Q1.
Joy Nash, CFA, resides in Country 1, where applicable law is less strict than the
Standards. Nash does business in Country 2, where applicable law is less strict than in
Country 1. According to the Standards, when doing business in Country 2, Nash must
follow:
A. the Code and Standards.
B. applicable law of Country 1.
C. applicable law of Country 2.
Q2. Which of the following situations most likely helps to explain why the GIPS
standards were created?
A. Firms were including only top performing funds to represent their performance
history.
B. Asset managers were including the performance of all portfolios, including
those no longer managed in their performance history.
C. Consistency among fund managers were needed when making investment
performance presentations.
Q3. Daniel Morgan is a Level Ill candidate in the CFA Program. After taking the
exam, Morgan signs into a CFA-candidate-only Internet forum and writes a post
expressing the opinion that the CFA Program and examination policies are unfair. Has
Morgan most likely violated the Standards?
A. No.
B. Yes, by providing confidential program information.
C. Yes, by compromising the reputation of CFA Institute.
Q4. Which of the following should a GIPS-compliant firm most likely provide to each
prospective client?
A. A list of composite descriptions upon request
B. A copy of the GIPS standards
C. A compliant presentation every six months
Q5. Which of the following is permitted according to the Standards? A member:
A. exploits market inefficiencies for personal trades.
B. disseminates information to give the impression of increased liquidity of an
asset.
C. secures a dominant position in an underlying asset to control the price of its
derivative.
Q6. Ashley Brown, CFA, applies for a new job. In her application letter, she states,
"As a CFA charterholder, I provide the best value in trade execution." Further, she
states, "I passed all three CFA Program examinations in three consecutive years." Has
Brown violated the Standards?
A. No
B. Yes, by stating, "As a CFA charterholder, I provide the best value in trade
execution"
C. Yes, by stating, "As a CFA charterholder, I provide the best value in trade
execution" and by stating, "I passed all three CFA Program examinations in
three consecutive years"
Q7. Yip Wai Yin, a CFA candidate, is an independent mutual fund sales agent. For
every front-end load product she promotes, Yip receives a portion of the front-end fee
as commission at the time of sale. For every back-end load fund she sells, Yip receives
a smaller commission paid at the end of the year. Yip always informs her clients that
she is paid a commission as an agent, but does not provide details of the compensation
structure. When pitching her favored front-end load product line she tells clients 20%
of her commission is always invested in the same fund as proof of her confidence in
the fund she recommends. Which Standard does Yip least likely violate?
A. Referral Fees
B. Priority of Transactions
C. Avoid or Disclose Conflicts
Q8. After a firm presents a minimum required number of years of GIPS-compliant
performance, the firm must present an additional year of performance each year,
building up to a minimum of:
A. 5 years of GIPS-compliant performance.
B. 10 years of GIPS-compliant performance.
C. 15 years of GIPS-compliant performance.
Q9. Which of the following is a violation according to the Standard relating to
preservation of confidentiality?
A. Members share details relating to former clients with third party service
providers
B. Members convey to clients that not all firm-sponsored resources may be
appropriate for communicating confidential information
C. When allowed under the law, members share confidential client information to
defend themselves in an investigation by the CFA Institute Professional
Conduct Program
Q10. Which of the following is a recommended procedure for compliance with the
standard relating to responsibilities of supervisors? Once a violation in the form of
wrongdoing from an employee is discovered, a supervisor should do which of the
following?
A. Avoid increasing supervision of the wrongdoer until the investigation is
concluded
B. Place appropriate limitations on the wrongdoer pending the outcome of the
investigation
C. Rely on an employee's statement about the extent of a violation of the law if the
employee gives written assurance that the wrongdoing will not reoccur
Q11. Dimitri Kuznetsov, CFA, is a portfolio manager and holds shares of Barnikoff
Limited and Matric Ventures in all client portfolios. Both companies have upcoming
annual general meetings scheduled for the same day. The management of Barnikoff
proposes to change its financial year-end from September to December, while Matric
Ventures proposes to enter into a high-risk venture. The proxy voting policy clause in
all client investment management agreements managed by Kuznetsov states, "When
voting proxies provides a cost benefit to the client, the manager must vote a proxy."
With regard to the proxy votes for Matric and Barnikoff, Kuznetsov would least likely
violate CFA Institute Standard III(A)-Loyalty, Prudence, and Care if he votes:
A. with management.
B. only the Matric proxy.
C. only the Barnikoff proxy.
Q12. Umi Grabbo, CFA, is a highly regarded portfolio manager for Atlantic Advisors,
a mid-sized mutual fund firm investing in domestic securities. She has watched the
hedge fund boom and on numerous occasions suggested that her firm create such a
fund. Senior management has refused to commit resources to hedge funds. Attracted
by potential higher fees associated with hedge funds, Grabbo and several other
employees begin development of their own hedge fund to invest in international
securities. Grabbo and her colleagues are careful to work on the fund development
only on their own time. Because Atlantic management thinks hedge funds are a fad,
she does not inform her supervisor about the hedge fund creation. According to the
Standards of Practice Handbook, Grabbo should most likely address which of the
Standards immediately?
A. Priority of transactions
B. Avoid or disclose conflicts
C. Additional compensation arrangements
Q13.Which of the following member actions violates the Standard relating to
misconduct?
○ Action 1: Declaring personal bankruptcy because of a large loss from investing
in a startup company.
○ Action 2: Allocating for her personal account shares from an oversubscribed
IPO that is suitable for her firm's clients.
A. Action 1 only
B. Action 2 only
C. Both Action 1 and Action 2
Q14. According to the Standards, a member who manages an index fund is:
A. only required to invest in a manner consistent with the fund's stated mandate.
B. only required to determine the suitability of the fund for those who invest in the
fund.
C. both required to invest in a manner consistent with the fund's stated mandate
and to determine the suitability of the fund for those who invest in the fund.
Q15. Which of the following is not among the recommended procedures for
compliance with the Standard relating to performance presentation?
A. Excluding terminated accounts as part of the performance history
B. Presenting performance of the weighted composite of similar portfolios
C. Considering the sophistication of the audience to whom a performance
presentation is addressed
Q16. Holly Baker, CFA is explaining CFA Institute Code of Ethics to a client. Which
of the following statements could Baker make to most likely reflect disciplinary
sanctions the CFA Institute may impose? Sanctions include:
A. fines for violations.
B. revocation of membership.
C. banishment from the industry.
Q17. Lawrence Hall, CFA, and Nancy Bishop, CFA, began a joint research report on
Stamper Corporation. Bishop visited Stamper's corporate headquarters for several
days and met with all company officers. Prior to the completion of the
report, Bishop was reassigned to another project. Hall utilized his and Bishop's
research to write the report but did not include Bishop's name on the report because he
did not agree with and changed Bishop's conclusion included in the final report.
According to the CFA Institute Standards of Practice Handbook, did Hall most likely
violate any CFA Institute Standards of Professional Conduct?
A. No
B. Yes, with respect to misrepresentation
C. Yes, with respect to diligence and reasonable basis
Q18. According to the Standard relating to referral fees, members should disclose to
employers the amount and nature of compensation received at least:
A. monthly.
B. quarterly.
C. annually.
Q19. In the absence of regulatory guidance, CFA Institute recommends that members
maintain their investment research records for at least:
A. 3 years.
B. 5 years.
C. 7 years.
Q20. Dennis Chung, CFA, manages an equity fund for his firm's clients. Chung does
comprehensive analysis and concludes that Advance Technology Company (ATC)
could announce a substantial stock repurchase program. Chung informs his clients
about the analysis by phone, and states "ATC is scheduled to announce a substantial
stock repurchase program and its stock price will increase significantly." Chung has
violated the Standard(s) relating to:
A. misrepresentation only.
B. communication with clients and prospective clients only.
C. misrepresentation as well as communication with clients and prospective
clients.
Q21. Which of the following member actions most likely violates the Standard
relating to fair dealing?
A. Providing premium service levels to clients who pay higher fees
B. Selectively offering different service levels to prospective clients
C. Using different communication methods to recommend investments to clients
Q22. Zhao Xuan, CFA, is a sell side investment analyst. While at a software industry
conference, Zhao hears rumors that Green Run Software may have falsified its
financial results. When she returns to her office, Zhao conducts a thorough analysis of
Green Run. Based on her research, including discussions with some of Green Run's
customers, Zhao is convinced that Green Run's reported 50% increase in net income
during recent quarters is completely fictitious. So far, however, Zhao is the only
analyst suspicious about Green Run's reported earnings. According to the CFA
Institute Code of Ethics and Standards of Professional Conduct, the least appropriate
action for Zhao is to:
A. report her suspicions to Green Run's management.
B. do nothing until other analysts support her analysis.
C. recommend that her clients sell their Green Run shares immediately.
Q23. According to the GIPS standards, a verification report confirms all of the
following except whether:
A. specific composite presentations are accurate.
B. a firm has complied with all firm-wide composite construction requirements.
C. processes and procedures are designed to calculate and present performance
results in compliance with the GIPS standards.
Q24. Shruti Kurup, CFA, is preparing to leave her firm and join a new employer. Prior
to leaving the firm, Kurup calls all her clients informing them of her decision to leave.
When asked by the clients, Kurup states lack of confidence in the firm's leadership as
the reason for her departure and also mentions that more employees are likely to leave
soon.
Kurup has violated the Standard(s) relating:
A. only to loyalty.
B. only to communication with clients and prospective clients.
C. both to loyalty and to communication with clients and prospective clients only.
Q25. Anjuman Khan, CFA, manages the portfolios of several clients. One client offers
Khan monetary compensation and another client gives her two tickets to a sold-out
football match in appreciation of significantly beating their portfolio benchmarks.
Khan accepts both the monetary compensation and the tickets to the football match.
She discloses only the monetary compensation to her supervisor by text over the
holiday weekend. Has Khan violated the Standard relating to independence and
objectivity?
A. No
B. Yes, because she failed to notify her supervisor of her acceptance of the tickets
to the football match
C. Yes, because she failed to get prior approval from her supervisor for accepting
the monetary compensation
Q26. According to the recommended procedures for compliance with the Standard
relating to additional compensation arrangements, a member should make an
immediate written report specifying any proposed compensation arrangements to:
● her supervisor only.
● her firm's compliance officer only.
● both to her supervisor and to her firm's compliance officer.
Q27. Brian Chan, CFA, is the CEO of Wholecare Pharmaceutical (WPC). WPC is in
its final stages of clinical trials for developing a medicine for treating heart disease.
Chan posts on social media that WPC is launching a new medicine for heart disease,
knowing that the news will have a positive impact on WPC's stock price. Chan has
violated the Standard(s) relating:
A. only to misrepresentation.
B. only to market manipulation.
C. both to misrepresentation and to market manipulation.
Q28. Which of the following risk premiums compensates investors for the risk of loss
relative to an investment's fair value if the investment needs to be converted to cash
quickly?
A. Liquidity premium
B. Inflation premium
C. Maturity premium
Q29. Which of the following is most likely to signal manipulation of financial
reporting for a large, diversified company?
A. A history of large expense items classified as unusual
B. Operating margins out of line with other diversified companies
C. Changes in accounting policies to reflect new accounting standards
Q30.Based only on this information, average total liabilities are:
A. €200,000.
B. €300,000.
C. €400,000.
Q31. Which of the following stakeholders in a mature company would most likely
tolerate higher risks in return for higher return potential?
A. Debtholders
B. Shareholders
C. Independent directors
Q32. The term Big Data refers to:
A. structured data only.
B. unstructured data only.
C. both structured and unstructured data.
Q33. Which of the following is most likely a motivation for leasing long term rather
than purchasing a high-value asset?
A. Reduced exposure to obsolescence risk
B. Not having to recognize an asset on the balance sheet
C. Not having to recognize a liability on the balance sheet
Q34. All else being equal, the firm will most likely:
A. operate in the long-run.
B. exit the market in the short-run.
C. operate in the short-run and exit the market in the long-run.
Q35. Which of the following is most likely a drag on a company's liquidity position?
A. Reduced credit lines
B. Uncollected receivables
C. Early payment to suppliers
Q36. The bootstrap resampling method:
A. guarantees that all items will appear in the resamples.
B. relies on an analytical formula to estimate the distribution of the estimators.
C. mimics the random sampling process by treating the randomly drawn sample as
if it were the population.
Q37. Which of the following companies would most likely have the highest level of
information asymmetry between managers and shareholders? Companies:
A. selling simple products
B. operating in multiple markets and geographies
C. with higher levels of institutional ownership and free float
Q38. At a 99% confidence level, the analyst should reject the null hypothesis that:
A. the intercept is zero.
B. the slope is less than or equal to 0.75.
C. there is no linear relationship between the country's inflation rate and
short-term interest rate.
Q39. If monetary policy is expansionary, the central bank's inflation target is:
A. less than 1.0%.
B. equal to 1.0%.
C. greater than 1.0%.
Q40. Which category of financial ratios is most likely used to measure how efficiently
a company performs day-to-day
tasks?
A. Activity
B. Liquidity
C. Solvency
Q41. Deferred tax assets could arise when:
A. an asset's tax base exceeds its carrying amount.
B. an asset's carrying amount exceeds its tax base.
C. taxes recognized on the income statement exceed income taxes payable.
Q42. A positively skewed unimodal distribution of returns most likely has:
A. a long tail on the left side.
B. a mode that is less than its mean.
C. frequent small gains and a few extreme losses.
Q43. Sampling error is the difference between the observed value of a statistic and
the:
A. mean of the sample.
B. quantity it is intended to estimate.
C. observed value of the random variable.
Q44. A sign of expansionary fiscal policy is a(n):
A. increase in indirect taxes.
B. increase in the budget deficit.
C. reduction in reserve requirements for banks.
Q45. The redistribution of income and wealth is most directly associated with:
A. fiscal policy only.
B. monetary policy only.
C. both fiscal policy and monetary policy.
Q46. Under the revaluation model, an initial revaluation that increases the carrying
value of an asset most likely results in a:
A. higher net profit margin.
B. lower financial leverage ratio.
C. higher total asset turnover ratio.
Q47. If a 2-for-1 stock split occurred on 1 July, basic earnings per share for the fiscal
year is closest to:
A. $0.91.
B. $1.30.
C. $1.73.
Q48. If the average weekly hours worked in manufacturing decrease and unit labor
costs remain the same, this most likely indicates future economic:
A. decline.
B. stability.
C. growth.
Q49. The role of lender of last resort in an economy is most likely fulfilled by the:
A. government.
B. central bank.
C. banking system.
Q50. The 180-day EUR/USD forward exchange rate is closest to:
A. 0.98662.
B. 0.98858.
C. 0.98956.
Q51. Costs are an appropriate measure of progress toward completion. The
construction company has only limited experience with similar contracts and knows
that many factors outside its control could cause delay. Assuming it is highly probable
that revenue will not be subsequently reversed, revenue (in millions) recognized in
Year 1 is most likely:
A. 0.
B. 43.2.
C. 45.6.
Q52. For a manufacturing company reporting under US GAAP, which of the
following is classified as an operating activity on the statement of cash flows?
A. Dividends paid
B. Purchase of treasury stock
C. Purchase of trading securities
Q53. Which of the following would best mitigate an analyst's confirmation bias when
forecasting a firm's financial statements?
A. Speaking with management of the firm
B. Ignoring information about the firm's competitors
C. Reading the research from analysts with a negative opinion of the firm
Q54. The third quintile corresponds to the:
A. 40th percentile.
B. 50th percentile.
C. 60th percentile.
Q55. An inflation-targeting central bank most likely has a medium-term inflation
target sufficiently:
A. below zero to avoid the risk of deflation but high enough to ensure price
stability.
B. above zero to avoid the risk of deflation but low enough to ensure price
stability.
C. above zero to avoid the risk of inflation and high enough to ensure price
stability.
Q56. A country in fiscal balance with a trade surplus will most likely:
A. sell assets to foreigners to reduce the imbalance.
B. increase the imbalance by lending to foreign countries.
C. have an excess of domestic saving relative to investment spending.
Q57. A cooperative country is most likely to have characteristics of both:
A. technology exchange and retaliation.
B. rules standardization and reciprocation.
C. harmonization of tariffs and arbitrary rules.
Q58. A common market has a higher degree of economic integration than a(n):
A. customs union.
B. monetary union.
C. economic union.
Q59. With respect to intangible assets with indefinite lives reported under the cost
model, which of the following must be disclosed?
Correct
A. Date of revaluation
B. Restrictions on title
C. Amortization methods used
Q60. A decrease in which of the following ratios decreases the cash conversion cycle?
● Payables turnover
● Inventory turnover
● Receivables turnover
Q61. In periods of rising prices and increasing inventory quantities, using the last-in,
first-out (LIFO) inventory valuation method instead of the first-in, first-out (FIFO)
inventory valuation method most likely increases:
A. total assets.
B. cost of goods sold.
C. days of inventory on hand.
Q62. Costs incurred during the development phase that are related to internally
generated, identifiable intangible assets:
A. must be expensed.
B. must be capitalized.
C. can be capitalized if certain criteria are met.
Q63. Which of the following is an assumption of Modigliani and Miller's propositions
regarding capital structure?
A. Investors have homogeneous expectations
B. Investors can borrow and lend at a zero interest rate
C. Financing decisions depend on investment decisions
Q64. If the annual target return is 4%, the sample target semideviation of returns is
closest to:
A. 3.0%.
B. 3.5%.
C. 4.2%.
Q65. In monopolistically competitive markets, economic profits:
A. cannot be earned.
B. can be earned in the short run only.
C. can be earned in the short run and in the long run.
Q66. In geopolitics, cabotage is best described as a:
A. financial tool.
B. multi-tool approach.
C. national security tool.
Q67. If current liabilities are £500 million, the quick ratio is:
A. 2.4.
B. 2.8.
C. 4.2.
Q68. Which of the following capital investments would most likely be classified as
a going concern project?
A. Upgrade of older production facilities to reduce costs
B. Modification of production processes to comply with new regulation
C. Funding research on the creation of new products based on an innovative
technology
Q69. Which of the following returns is the largest?
A. The geometric mean annual return
B. The arithmetic mean annual return
C. The two-year holding period return
Q70. A bank account has a stated annual interest rate of 3.5% with quarterly
compounding. If the current value of the account is $100,000, the future value of the
account two years from now is closest to:
A. $107,123.
B. $107,207.
C. $107,218.
Q71. The static trade-off theory of capital structure most likely considers:
A. agency costs of equity.
B. information asymmetry.
C. the tax shield provided by debt.
Q72. A company is prohibited from reversing the impairment loss on a long-lived
asset classified as:
A. held for use under IFRS.
B. held for use under US GAAP.
C. held for sale under US GAAP.
Q73. When testing a hypothesis, the power of a test is best described as the:
A. same as the level of significance of the test.
B. probability of rejecting a true null hypothesis.
C. probability of correctly rejecting the null hypothesis.
Q74. Which market is most likely monopolistically competitive?
A. Market 1
B. Market 2
C. Market 3
Q75. If inventory that was written down in a previous reporting period subsequently
increases in value, the amount of the original write-down can be reversed under:
A. IFRS only.
B. US GAAP only.
C. both IFRS and US GAAP.
Q76. Goodness of fit measures derived from analysis of variance (ANOVA) data most
likely include the:
A. coefficient of variation.
B. regression coefficients.
C. standard error of the estimate.
Q77. If an auditor is experiencing some scope limitation, but can still issue an opinion,
the auditor most likely issues an):
A. qualified opinion.
B. unqualified opinion.
C. disclaimer of opinion.
Q78. If total industry sales are forecasted to be $3.3 billion and the company has no
interest expense, the company's forecasted free cash flow to the firm is closest to:
A. $43 million.
B. $52 million.
C. $55 million.
Q79. With respect to business models, network effects can apply to:
A. internet-based businesses only.
B. non-internet-based businesses only.
C. both internet-based businesses and non-internet-based businesses.
Q80. Compared to shareholders in public companies, shareholders in private
companies typically:
A. have longer holding periods.
B. can sell their shares more easily.
C. have less control over management.
Q81. When calculating cash paid to suppliers based on income statement and balance
sheet data, cost of sales is adjusted for changes in:
A. inventory only.
B. accounts payable only.
C. both inventory and accounts payable.
Q82. The account balance at the end of the second year is closest to:
A. €8,432.
B. €9,672.
C. €10,912.
Q83. The company's WACC is equal to:
A. 5.75%.
B. 6.50%.
C. 7.00%.
Q84. The company in the growth phase of its lifecycle is most likely:
A. Company 1.
B. Company 2.
C. Company 3.
Q85. Changes to the allowance for inventory obsolescence have already been reflected
in cost of sales. The inventory turnover (based on average inventory) for Year 2 is
closest to:
A. 4.0.
B. 4.2.
C. 4.5.
Q86. If the cost of capital exceeds the return on invested capital, shareholder value
will:
A. decrease.
B. remain the same.
C. increase.
Q87. The expected return on the portfolio is closest to:
A. 8.2%.
B. 10.0%.
C. 10.8%.
Q88. The cost of which source of capital most likely requires adjustment for taxes in
the calculation of a firm's weighted average cost of capital?
A. Bonds
B. Common stock
C. Preferred stock
Q89. Risks associated with supplier relationships are typically mitigated through:
A. contracts.
B. regulation.
C. board representation.
Q90. In the year of a change in accounting policy, comparability of the presented
financial statements is best with:
A. prospective application.
B. retrospective application.
C. modified retrospective application.
