic of price-weighted index?

Choose one answer.

a. The divisor of a price-weighted index does not need to be

adjusted for stock splits.

b. For the same percentage change in the stocks price, a stockwith higher price will have more impact than a stock with lowerprice.


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c. Nikkei Dow is a price-weighted index.

Question36Marks: 1

Which of the following is a correct definition of market float?

Choose one answer.

a. Total shares available to the investing public excluding the value

of shares held by controlling stockholders.

b. Total shares available to the investing public excluding sharesavailable to foreign buyers.

c. Total shares available to the investing public minus convertibledebt.

Question37Marks: 1

Which of the following statements is incorrect regarding Weak-form market efficiency?

Choose one answer.

a. Current security prices fully reflect all currently available public

and private data.

b. Past prices and volume information will have no predictivepower about the future direction of security prices.

c. Investor cannot achieve positive risk adjusted returns onaverage by using technical analysis.

Question38Marks: 1

Which of the following is correct regarding the intrinsic value of an asset?

Choose one answer.

a. It can be determined with certainty

b. It constantly changes as new information is available.

c. Investors will buy assets whose intrinsic value is greater than its

market value.Question39Marks: 1

Which of the following is least likely to be correct regarding participating preference

shares?

Choose one answer.


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a. Smaller and riskier firms issue participating preference shares

b. Participating preference shareholders are paid only fixed dividends

c. Participating preference shareholders may receive a value greater

than the par value of the preferred stock on liquidation.

Question40Marks: 1

Which of the following is least likely a characteristic of Convertible preference shares?

Choose one answer.

a. The preferred dividend is higher than a common dividend.

b. The conversion option becomes more valuable when thecommon stock price increases.

c. They are used to finance less risky firms.

Question41Marks: 1

Which of the following is least likely a characteristic of private equity as compared topublic equity?

Choose one answer.

a. Less liquidity

b. Lower reporting cost

c. Stronger corporate governance.

Question42Marks: 1

Which of the following is most likely a characteristic of cumulative voting?

Choose one answer.

a. Through cumulative voting minority shareholders have more

proportional representation on the board.

b. Under cumulative voting, each share is assigned one vote in theelection of each member of the board of directors.

c. Under cumulative voting, shareholders can allocate their votes toonly one candidate as they choose.

Question43Marks: 1


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A firm is not going to pay dividends for next three years after which it will pay dividendswhich will grow at a constant rate of g =5%.If the stock price at the end of the third

year is $50.The present stock value is most likely to be assuming the required rate ofreturn of 10%

Choose one answer.

a. $50

b. $ 37.57

c. $ 38

Question44Marks: 1

A company issues $ 100 par preferred stock with dividend of 8% paid semi-annuallyand has a required rate of return of 10%. If the preferred stock has a maturity of oneyear , the present value of the preferred stock is most likely:

Choose one answer.

a. $100

b. $98.54

c. $98.14

Question45Marks: 1

Which of the following is most likely incorrect in case of price multiples based on

fundamentals?

Choose one answer.

a. P/E based on fundamentals is also referred to as justified P/E.

b. P/E based on fundamentals is based on the present value of futurecash flows.

c. Fundamental method always gives the same value of Equity ascomparable method.

Question46Marks: 1

Firm X and Y which operate in the same industry have has EV/EBITDA values of 9 and9.5 respectively, where EV represents the Enterprise value of the firm. Then compared

to firm X, firm Y is:

Choose one answer.


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a. Overvalued

b. Undervalued

c. Cannot tell from these values.

Question47Marks: 1

Mark Watson, CFA, is a portfolio manager with XYZ Portfolio Management Company

which has a long term relationship with an investment bank. The investment bank asksMr Watson to purchase shares in a new IPO so that so that it can support its price forshort term. It is known to Mr Watson that once his buying support ceases the share

prices will fall dramatically. If Mr Watson accepts to purchase the shares then mostlikely he will:

Choose one answer.

a. Violate the standard regarding fair dealing.

b. Violate the standard regarding conflict of interest.

c. Violate the standard regarding market manipulation.

Question48Marks: 1

After appearing for CFA Level 1 exam in December 2010, Rahul Saxena told one of hisfriends that a lot of emphasis was put on Financial Reporting and Analysis in the CFAexam this year. By telling this to his friend Rahul Saxena has most likely:

Choose one answer.

a. Not violated any CFA Standard as it was just another viewon the exam.

b. Has violated Standard VII (A).

c. Has violated standard III(B) of fair dealing.

Question49Marks: 1

XYZ mutual fund advertises that all the analysts in its company are CFA charter holderswho have passed all the CFA exams in their first attempt. The company also boasts of

the superior performance of their company as a result of this. By doing this XYZ mutualfund has most likely:

Choose one answer.

a. Not violated any CFA standard as it was just an opinion.

b. Violated Standard VII (B) as it tried to imply that those who


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pass CFA in their CFA exams in their first attempt achievesuperior results.

c. Violated Standard VII(A) as the company is not allowed todisclose the number of attempts in which its employees clear theCFA exams.

Question50Marks: 1

Rahul Saxena has enrolled for CFA level 1.He does not want to spend too much on

purchasing CFA books from CFA Institute. He contacts one of his friends Jagjit Singhwho photocopies his previous years copyright CFA material and hands it over to Rahul.In this situation who has violated the CFA Code?

Choose one answer.

a. Rahul only as Jagjit was just trying to help him.

b. Jagjit only as he misled Rahul

c. Both Rahul and Jagjit

Question51Marks: 1

A client is happy with the performance of his investments so far. He decides to give agift of significant value to his money manager for his performance so far. The money

manager accepts the gift and informs his employer. By accepting the gift the moneymanager has most likely:

Choose one answer.

a. Only Money manager has violated Standard I(B) as he acceptedgift which could compromise his objectivity

b. Not violated any standard

c. Both Money manager and his Employer have violated Standard

I(B) .

Question52Marks: 1

Rahul Jalan is a portfolio manager for several clients in his city. One of his clients toldhim that he is under investigation for tax evasion pertinent to his business. After this

Rahul disclosed this information to one of his friends. By doing so Rahul has:

Choose one answer.

a. Violated the Code and Standards as he should have reported to theconcerned authorities.

b. Violated the Code and Standards by failing to maintain the


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confidentiality of his client.

c. Not violated any Code and Standards as it was just an informal

discussion with his friend.

Question53Marks: 1

An investors friend, who is a singer by profession, tells him that based on the recentmarket activities he feels that a company XYZ will get merged into another biggercompany ABC. After hearing this, the investor does some research and purchase stocks

of company XYZ.By doing so the investor has most likely:

Choose one answer.

a. Violated Standard II(A) by acting on material non publicinformation.

b. Violated Standard II(B) by acting on information and hence

manipulating market.c. Not violated any Code and Standards

Question54Marks: 1

A member is managing the account for one of its clients who has low risk tolerance and

expects modest returns.Th e member saw the opportunity of investing in a high risk ,high return securities and invests some money into it hoping to maximize the potentialgain for his client. By doing so the member has most likely:

Choose one answer.

a. Not violated any Code and Standards

b. Violated Standard III (D) regarding performance presentation.

c. Violated Standard III(C) regarding suitability

Question55Marks: 1

A money manager in a XYZ mutual fund states in the advertising brochure that thecompany has achieved an annual growth of 15% in the past year and hence it expects

future growth of the company in excess of 15% per annum.If the mutual fund indeedgrew by 15% in the last year then by putting it in the brochure which of the following

standards the money manager has least likely violated.

Choose one answer.

a. Standard I(C) regarding misrepresentation

b. Standard III(D) regarding performance presentation


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c. Standard III (B) regarding fair dealing.

Question56Marks: 1

Ankit Malhotra, CFA, works with an investment bank. He accepts a position of avolunteer in Teach India campaign such that the time devoted to it does not precludeperforming his excepted job functions well. But he has not informed it to his employer.By doing so Ankit has most likely:

Choose one answer.

a. Not violated any code and Standards

b. Violated of IV(A) regarding duties to Employers

c. Violated of IV(B) regarding additional compensation arrangements

Question57Marks: 1

While working for a firm a member developed software for derivatives modelling. Aftersome time he leaves the firm and joins another firm where he recreates the samesoftware based on his knowledge .By doing so the member has most likely:

Choose one answer.

a. Violated Standard IV (A) regarding duties to Employers

b. Violated Standard V(C) regarding record retention

c. Not violated any Code and Standards

Question58Marks: 1

Ankit Sharma, CFA, is an independent contractor, writes research reports for severalpublications. He entered into a non exclusive contract with one of the publications for

writing a research report. After selling the report to the publication, he modifies thecontent of his research to some extent and sells it to another publication. By doing soAnkit has most likely:

Choose one answer.

a. Violated Standard I(C) regarding misrepresentation

b. Violated Standard III(B) regarding Fair dealing


Question59Marks: 1


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Steven Jones, CFA, an investment banker is working on the acquisition of a shippingcompany. The rules of the country require strict confidentiality about the clients. In due

course he finds that the company is involved in a lot of partnerships where a lot ofillegal funds are used in the company and its ships are used for many illegal activities.The best course of action for Steven Jones would be:

Choose one answer.

a. To maintain confidentiality about his client

b. To consult outside counsel for the next step

c. To disclose these details to regulatory authorities.

Question60Marks: 1

The misleading reporting practise which involves showing a top-performance portfolioas a representative of a firms result is most likely known as:

Choose one answer.

a. Representative accounts

b. Survivorship bias

c. Varying time periods

Question61Marks: 1

Which of the following statements is true regarding the compliance of GIPS standards?

Choose one answer.

a. Firms having less than five years of existence cannot claim GIPScompliance.

b. In any case where country-specific regulations conflict with GIPS,firms must follow GIPS Standards

c. After making an initial compliant performance presentation, oneyear of compliant performance must be added each year upto aminimum performance history of ten years.

Question62Marks: 1

Akhil Gupta is a mining analyst. He has written a report on XYZ Bauxite Mines

Corporation. Based on his estimates the new area of mining leased by XYZ has inexcess of 100,000 tonnes of bauxite.He writes this in his research report that the new mine has capacity in excess of

100,000 tonnes and hence the clients should buy stocks of XYZ. By doing so Akhil hasmost likely:


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Choose one answer.

a. Violated the Standard V (B) regarding communication with clients andprospective clients.

b. Violated the Standard I(C) regarding misrepresentation


Question63Marks: 1

Which of the following is not true regarding the Standard IV(A) about Duties toEmployers?

Choose one answer.

a. Members and Candidates are free to use public informationabout their former firm after departing to contact former clients.

b. Members and Candidates can use knowledge gained in theformer firm after departing.

c. Members should always put interest of employer ahead of familyand other personal obligations.

Question64Marks: 1

Which of the following is true regarding Mosaic Theory in connection to Integrity ofCapital Markets?

Choose one answer.

a. When an analyst reaches an investment conclusion throughanalysis of public information then it is a violation of the Standard.

b. When an analyst reaches an investment conclusion through

analysis of non material non public information then it is a violationof the Standard.

c. When an analyst reaches an investment conclusion through

analysis of public information together with items of nonmaterialnon public information then there is no violation.

Question65Marks: 1

Use US GAAP accounting principle if nothing is mentioned

For a firm Revenue = $ 2,000,000, Cost of goods sold =$ 1,500,000, Selling Expenses= $100,000, Interest Expenses= $50,000, Administrative Expenses =$50,000,Dividend paid =$100,000,Tax Rate =20%.

Choose one answer.


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a. Gross Profit =$ 500,000,Operating profit = $350,000,Net Profit =$240,000

b. Gross profit =$ 350,000,Operating profit = $500,000,Net Profit =$160,000

c. Gross profit =$ 500,000,Operating profit = $350,000,Net Profit =$160,000

Question66Marks: 1


Choose one answer.

a. Percentage of completion method is used when the projects costand revenue cannot be determined.

b. Percentage of completion method is more aggressive with respectto Completed Contract method.

c. Percentage of completion method involves less subjectivity as

compared to Completed Contract method.

Question67Marks: 1

Under the principle of matching concept which one of the following statements is false?

Choose one answer.

a. Recognize warranty expenses in the period of sale than when they are

actually incurred

b. Recognize bad debts expenses in the period of sale than when they areactually incurred

c. Depreciation expenses for intangible assets like copyright/patents ismatched with the revenue of one accounting period.

Question68Marks: 1

Which of the following statements is true?

Choose one answer.

a. For perishable goods LIFO inventory method is used

b. If the prices are rising the value of inventor as per LIFO

method is greater than FIFO method but less than weightedaverage method

c. If the prices are falling the value of inventory as per LIFO


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method is greater than both FIFO method as well as weightedaverage method

Question69Marks: 1

For a company ABC net income is $ 150,000.Cash dividend paid to preferred

shareholders is $25,000.Accrued dividend but not paid to preferred shareholders is$25,000.Cash dividends to the common shareholders $50,000. Shares outstanding ason 1st January 2010 are 50,000.New shares issued 10,000 on 1st April 2010, 10,000

on 1st July 2010. Calculate basic EPS for ABC

Choose one answer.

a. $ 1.6

b. $ 2

c. $ 1.43

Question70Marks: 1

Which of the following statements is most likely correct regarding inventory

measurement?

Choose one answer.

a. Inventory write down is not permitted under IFRS

b. Inventory write up is not permitted under IFRS

c. Inventory write up is not permitted under US GAAP.

Question71Marks: 1

Which of the following marketable securities is not adjusted for the change in its market

value?

Choose one answer.

a. Held to maturity securities

b. Trading securities

c. Available for sale securities

Question72Marks: 1

Calculate revenue to be recognized under percentage of completion method in 2008&2009 for following contract awarded in 2008 beginningTotal Contract Size = $120,000Total Estimated Costs = $100,000


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Costs incurred in 2008 = $25,000Costs incurred till 2009 = $75,000

Choose one answer.

a. 2008: $30,000 2009: $90,000

b. 2008: $30,000 2009: $60,000

c. 2008: $90,000 2009: $30,000

Question73Marks: 1


Choose one answer.

a. Under IFRS interest and dividend received can also be classified

as financing activities

b. Under IFRS interest and dividend paid can also be classified asinvesting activities.

c. IFRS is more flexible than US GAAP in classification of cash flows.

Question74Marks: 1

During financial year 2010-2011 a company ABC ltd accrued wages of $2,000 andcollected accounts receivable of $10,000 of previous year. Which of the followingstatements is correct?

Choose one answer.

a. Net income will increase

b. Current ratio will decrease

c. CFO will decrease

Question75Marks: 1

A company has 50,000 shares outstanding as on 1st January 2011 . On 1st July 2010the company plans either 200% stock dividend or 3 for 1 stock split. For calculation EPS

as on 31st December 2010 the number of shares will be

Choose one answer.

a. 150,000 for both stock dividend and stock split case

b. 100,000 for both stock dividend and stock split case


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c. 100,000 for stock dividend case and 150,000 for stock splitcase

Question76Marks: 1

Which of the following statements is incorrect?

Choose one answer.

a. When prices decline FIFO provides a more accurate estimateof the economic value of inventory

b. When prices rise FIFO provides a more accurate estimate ofthe economic value of inventory

c. When prices decline FIFO provides a more accurate estimateof COGS

Question77Marks: 1

Which of the following statements is true under US GAAP for inventory valuation?

Choose one answer.

a. If the market price is higher than historical cost, inventory iswritten up above the historical value.

b. Losses prior to the sale of inventory may be realized on the

financial statement as they occur.

c. The lower end for the market replacement cost is known as net

realizable value (NRV).

Question78Marks: 1

Which of the following is most likely a characteristic of LIFO liquidations?

Choose one answer.

a. Firm sells more inventory than it purchases

b. Cost of goods sold increases

c. LIFO reserves increasesQuestion79Marks: 1

Which of the following Financial Statement Impact of Capitalizing vs. Expensing does

not hold true?Capitalizing Expensing

Choose one answer.


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a. Cash flow from operations Lower Higher

b. Leverage ratios Lower Higher

c. Profitability early years Higher Lower

Question80Marks: 1

The following information is available about a company ($ millions):

Which of the following has the company most likely increased during the period from2009 to 2010?

Choose one answer.

a. Inventory , anticipating higher demand in 2010

b. Proportion of sales made on cash basis

c. Accounts receivable and debt level.

Question81Marks: 1

For a firm the dividend payout ratio is 35%, asset turnover is 0.8 times, financial

leverage multiplier is 1.3 times and net profit margin is 15%.The firms sustainablegrowth rate is

Choose one answer.

a. 10.14 %

b. 14.10%

c. 10.52%

Question82Marks: 1

Which of the following best reflect the financial statement impact of lease accounting onlessees account?

Choose one answer.

a. Total net income is higher under capital lease than operatinglease


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b. Operating income (EBIT) is lower under capital lease thanoperating lease

c. Cash flow from operations is higher under capital lease thanoperating lease.

Question83Marks: 1

Which of the following is incorrect regarding the Ratio impact of lease accounting on thelessee?

Choose one answer.

a. Current ratio lower for Capital lease than operating lease

b. Asset turnover is lower for Capital lease than operating lease

c. Return on assets is higher for capital lease than operating

lease in the early years of lease.Question84Marks: 1

Kodak sells digital cameras. Per unit cost information is given as followsOriginal cost $ 420Estimated selling price $ 450

Estimated selling costs $ 44Net realizable value $406Replacement cost $394Normal profit margin $24What is the gain/loss reported in the income statement under IFRS?

Choose one answer.

a. $14 loss

b. $14 gain

c. No loss is reported under IFRS in inventory writedown

Question85Marks: 1

Which of the following is correct with respect to bond issuance cost?

Choose one answer.

a. Under US GAAP the initial bond liability on the balance sheet isreduced by the amount of bond issuance cost.

b. Under US GAAP , bond issuance costs are capitalised on anasset.


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c. Under IFRS , bond issuance costs are treated as amortiseddiscount.

Question86Marks: 1

Which of the following statements is most likely correct with respect to valuation

allowances in Income taxes?

Choose one answer.

a. Valuation allowances reduce the deferred tax liabilities andhence increases the net income.

b. Valuation allowances increase the deferred tax liability andhence increases the net income.

c. Valuation allowances reduce the deferred tax assets and hence

reduce the net income.

Question87Marks: 1

Which of the following statements is most likely incorrect?

Choose one answer.

a. Warranty expenses create deferred tax liability

b. Different depreciation methods used on the tax return and

income statement can create deferred tax liability.

c. Post employment benefits create deferred tax assets.

Question88Marks: 1

Which of the following is least likely a principle for preparing financial statements as perInternational Accounting Standards (IAS)?

Choose one answer.

a. Fair presentation

b. Going concern basis

c. Aggregation

Question89Marks: 1

A companys fixed income portfolio comprises three bonds whose market values, parvalues, coupon rates, and durations are given in the following table:


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The portfolios duration is closest to:

Choose one answer.

a. 6.85

b. 6.58

c. 6.65

Question90Marks: 1

A bond has a modified duration of 5.5 and convexity of 38.5. If interest rates increasesby 1.0 percent, the percentage decreases in the value of the bond will be closest to:

Choose one answer.

a. 5.115%

b. 5.511%

c. 5.515%

Question91Marks: 1

An investor is considering the purchase of two bonds. One is a 6% yield tax-exemptbond while the other is an 8% yield taxable bond. If the two bonds are alike in all othercharacteristics, the marginal tax rate that would make the investor indifferent betweenthe two bonds is closest to:

Choose one answer.

a. 25%

b. 26%

c. 24%

Question92Marks: 1


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Which of the following statements is incorrect regarding option adjusted spread (OAS)and Z-spread for option embedded bonds?

Choose one answer.

a. For a callable bond OAS < Z spread

b. For a Callable bond OAS > Z spread

c. For a Putable bond OAS > Z spread

Question93Marks: 1

If the bond is selling at discount which of the following relations hold true.

Choose one answer.

a. Coupon rate = Current Yield = Yield to Maturity

b. Coupon rate > Current Yield = Yield to Maturity

c. Coupon rate < Current Yield < Yield to Maturity

Question94Marks: 1

20-year Treasury bond purchased at par value of $100, 10% coupon rate paid semi-annually, how much reinvestment income should be generated to earn a YTM of 10%?

Choose one answer.

a. $ 404

b. $ 484

c. $ 504

Question95Marks: 1

Which of the following statements is least correct regarding reinvestment risk?

Choose one answer.

a. Reinvestment risk is higher for callable bonds than option free bonds.

b. Higher the coupon rate, higher the reinvestment risks.

c. Longer the maturity, lower the reinvestment risk.

Question96Marks: 1


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For a bond which pays annual coupon of 4% for 4 years with the par value of $1,000.The yield for the bond is 5%. The Macaulay Duration for this bond.

Choose one answer.

a. 3.77 years

b. 1.89 years

c. 3.65 years

Question97Marks: 1

Consider the following situation.

For a bond with the face value of $100 and which pays 8% annual coupon with maturityperiod of 3 years, the current market value based on arbitrage free valuation is equal to

Choose one answer.

a. $100.27

b. $100.72

c. $102.27

Question98Marks: 1

For the given portfolio if the interest rate increases by 100 bps what will be the

percentage decrease in bond price.

Choose one answer.

a. 6.36%

b. 6.63%

c. 6.26%


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Question99Marks: 1

For a bond the last coupon date was 1st January 2010 and Mr X purchases that bond on1st April 2010. The coupon rate is 12% per annum with par value of $1000.If the fullprice of the bond is $ 1050 then the clean price for the bond will be

Choose one answer.

a. 1000

b. 1050

c. 1020

Question100Marks: 1

Which of the following bond is similar to zero coupon bonds in the sense that they do

not make any periodic interest?

Choose one answer.

a. Accrual bonds

b. Step-up notes

c. Deferred coupon bonds

Question101Marks: 1

An investor buys a share of a stock for $ 80 at the beginning of 2009. He buys anotherstock of share price $100 at the beginning of next year. Both these stocks pay adividend of $ 2 per year during their holding period. At the end of 2nd year the investorsells both the stocks for $ 110 each. The money weighted rate of return is closest to:

Choose one answer.

a. 16.94%

b. 16.64%

c. 19.64%

Question102Marks: 1

The line representing the possible combinations of risk-free assets and optimal riskyasset portfolio is known as:

Choose one answer.


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a. Indifference curve

b. Utility function

c. Capital allocation line.

Question103Marks: 1

Which of the following statements is most accurate about indifference curves?

Choose one answer.

a. For a risk averse person the indifference curve is flatter.

b. Investors expected utility may be different along the indifferencecurve.

c. Indifference curves do not intersect .

Question104Marks: 1

Consider three portfolios A,B,C with their expected return and standard deviation givenbelow.

Which of the portfolios will most likely fall below the Markowitz efficient frontier?

Choose one answer.

a. Portfolio A

b. Portfolio B

c. Portfolio C

Question105Marks: 1

Macroeconomic factors like increase in interest rate will most likely:

Choose one answer.

a. Affect diversifiable risk

b. Affect market risk


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c. Affect Unsystematic risk

Question106Marks: 1

Which of the following measures is based on systematic (beta ) risk only?

Choose one answer.

a. M-squared measures

b. Treynor measures

c. Shape ratios.

Question107Marks: 1

A company which produced bulb find that 15% of the bulbs produced by it aredefective. Using binomial probability function the probability of finding 6 defective bulbsin a sample of 10 bulbs is closest to.

Choose one answer.

a. 0.125%

b. 4 %

c. 1.25%

Question108Marks: 1

The return on a stock in 5 years is given by -5% , 6.5% ,7% ,6% ,4%.The samplevariance of these stock returns is closest to:

Choose one answer.

a. 0.002495

b. 0.001996

c. 0.002245

Question109

Marks: 1

Which of the following is most likely correct with regards to p value in a hypothesistesting?

Choose one answer.

a. When p value is negative alternate hypothesis is rejected


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b. When p value is one , null hypothesis is rejected

c. When p value is zero, null hypothesis is rejected.

Question110Marks: 1

Which of the following is most likely correct about the measurement scale?

Choose one answer.

a. Data is categorized and ranked under a nominal scale

b. Data is categorized and ranked under ordinal scale.

c. Data is not ranked in an interval scale.

Question111Marks: 1

Kurtosis for a normal distribution is:

Choose one answer.

a. Platykurtic.

b. Leptokurtic.

c. Mesokurtic.

Question112Marks: 1

A 120 days U.S Treasury bill with a face value of $100,000 currently sells for $98,000then which of the following is correct:

Choose one answer.

a. Holding period yield = 2.04% , Bank discount yield = 6.0%,Money market yield = 6.12%

b. Holding period yield = 2.04% , Bank discount yield = 6.12%,Money market yield = 6.0%

c. Holding period yield = 2.04% , Bank discount yield = 6.0%,Money market yield = 6.0 %

Question113Marks: 1

For two firms X and Y the following table gives the value of return during differentstates of economy i.e Expansion, Normal, Contraction along with the probability of


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occurrence of each states. The covariance of the returns for Stock X and Y is closes to:

Choose one answer.

a. 0.0036

b. 0.0012

c. 0.0045

Question114Marks: 1

Which of the following sampling methods is most likely used in bond indexing?

Choose one answer.

a. Simple random sampling

b. Stratified random sampling

c. Systematic sampling

Question115Marks: 1

Which of the following is not true as per central limit theorem?

Choose one answer.

a. For sample sizes greater than 30, central limit theorem can beapplied regardless of the population distribution.

b. If ?2 is the population variance then population variance is given

by ?2/n where n is the sample size.

c. The sample population mean is equal to population mean dividedby the sample size.

Question116Marks: 1

A firm wants to measure the characteristics of a country like unemployment, inflation,and GDP growth rates for a long period of 10 years. Which kind of data the firm is mostlikely to use?

Choose one answer.


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a. Longitudinal data

b. Panel data

c. Cross-sectional data

Question117Marks: 1

Which of the following is not a characteristic of Students t-distribution?

Choose one answer.

a. It has less probability in the tails than the normal distribution.

b. As the degrees of freedom (the sample size) gets larger, theshape of the t-distribution more closely approaches a normaldistribution.

c. It is appropriate to construct confidence intervals when thepopulation variance is unknown.

Question118Marks: 1

Bias which occurs when some data is systematically excluded from the analysis, usuallybecause of the lack of availability?

Choose one answer.

a. Look ahead bias

b. Sample selection bias

c. Survivorship bias

Question119Marks: 1

A person which has wealth of $ 80 million intents to increase his wealth to $90 millionin next one year. He is considering investing in three portfolios .whose returns arenormally distributed, with the characteristic as given below. Using Roys first safetycriteria which portfolio should he choose?

Choose one answer.

a. Portfolio Z

b. Portfolio Y


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c. All the three portfolios

Question120Marks: 1

In a school there is 70% probability that the teachers will teach well and if it happensthen there is 80% probability that students will get good marks and 20% probabilitythat students will poor marks. There is 30% probability that the teachers will not teachwell and if this happens then there is 30% probability of students getting good marksand 70% probability of students getting poor marks.The probability of teachers teaching well, given that the students have got good marksis:

Choose one answer.

a. 56%

b. 80%

c. 86.15%

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CFA Level I Mock Test I