Mock

6/4/15 Questionmark Perception
Jun 04 2015 |
Logged in as : 7199363
Introduction
Mock Exam - AM
Total score: 32 out of 120, 27%
Question Feedback
Block 1: TOS
Question
1 of 1
By accessing this assessment, you agree to the following terms of use: The practice tests and mock exams are provided to currently registered
CFA candidates. Candidates may view and print the exams for personal exam preparation only. The following activities are strictly prohibited and
may result in disciplinary and/or legal action: accessing or permitting access by anyone other than currently registered CFA candidates and
copying, posting to any website, e-mailing, distributing, and/or reprinting the practice tests and mock exams for any purpose.
I agree.
0 out of 0
Block 2: Question block created by wizard
Question
1 of 120
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 used 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 Standards of Practice Handbook, did Hall most likely
violate any CFA Institute Standards of Professional Conduct?
No
Yes, with respect to diligence and reasonable basis
Yes, with respect to misrepresentation
1 out of 1
Correct.
Members are in compliance with CFA Institute's Standard V(A)-Diligence and Reasonable Basis if they rely on the research of another party
who exercised diligence and thoroughness. Because Bishop's opinion did not agree with the final report, disassociating her from the report is one
way to handle this difference between the analysts.
CFA Level I
"Guidance for Standards I-VII," CFA Institute
Standard V(A)
Question
2 of 120
James Woods, CFA, is a portfolio manager at ABC Securities. Woods has reasonable grounds to believe his colleague, Sandra Clarke, a
https://ondemand.questionmark.com/delivery/perception.php?customerid=399691 1/55
CFA Level II candidate, is engaged in unethical trading activities that may also be in violation of local securities laws. Woods is not Clarke's
supervisor, and her activities do not impact Woods or any of the portfolios for which he is responsible. Based on the Code and Standards,
the recommended course of action is for Woods to:
report Sandra Clarke to ABC's trading supervisor or compliance department.
report Sandra Clarke to the appropriate governmental or regulatory organization.
not take any action because he is not directly involved.
1 out of 1
Correct.
Under Standard 1(A) in situations where a member or candidate is aware of employer engagement in unethical or illegal activity, it is
recommended that they attempt to stop the behavior by bringing it to the attention of a supervisor or the firm's compliance department.
CFA Level I
Standard I(A)
Question
3 of 120
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:
15 years of GIPS-compliant performance.

1 out of 1
Correct.
After a firm presents a minimum of five years of GIPS-compliant performance, the firm must present an additional year of performance each
year, building up to a minimum of 10 years of GIPS-compliant performance.
CFA Level I
"The GIPS Standards," CFA Institute
Section: Historical Performance Record
Question
4 of 120
While waiting in the business class lounge before boarding an airplane, Becca Msafari, CFA, an equity analyst, overhears a conversation by a
group of senior managers, including members of the board, from a large publicly listed bank. The managers discuss staff changes necessary to
accommodate their regional expansion plans. Msafari hears several staff names mentioned. Under what circumstances could Msafari most
likely use this information when making an investment recommendation to her clients? She can use the information:
under no circumstances.
if the discussed changes are unlikely to affect investor perception of the bank.
if she does not breach the confidentiality of the names of the staff.
Question not answered
To comply with the Code and Standards, a member or candidate cannot use material nonpublic information when making investment
recommendations. The information overheard would not be considered material only if any public announcement of the staff removal would be
unlikely to move the share price of the bank, nor would the regional expansion substantially impact the value of the bank.
CFA Level I
Standard II(A)
Question
5 of 120
According to the CFA Institute Code of Ethics and Standards of Professional Conduct, trading on material nonpublic information is least
likely to be prevented by establishing:
firewalls.
personal trading limitations.
selective disclosure.
Selective disclosure occurs when companies discriminate in making material nonpublic information public. Corporations that disclose information
on a limited basis create the potential for insider-trading violations. See Standard II(A).
CFA Level I
Standard II(A)
Question
6 of 120
According to the Global Investment Performance Standards (GIPS), firms must do all of the following except:
adhere to certain calculation methodologies and make specific disclosures along with their performance.
provide investors with a comprehensive view of their performance only in terms of returns.
comply with all requirements of the GIPS standards, such as updates, guidance statements, and clarifications.

Firms must provide investors with a comprehensive view of their performance in terms of risk and returns, not just returns.
CFA Level I
The GIPS Standards, CFA Institute
Section: Overview
Question
7 of 120
According to the Global Investment Performance Standards (GIPS), which of the following is not a part of the verification process? Testing
whether the:
firm's processes and procedures are designed to calculate results in compliance with GIPS standards.
firm has complied with all the composite construction requirements.
verification is undertaken by the compliance department in the absence of a third party.
Verification tests (Standard V) whether the investment firm has complied with all the composite construction requirements of GIPS on a firm-
wide basis, and whether the firm's processes and procedures are designed to calculate and present performance results in compliance with the
GIPS standards. Verification must be performed by an independent third party. A firm cannot perform its own verification.
CFA Level I
"Introduction to the Global Investment Performance Standards (GIPS)," CFA Institute, 2011
Question
8 of 120
Amanda Covington, CFA, works for McJan Investment Management. McJan employees must receive prior clearance of their personal
investments in accordance with McJan's compliance procedures. To obtain prior clearance, McJan employees must provide a written request
identifying the security, the quantity of the security to be purchased, and the name of the broker through which the transaction will be made.
Precleared transactions are approved only for that trading day. As indicated below, Covington received prior clearance.
Security Quantity Broker Prior Clearance

A 100 Easy Trade Yes
B 150 Easy Trade Yes
Two days after she received prior clearance, the price of Stock B decreased, so Covington decided to purchase 250 shares of Stock B only.
In her decision to purchase 250 shares of Stock B only, did Covington violate any CFA Institute Standards of Professional Conduct?
No
Yes, relating to her employer's compliance procedures
Yes, relating to diligence and reasonable basis
Prior-clearance processes guard against potential and actual conflicts of interest; members are required to abide by their employer's compliance
procedures (Standard VI (B)).
CFA Level I
Standard V(A), Standard VI(B)
Question
9 of 120
In the event of a discrepancy between the official GIPS standards and the local language translation, the official governing language is:
the language of a neutral country.
the language of the local country.
English.
Although the GIPS standards may be translated into many languages, if a discrepancy arises, the English version of the GIPS standards is the
official governing version.
CFA Level I
Section: Implementing a Global Standard
Question
10 of 120
Darden Crux, CFA, a portfolio manager at SWIFT Asset Management Ltd., (SWIFT) calls a friend to join him for dinner. The friend, a
financial analyst at Cyber Kinetics (CK), declines the invitation and explains she is performing due diligence on Orca Electronics, a company
CK is about to acquire. After the phone call, Crux searches the Internet for any news of the acquisition but finds nothing. After verifying that
Orca is on SWIFT's approved stock list, Crux purchases Orca's common stock and call options for selective SWIFT clients. Two weeks
later, CK announces its intention to acquire Orca. The next day, Crux sells all of the Orca securities, giving the fund a profit of $3 million.
What action should Crux most likely have taken to avoid violating any CFA Institute Standards of Professional Conduct?
Trade only after analyzing the stock diligently and thoroughly.
Purchase the stock and call options for all clients.
Refuse to trade based on the information.
Members/candidates who possess material nonpublic information that could affect the value of an investment should not act or cause others to
act on the information as stated in Standard II(A). Crux traded on the material information that Orca is about to be acquired by Cyber Kinetics.
The information is non-public because it is not publicly available, which was verified when Crux researched Orca on the Internet and found
nothing about the acquisition.
CFA Level I
Standard II(A)
Question
11 of 120
Ross Nelson, CFA, manages accounts for high-net-worth clients, including his own family's account. He has no beneficial ownership in his
family's account. Because Nelson is concerned about the appearance of improper behavior in managing his family's account, when his firm
purchases a block of securities, Nelson allocates to his family's account only those shares that remain after his other client accounts have their
orders filled. The fee for managing his family's account is based on his firm's normal fee structure. According to the Standards of Practice
Handbook, Nelson's best course of action with regard to management of his family's account would be to:
treat the account like other employee accounts of the firm.
remove himself from any direct involvement by transferring responsibility for this account to another investment professional in the firm.
treat the account like other client accounts.
Nelson has breached his duty to his family by treating them differently from other clients. They are entitled to the same treatment as any other
client of the firm. Nelson should treat his family's account like any other client account as stated in Standard III (B) related to Fair Dealing and
Standard VI (B) related to Priority of Transactions.
CFA Level I
Standard III(B), Standard VI(B)
Question
12 of 120
In order to provide investors with a more comprehensive view of a firm's performance, the current GIPS standards includes new provisions
related to:
the unique characteristics of each asset class.
various measures of risk.
all aspects of performance measurement.
Historically, the GIPS standards focused primarily on returns. In the spirit of fair representation and full disclosure, and in order to provide
investors with a more comprehensive view of a firm's performance, the current GIPS standards includes new provisions related to risk.
CFA Level I
Section: Overview
Question
13 of 120
Miranda Grafton, CFA, purchased a large block of stock at varying prices during the trading session. The stock realized a significant gain in
value before the close of the trading day, so Grafton reviewed her purchase prices to determine what prices should be assigned to each
specific account. According to the Standards of Practice Handbook, Grafton's least appropriate action is to allocate the execution prices:
on a first-in, first-out basis with consideration of bundling orders for efficiency.
across the participating client accounts pro rata on the basis of account size.
across the participating client accounts at the same execution price.
According to Standard III (B) best practices include allocating pro rata on the basis of order size, not account size. All clients participating in the
block trade should receive the same execution price and be charged the same commission.
CFA Level I
Standard III(B)
Question
14 of 120
For firms to claim compliance with the GIPS standards they most likely must:
take responsibility for their claim of compliance and maintaining that compliance.
increase the consistency and quality of the firm's compliant presentations.
hire an independent third party to test a sample of their composites.
Firms claiming compliance with the GIPS standards are responsible for their claim of compliance and for maintaining that compliance. That is,
firms self-regulate their claim of compliance.
CFA Level I
"Introduction to the Global Investment Performance Standards (GIPS)," CFA Institute
Section: V. Verification
Question
15 of 120
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 her firm creates 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 one of the Codes
and Standards immediately?
Disclosure of Conflicts
Additional Compensation Arrangements
Priority of Transactions
According to Standard VI(A) Disclosure of Conflicts, Grabbo should disclose to her employer her hedge fund development because this activity
could possibly interfere with her responsibilities at Atlantic. In setting up a hedge fund, Grabbo was not acting for the benefit of her employer.
She should have informed Atlantic she wanted to organize the hedge fund and come to some mutual agreement on how this process would
occur.
CFA Level I
Standard IV(B), Standard VI(A), Standard VI(B)
Question
16 of 120
Hui Chen, CFA, develops marketing materials for an investment fund he founded three years ago. The materials show the three-year, two-
year and one-year returns for the fund. He includes a footnote that states in small print "Past performance does not guarantee future returns."
He does not claim compliance with the GIPS standards in the disclosures or footnotes. He also includes a separate sheet showing the fund's
most recent semiannual and quarterly returns, which notes that those returns have been neither audited nor verified. Has Chen most likely
violated any Codes and Standards?
Yes, because he did not adhere to the Global Investment Performance Standards
No
Yes, because he included unaudited and unverified results
The Standards require members to make reasonable efforts to make sure performance information is fair, accurate, and complete. The
Standards do not require compliance with the (GIPS) standards, auditing, or verification requirements. See Standard III(D).
CFA Level I
Question
17 of 120
Charlie Mancini, CFA, is the Managing Director for Business Development at SV Financial, (SVF), a large U.S.-based mutual fund
organization. Mancini has been under pressure recently to increase revenues. In order to secure business from a large hedge fund manager
based in Asia, Mancini recently approved flexible terms for the fund's client agreement. To allow for time zone differences, the agreement
permits the hedge fund to trade in all of SVF's mutual funds six hours after the close of U.S. markets, which is prohibited by U.S. regulators.
Did Mancini violate any CFA Institute Standards of Professional Conduct?
Yes, with regard to Fair Dealing
Yes, with regard to Fair Dealing and Material Nonpublic Information
No
Clients should be treated fairly and impartially according to Standard III(B). In addition, the flexible trading terms allow the hedge fund manager
to enrich itself and are a violation of Standard II(A), which concerns trading on material nonpublic information. This situation is also a conflict of
interest, and thus a violation of Standard VI(A)-Disclosure of Conflicts.
CFA Level I
Standard II(A), Standard III(B), Standard VI(A)
Question
18 of 120
Andrew Smith, CFA, works for Granite, a commercial bank that also has a sizable sell-side research division. Smith is presenting financing
solutions to a potential business client, Dynamic Materials Corp. As part of his presentation, Smith mentions that Granite will initiate research
coverage on Dynamic. Is Smith's arrangement most likely appropriate with regard to the Code and Standards?
Yes
No, because Granite cannot provide research coverage on a corporate finance client because it constitutes a violation of research
independence
No, because Smith cannot offer to provide research coverage on a company if it becomes a corporate finance client
Under Standard I(B), members and candidates must protect their independence and objectivity. Agreeing to provide objective research
coverage of a company does not constitute a violation of this standard, provided the analyst writing the report is free to come up with his own
independent conclusion. Smith can agree to provide research coverage but cannot commit Granite's research department to providing a
favorable recommendation.
CFA Level I
Standard I(B)
Question
19 of 120
A company issues new 20-year $1,000 bonds with a coupon rate of 6.2% payable semiannually at an issue price of $1,030.34. Assuming a tax
rate of 28%, the firms annual after-tax cost of debt (%) is closest to:
5.94.
4.46.
4.28.
1 out of 1
Correct.
The annual after-tax cost of debt is the after tax annual yield to maturity (YTM). Find the YTM by using a financial calculator as follows:
Present value (PV) = 1,030.34; Future value (FV) = 1,000; N = 40 (20 2); Payment (PMT) = 31 (0.062 1,000 ); compute i.
i = 2.97 semiannually.
Annually, YTM = 2.97 2 = 5.94.
Therefore, the associated after-tax value = 0.0428 = 0.0594 (1 0.28).
CFA Level I
Cost of Capital, Yves Courtois, Gene C. Lai, and Pamela Peterson Drake
Section 3.1.1
Question
20 of 120
If the degree of financial leverage (DFL) is 1.00, the operating breakeven point compared with the breakeven point, is most lik ely:
the same.
lower.
higher.
1 out of 1
Correct.
When DFL = Operating income/Net income = 1.00, Operating income = Net income, meaning the fixed cost of debt is zero.
The breakeven point is: Fixed costs + Fixed cost of debt/Contribution margin.
Because the fixed cost of debt is zero, the companys breakeven point becomes: Fixed costs/Contribution margin, which is the same as the operating
breakeven point.
CFA Level I
Measures of Leverage, Pamela Peterson Drake, Raj Aggarwal, Cynthia Harrington, and Adam Kobor
Sections 3.4, 3.6
Question
21 of 120
A company has an equity beta of 1.4 and is 60% funded with debt. Assuming a tax rate of 35%, the companys asset beta is closest to:
0.98.
1.01.
0.71.
1 out of 1
Correct.
Note: 60% debt financing is equivalent to a debt-to-equity ratio of 1.50 = 0.60/(1 0.60).
Asset = EQ {1/[1 + (1 t)D/E)]} = 1.4/[1 + (1 0.35) 1.5] = 0.7089.
CFA Level I
Section 4.1
Question
22 of 120
A 20-year $1,000 fixed-rate non-callable bond with 8% annual coupons currently sells for $1,105.94. Assuming a 30% marginal tax rate
and an additional risk premium for equity relative to debt of 5%, the cost of equity using the bond-yield-plus-risk-premium approach is
closest to:
13.0%
9.9%
12.0%
0 out of 1
Incorrect.
First, determine the yield to maturity, which is the discount rate that sets the bond price to $1,105.94 and is equal to 7%. This calculation can be
done with a financial calculator:
FV = $1,000, PV = $1,105.94, N = 20, PMT = $80, solve for i, which will equal 7%.
The bond-yield-plus-risk-premium approach is calculated by adding a risk premium to the cost of debt (i.e., the yield to maturity for the debt),
making the cost of equity 12.00% (= 7% +5%).
CFA Level I
Sections 3.1.1, 3.3.3
Question
23 of 120
A companys data are provided in the following table:
Cost of debt 10%
Cost of equity 16%
Debt-to-equity ratio (D/E) 50%
Tax rate 30%
The weighted average cost of capital (WACC) is closest to:
14.0%.
13.0%.
11.5%.
0 out of 1
Incorrect.
Convert the D/E to determine the weights of debt and equity as follows:
CFA Level I
Sections 2, 2.1, 2.2
Question
24 of 120
When estimating the NPV for a project with a risk level higher than the company's average risk level, an analyst will most likely discount the
project's cash flows by a rate that is:
above the WACC.
determined by the firm's target capital structure.
below the WACC.
1 out of 1
Correct.
If the systematic risk of the project is above average relative to the company's current portfolio of projects, an upward adjustment is made to the
company's MCC or WACC.
CFA Level I
"Cost of Capital," Yves Courtois, Gene C. Lai, and Pamela Peterson Drake
Section 2.3
Question
25 of 120
When computing the weighted average cost of capital (WACC) and assuming a fixed-rate non-callable bond is currently selling above par
value, the before-tax cost of debt is closest to the:
coupon rate
yield to maturity.
current yield.
1 out of 1
Correct.
With a fixed-rate non-callable bond, the before-tax cost of debt is the bonds yield to maturity.
CFA Level I
Section 3.1
Question
26 of 120
Using the debt-rating approach to find the cost of debt is most appropriate when market prices for a companys debt are:
below par value.

unreliable.
stable.
1 out of 1
Correct.
The debt-rating approach is used when the market prices for debt are unreliable or nonexistent.
CFA Level I
Section 3.1.2
Question
27 of 120
Which of the following sources of short-term financing is most likely used by smaller companies?
Collateralized loans
Commercial paper
Uncommitted lines
0 out of 1
Incorrect.
Smaller companies use collateralized loans, factoring, or loans from non-bank companies as their sources of short-term financing. Larger
companies can take advantage of commercial paper, banker's acceptances, uncommitted lines, and revolving credit agreements.
CFA Level I
"Working Capital Management," by Edgar A. Norton, Jr., Kenneth L. Parkinson, and Pamela Peterson Drake
Section 8.1-8.2
Question
28 of 120
Holding the working-age population constant, if the labor force participation rate declines while the number of people employed remains
unchanged, the unemployment rate will most likely:
decrease.
remain unchanged.
increase.
1 out of 1
Correct.
For a given working-age population, a decline in the labor force participation rate (often caused by an increase in discouraged workers) reduces
the labor force. If the number of people employed remains the same while the labor force becomes smaller, the number of workers defined to
be unemployed must be smaller and thus the unemployment rate lower.
The following example illustrates the direction of change:

Initial Case After Change
Working-age population 100 100
Labor force = Employed + Unemployed 60 + 20 = 80 60 + 15 = 75
Labor force participation rate 80% 75%
Unemployment rate 20/80 = 25% 15/75 = 20%
Labor force participation rate = Labor force/Working age population

Unemployment rate = Unemployed/Labor force
CFA Level I
Understanding Business Cycles, Michele Gambera, Milton Ezrati, and Bolong Cao
Section 4.1
Question
29 of 120
The following information applies to a start-up company solely owned by an entrepreneur.
Value
Total units produced 3,550
Average revenue $1,110
Average variable cost $750
Total fixed cost $300,000
Total investment $1,550,000
Required rate of return 12.5%
Opportunity cost of owners labor $125,000
The company's economic profit is closest to:

$784,250.
$659,250.
$318,750.
Economic profit = Accounting profit - Total implicit opportunity costs

where Accounting profit = Total revenue Total variable costs Total fixed costs
and Total opportunity costs = opportunity cost of capital + opportunity cost of labor
Total revenue 3,550 $1,110 $3,940,500 # units average revenue
Less Total variable costs 3,550 $750 $2,662,500 # units average var cost
Less Total fixed costs $300,000 given
Accounting profit $978,000
Opportunity cost of capital $1,550,000 0.125 $193,750 Investment x Required return

Opportunity cost of owners labor $125,000 Given
Total opportunity costs $318,750
Economic profit $659,250
CFA Level I
"Demand and Supply Analysis: The Firm," Gary L. Arbogast, and Richard V. Eastin
Sections 2.1.2, 3
Question
30 of 120
Which of the following is most likely to cause a shift to the right in the aggregate demand curve?
Decrease in real estate values
Boom in the stock market
Increase in taxes
1 out of 1
Correct.
A boom in the stock market increases the value of financial assets and household wealth. An increase in household wealth increases consumer
spending and shifts the aggregate demand curve to the right.
CFA Level I
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz
Section 3.3.1
Question
31 of 120
The supply curve for a particular factor of production with total income consisting solely of economic rent is most likely:
vertical.
perfectly elastic.
horizontal.
1 out of 1
Correct.
When the total income of a factor of production consists solely of economic rent, it indicates that the factor has perfectly inelastic supply. For
perfectly inelastic supply, the supply curve is a vertical line.
CFA Level I
"Demand and Supply Analysis: The Firm," Gary L. Arbogast, and Richard V. Eastin
Section 2.1.3
Question
32 of 120
An expansionary fiscal policy is most likely associated with:
crowding out of private investments.
an increase in government spending on social insurance and benefits.
an increase in capital gains tax rates.
1 out of 1
Correct.
Expansionary policy increases government borrowing, which may divert private sector investment from taking place (resulting in an effect known as
crowding out). A rise in capital gain tax rates is a form of contractionary fiscal policy. Rises in government spending on social insurance and benefits
is a form of automatic stabilizer and not due to discretionary fiscal expansion.
CFA Level I
Monetary and Fiscal Policy, Andrew Clare and Stephen Thomas
Sections 3.1.1, 3.1.2, 3.1.3
Question
33 of 120
Externalities, in reference to a particular good, are most likely to affect:
someone other than buyers and sellers.
sellers.
buyers.
1 out of 1
Correct.
An externality is a cost or benefit that affects someone other than the seller or the buyer of a good.
CFA Level I
"Demand and Supply Analysis: Introduction," Richard V. Eastin and Gary L. Arbogast
Section 3.12
Question
34 of 120
A local laundry and dry cleaner collects the following data on its workforce productivity. Workers always work in teams of two, and the
laundry and dry cleaner earns $3.00 of revenue for each shirt laundered.
Quantity of Labor (L) Total Product (TP)

(workers) (shirts laundered per hour)
0 0
2 20
4 36
6 50
8 62
The marginal revenue product (MRP, $ per worker) for hiring the fifth and sixth workers is closest to:
$21.
$42.
$14.
Marginal Product (MP) is the amount of additional output resulting from using one more unit of input: TP/L, where TP is the change in total
product and L is the change in total labor. Marginal revenue product is the marginal product of an input times the price of the product: MP
Price = TP/L Price. In this problem, the marginal product of hiring the fifth and sixth workers (L = 2) is 14 shirts per hour/2 workers = 7
shirts per hour/worker. With each shirt resulting in $3 of revenue, the MRP is 7 shirts per hour/worker $3/shirt = $21 per worker.
CFA Level I
"Demand and Supply Analysis: The Firm," Gary L. Arbogast and Richard V. Eastin
Section 3.2.1
Question
35 of 120
According to the Fisher effect, an increase in expected inflation will most likely increase:
the nominal interest rate.
both nominal and real interest rates.
the real interest rate.
1 out of 1
Correct.
The Fisher effect states that the nominal interest rate is the sum of the real rate of interest and the expected rate of inflation over a given time horizon.
An increase in expected inflation will result in a higher nominal rate.
CFA Level I
Monetary and Fiscal Policy, Andrew Clare and Stephen Thomas
Section 2.1.7
Question
36 of 120
A minimum wage above the equilibrium wage is best characterized as a:
means of minimizing unemployment.
price ceiling.
price floor.
A price floor is a minimum price that is imposed by a government (or group) for which a good or service can be purchased. When applied to
labor markets, it is called a minimum wage. To be effective, the price floor must be above the equilibrium price.
CFA Level I
"Demand and Supply Analysis: Introduction," Richard V. Eastin and Gary L. Arbogast
Section 3.13
Question
37 of 120
The monthly demand curve for playing tennis at a particular club is given by the following equation: PTennis Match = 9 0.20 QTennis Match.
The club currently charges members $4.00 to play a match but is considering adding a membership fee. If the club continues to charge the
same per play charge, the most that it will be able to charge as a membership fee is closest to:
$62.50.
$162.50.
$40.00.
CFA Level I
Demand and Supply Analysis: Introduction, Richard V. Eastin and Gary L. Arbogast Section 3.9
Demand and Supply Analysis: Consumer Demand, Richard V. Eastin and Gary L. Arbogas
Section 6.2
Question
38 of 120
In order to reduce a trade deficit, the government of a country experiencing full employment moves to depreciate its currency. As a result, if
the country's domestic spending declines relative to income, the most likely mechanism that causes this to occur is the:
income effect.
substitution effect.
wealth effect.
At full employment, a weaker currency reduces the purchasing power of all domestic currency denominated assets (including the present value
of current and future income). Households respond by reducing general expenditure and increasing savings. This response is the wealth effect
and reflects the proportion of one's income that is saved (or spent).
CFA Level I
"Demand and Supply Analysis: Consumer Demand," Richard V. Eastin and Gary L. Arbogast
Section 6.2
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz
Section 3.3.2
"Currency Exchange Rates," William A. Barker, Paul D. McNelis, and Jerry Nickelsburg
Sections 5.1, 5.2
Question
39 of 120
A firm's production process requires two factors, labor and capital. The following table illustrates the marginal productivity and cost of each
factor at the current level of production.
Type of Input Marginal Product (MP) of Input Current Price of Input

Labor 120 units $4 per unit
Capital 120 units $12 per unit
If MP is the marginal product, which of the following best describes the firm's optimal decision?
Initially increase the use of labor until its MP/unit cost equals the MP/unit cost of capital
Simultaneously increase the use of both factors until the MP is maximized
Initially increase the use of capital until its MP/unit cost equals the MP/unit cost of labor
The firm should initially use the resource that maximizes output per monetary unit of input cost (i.e., use the resource with the highest MP/Input
cost). In this case, it is labor, at 120 units/$4, or 30 units/$1, whereas for capital, it is 120 units/$12, or 10 units/$1 for capital, indicating that a
dollar spent on labor is more effective in raising output than a dollar spent on capital. However, as more labor is used, its marginal product will
fall and that of capital will rise. Therefore, the optimal output level will rise when the MP/Input cost ratios for both factors are equal.
CFA Level I
"Demand and Supply Analysis: The Firm," Gary L. Arbogast and Richard V. Eastin
Section 3.2.2
Question
40 of 120
The convergence of global accounting standards has advanced to a degree that the Securities & Exchange Commission in the United States
now mandates that foreign private issuers who use IFRS may report under:
U.S. GAAP with voluntary supplemental reporting under IFRS.
U.S. GAAP or under IFRS with a reconciliation to U.S. GAAP.
U.S. GAAP or under IFRS.
1 out of 1
Correct.
Historically, the Securities & Exchange Commission required reconciliation for foreign private issuers that did not prepare financial statements in
accordance with U.S. GAAP. However the reconciliation requirement was eliminated as of 2008 for companies that prepared their financial
statements under IFRS.
CFA Level I
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning and Thomas R. Robinson
Sections 4, 7
Question
41 of 120
At the start of the year, a company acquired new equipment at a cost of 50,000, estimated to have a three-year life and a residual value of
5,000. If the company depreciates the asset using the double declining balance method, the depreciation expense that the company will
report for the third year is closest to:
555.
3,705.
3,328.
1 out of 1
Correct.
Under the double declining balance method, the depreciation rate is 2 Straight line rate. The straight line rate is 33.3% (i.e., 1/3 years), so the
double declining rate is 66.6%, or two-thirds depreciation rate per year. But the asset should not be depreciated below its assumed residual value in
any year.
Double Declining Balance Method of Depreciation
Year Net Book Value at Depreciation Net Book Value at End of

Start of Year Year
1 50,000 33,333 16,667
2 16,667 11,111 5,555
3 5,555* 555** 5,000
* Alternative calculation for start of Year 3 net book value:

50,000 (1 0.667) (1 0.667) = 5,555.
** Depreciation cannot be 2/3 5,555 = 3,705 because that would reduce book
value to less than the estimated 5,000.
CFA Level I
Understanding Income Statements, Elaine Henry and Thomas R. Robinson
Section 4.2.3
Long-Lived Assets, Elaine Henry and Elizabeth A. Gordon

Section 3.1
Question
42 of 120
Which of the following statements is most accurate?
Accrued expenses arise when a company incurs expenses that have not yet been paid as of the end of the accounting period.
Accrued revenue arises when a company receives cash prior to earning the revenue.
A valuation adjustment for an asset converts its historical cost to its depreciated value.
1 out of 1
Correct.
The statement about accrued expenses is correct. A valuation adjustment for an asset converts its historical cost to current market value;
accrued revenue arises when revenue has been earned but not yet received.
CFA Level I
"Financial Reporting Mechanics," Thomas R. Robinson, Jan Hendrik van Greuning, Karen O'Connor Rubsam, Elaine Henry, and Michael A.
Broihahn
Section 5.1
Question
43 of 120
The following data is available on a company for the current year:
Metric (000)
Comprehensive income 246,000
Dividends paid 60,000
Ending retained earnings 821,000
Opening retained earnings 580,000
The company will most likely report other comprehensive income (OCI) (in '000) as a:
gain of 186,000.
loss of 55,000.
gain of 301,000.
1 out of 1
Correct.
Metric (000)
Ending retained earnings 821,000
Less: opening retained earnings (580,000)
Add back: dividends paid 60,000
Net income 301,000
Comprehensive income 246,000
OCI = Comprehensive income net income 55,000 LOSS
CFA Level I
"Understanding Income Statements," Elaine Henry and Thomas R. Robinson
Section 8
Question
44 of 120
A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) is attempting to
produce lighter and longer-lasting batteries for portable electronic devices. The most appropriate accounting treatment for the related costs
incurred in this project is to:
capitalize costs directly related to the development.
expense costs until technical feasibility has been established.
expense them as incurred.
0 out of 1
Incorrect.
Under IFRS, research and development costs are expensed until certain criteria are met, including that technical feasibility has been established and
the company intends to use the developed product.
CFA Level I
Long-Lived Assets, Elaine Henry and Elizabeth A. Gordon
Section 2.2.2
Question
45 of 120
Interim reports most likely:
Interim reports most likely:
are issued semi-annually or quarterly.
include a full set of financial statements and notes.
are audited.
1 out of 1
Correct.
Interim reports are provided semi-annually or quarterly, depending on applicable regulatory requirements.
CFA Level I
"Financial Statement Analysis: An Introduction," Elaine Henry and Thomas R. Robinson
Section 3.2
Question
46 of 120
At the start of a month, a retailer paid $5,000 in cash for candies. He sold $2,000 worth of candies for $3,000 during the month. The most
likely effect of these transactions on the retailer's accounting equation for the month is that assets will:
decrease by $2,000.
increase by $1,000.
be unchanged.
0 out of 1
Incorrect.
Buying $5,000 of candies will decrease cash by $5,000 and increase inventory by $5,000. Selling $2,000 of candies for $3,000 will decrease
inventory by $2,000 and increase either cash (if cash is collected in the same accounting period) or accounts receivable (if sold on credit) by
$3,000. The combined effect is an increase of $1,000 in assets.
CFA Level I
Broihahn
Section 3.2
Question
47 of 120
The least likely reason thata security analyst needs to understand the accounting process is to:
prevent earnings manipulation by management.
aid in the assessment of management's judgment in accruals and valuations.
make adjustments to reflect items not reported in the financial statements.
0 out of 1
Incorrect.
Understanding the accounting process may assist an analyst in identifying earnings manipulation, but it will not prevent the manipulation of
earnings by management. It is important for an analyst to understand the accounting process so that they can make adjustments for items not
reported and aid in the assessment of management's judgment of accruals and valuations.
CFA Level I
Broihahn
Section 7
Question
48 of 120
Which of the following reports is least likely to be filed with the US SEC?
Form 10-K
Proxy statement
Annual report
0 out of 1
Incorrect.
The annual report is not a requirement of the SEC.
CFA Level I
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning, and Thomas R. Robinson
Section 3.2.2
Question
49 of 120
The following information is available on a retailer:
Summarized Income Statement $ 000s

Revenues 17,210
Cost of goods sold 9,283
Salary and wage expense 2,981
Rent expense 1,275
Depreciation expense 761
Income tax expense 823

Net income 2,087
Partial Cash Flow Statement $ 000s

Operating cash flows
Net income 2,087
Add: non-cash items
Depreciation expense 761
Increase in accounts receivable (123)
Increase in inventory 511
Decrease in prepaid expenses (37)
Decrease in accounts payable (190)
Increase in wages payable 133
Operating cash flows 3,142
An analyst is converting the cash flow statement to the direct method. The amount (in $ 000s) that she calculates for "Cash paid to suppliers"
is closest to:
11,222.
8,582.
9,984.
Metric $ 000s
Cost of goods sold $ 9,283
Add: increase in inventory 511
Equals purchases from suppliers 9,794
Add: decrease in accounts payable 190
Cash paid to suppliers $9,984
CFA Level I
"Understanding Cash Flow Statements," Elaine Henry, Thomas R. Robinson, Jan Hendrik van Greuning , and Michael A. Broihahn
Sections 3.2.1.2, 3.3
Question
50 of 120
Which of the following inventory valuation methods best matches the actual historical cost of the inventory items sold to their physical flow?
Specific identification
FIFO
LIFO
1 out of 1
Correct.
Specific identification best matches the physical flow of the inventory items because it tracks the actual units that are sold.
CFA Level I
Inventories, Michael A. Broihahn
Sections 3.1, 3.2, 3.4
Question
51 of 120
The non-controlling or minority interests found in the equity section of the balance sheet are best described as the equity interests:
of minority shareholders of the corporation who have significant influence, but not control.
held by the corporation in other entities which it does not control, but has significant influence.
of minority shareholders in subsidiaries that have been consolidated.
1 out of 1
Correct.
Non-controlling interests found in the equity section represent the equity interests of minority shareholders in non-wholly-owned subsidiaries that
have been consolidated.
CFA Level I
"Understanding Balance Sheets," Elaine Henry and Thomas R. Robinson
Section 6.1
Question
52 of 120
A companys information from its first year of operation is as follows:
Units NZ$/Unit
Opening inventory 0 0
Purchase #1 1,000 22.50
Purchase # 2 800 25.00
Purchase #3 400 25.50
Sales 1,700 40.00
Using a periodic inventory system and the weighted average method, the ending inventory value is closest to:
$12,700.
$12,165.
$11,975.
1 out of 1
Correct.
Total Cost
Units NZ$/Unit (NZ$)
Purchase #1 1,000 22.50 22,500
Purchase # 2 800 25.00 20,000
Purchase #3 400 25.50 10,200
Total available 2,200 52,700
Minus sales 1,700
Ending inventory 500 units
Average cost: 52,700/2,200 = $23.95

Ending inventory: 500 units at $23.95 = $11,975
CFA Level I
Sections 3.5, 3.6
Question
53 of 120
According to the International Accounting Standards Board's (IASB) Conceptual Framework for Financial Reporting, the two fundamental
qualitative characteristics that make financial information useful are best described as:
relevance and faithful representation.
understandability and verifiability.
timeliness and accrual accounting.
1 out of 1
Correct.
Relevance and faithful representation are the two fundamental qualitative characteristics that make financial information useful, according to the
IASB Conceptual Framework.
CFA Level I
Section 5.2
Question
54 of 120
Which of the following statements best describes the role of the International Organization of Securities Commissions (IOSCO)? The
IOSCO
is the oversight body to which the International Accounting Standards Board (IASB) reports.
assists in attaining the goal of cross-border cooperation in combating violations of securities laws.
is responsible for regulating financial markets of member nations.
1 out of 1
Correct.
The IOSCO is not a regulator of financial markets. Its role is to assist in attaining the goal of uniform regulation and enforcement of international
financial standards and in attaining the goal of cross-border cooperation in combating violations of securities and derivative laws.
CFA Level I
Section 3.2.1
Question
55 of 120
Selected information from a company that uses the FIFO inventory method is provided:
Event Units $/Unit Total ($)

Opening inventory 1,000 7.50 7,500
First purchase 250 7.60 1,900
Sales 550 12.00 6,600
Second purchase 300 7.70 2,310
Sales 600 12.00 7,200
Ending inventory 400
If the company used a perpetual system versus a periodic inventory system, the gross margin would most lik ely be:
higher.
the same.
lower.
1 out of 1
Correct.
When using the FIFO inventory method, the ending inventory, the cost of goods sold, and the gross margin are the same under either the perpetual or
periodic methods. The use of a perpetual or periodic system makes a difference under weighted average and LIFO.
CFA Level I
Section 3.6
Question
56 of 120
Under International Financial Reporting Standards (IFRS), which of the following is most likely one of the general features underlying the
preparation of financial statements?
Understandability
Timeliness
Consistency
1 out of 1
Correct.
Consistency is one of the general features underlying the preparation of financial statements based on IFRS.
CFA Level I
Section 5.5.2
Question
57 of 120
A firm that prepares its financial statements according to US GAAP and uses a periodic inventory system had the following transactions during the
year:
Tons
Date Activity (thousands) $ per Ton
Beginning inventory 1 600
February Purchase 5 650
May Sale 2 700
August Purchase 3 680
November Sale 4 750
The cost of sales (in thousands) is closest to:
$3,850 using FIFO.

$5,890 using weighted average.
$4,080 using LIFO.
1 out of 1
Correct.
Under FIFO, the oldest units are sold first, thus for the six units sold FIFO, cost of sales is $3,850, as follows: 1 unit at $600 + 5 units at 650 =
$3,850.
CFA Level I
Sections 3.2, 3.5
Question
58 of 120
What is the most likely effect on the accounting equation when a company purchases office equipment with cash?
Assets increase and liabilities increase
Assets decrease and owners' equity decreases
No effect on the accounting equation
1 out of 1
Correct.
There would be no effect on the accounting equation because the company has exchanged one asset for another. Cash has decreased and office
equipment, a capital asset, has increased.
CFA Level I
Broihahn
Section 4.2
Question
59 of 120
The International Financial Reporting Standards (IFRS) Conceptual Framework identifies fundamental qualitative characteristics that make
financial information useful. Which of the following is least likely to be one of these characteristics?
Faithful representation
Materiality
Relevance
1 out of 1
Correct.
The two fundamental qualitative characteristics that make financial information useful are relevance and faithful representation. Materiality relates
to the level of detail of the information needed to achieve relevance.
CFA Level I
Section 5.2
Question
60 of 120
At the start of the current year, Company A, which reports using US GAAP, sold a piece of land to Company B for $10 million. The land
cost $6 million. Company B made a $2 million down payment with the remaining balance to be paid over the next five years. Over the course
of the year, it has been determined that there is significant doubt about the ability and commitment of Company B to complete all payments.
In the current year, Company A would most likely report a profit related to the sale of the land of:
$2 million using the cost recovery method.
$4 million using the accrual method.
$0.8 million using the installment method.
1 out of 1
Correct.
Because of the uncertainty about collection of the remaining payments, it would not be appropriate to use the accrual method. Under the
installment method, the portion of the total profit that is recognized in each period is determined by the percentage of the total sales price for
which the seller has received cash. Company A will recognize 2/10 $4 million = $0.8 million. Although the cost recovery method could have
been used in this situation, the reported profit would be $0.
CFA Level I
Section 3.2
Question
61 of 120
For which of the following inventory valuation methods is the gross profit margin least likely to be the same under both a perpetual inventory
system and a periodic inventory system?
FIFO
Specific identification
LIFO
1 out of 1
Correct.
The periodic and perpetual systems result in the same inventory and cost of goods sold values (and thus gross profit margin) using both FIFO and
specific identification valuation methods but not always under LIFO.
CFA Level I
Section 3.6
Question
62 of 120
Under International Financial Reporting Standards (IFRS), which of the following financial statement elements most accurately represents
inflows of economic resources to a company?
Revenues
Owners' equity
Assets
0 out of 1
Incorrect.
The financial statement elements under IFRS are assets, liabilities, owners' equity, revenue, and expenses. Revenues are inflows of economic
resources. Assets are economic resources but not inflows. Equity is the residual claim on those economic resources.
CFA Level I
Broihahn
Section 3
Question
63 of 120
During the year, a retailer purchases 1,000 units of inventory at 20.20 per unit. In addition, the following items relate to inventory acquisition and
handling during the year.
Item Description Thousands

Volume rebate received 404
Import and sales taxes 2,970
Transport and transport insurance costs 325
Storage costs 1,250
Warehouse administrative costs 3,300
The total costs (in thousands) that will be included in inventory are closest to:
24,341.
22,766.
23,091.

Inventory costs include all direct costs of acquisition including import taxes, transportation costs, and transportation insurance costs, but not storage
costs or warehouse administrative costs. Volume rebates and similar items reduce the price paid and the costs of purchase.
Cost Determination Thousands

Purchase price (1,000 20.20) 20,200
Volume rebate 404
Import and sales taxes 2,970
Transport and transport insurance 325
Total costs to be inventoried 23,091
CFA Level I
Section 2
Question
64 of 120
A company that prepares its financial statements using International Financial Reporting Standards (IFRS) wrote down its inventory value by
A company that prepares its financial statements using International Financial Reporting Standards (IFRS) wrote down its inventory value by
20,000 at the end of Year 1. In Year 2, prices increased, and the same inventory at the end of the year was worth 30,000 more than its
value at the end of the prior year. Which of the following statements is most accurate? In Year 2, the company's cost of sales:
decreased by 20,000.
decreased by 30,000.
was unaffected.

Under IFRS, the recovery of a previous write-down is limited to the amount of the original write-down (20,000) and is reported as a decrease in the
cost of sales.
CFA Level I
Section 4
Question
65 of 120
The following data is available on two companies that operate in the same industry:
Metric ($ millions) Company X Company Y

Sales 11.2 14.5
Cost of goods sold 5.7 7.7
Administration costs 1.9 2.2
Interest expense 0.3 0.7
Research & development expenses 1.5 1.7
Which of the following statements is most appropriate? Better margin performance will be reported by:
Y at both the gross margin and operating margin levels.
Y at the gross margin level and X at the operating margin level.
X at the gross margin level and Y at the operating margin level.
Common size statements offer a convenient way to compare companies of different magnitudes. Company X reports better (higher) gross
margin performance. Company Y reports better (higher) operating margin performance.
Metric (common size) Company X Company Y Comparison

Sales 100% 100%
Cost of goods sold 51 53
Gross margin (GM) 49 47 Xs GM is higher
Administrative costs 17 15
Research & development expenses 13 12
Operating margin (OM) 19 20 Ys OM is higher
CFA Level I
Section 7.1
Question
66 of 120
If the stated annual interest rate is 9% and the frequency of compounding is daily, the effective annual rate (EAR) is closest to:
If the stated annual interest rate is 9% and the frequency of compounding is daily, the effective annual rate (EAR) is closest to:
9.86%.
9.42%.
9.00%.
EAR = (1 + periodic interest rate)m 1 = [1 + (0.09 / 365)]365 1 = 0.094162, rounded to 9.42%.
CFA Level I
"The Time Value of Money," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Sections 3.2, 3.3
Question
67 of 120
Using the following sample results drawn as 25 paired observations from their underlying distributions, test whether the mean returns of the
two portfolios differ from each other at the 1% level of statistical significance. Assume the underlying distributions of returns for each portfolio
are normal and that their population variances are not known.
Portfolio 1 Portfolio 2 Difference
Mean return 17.00 21.25 4.25
Standard
15.50 15.75 6.25
deviation
t-statistic for 24 degrees of freedom and at the 1% level of statistical significance = 2.807
Null hypothesis (H0): Mean difference of returns = 0
Based on the paired comparisons test of the two portfolios, the most appropriate conclusion is that H0 should be:
rejected because the computed test statistic exceeds 2.807.
accepted because the computed test statistic is less than 2.807.
accepted because the computed test statistic exceeds 2.807.
The test statistic is: where is the mean difference, d0 is the hypothesized difference in the means, s d is the sample standard
deviation of differences, and n is the sample size. In this case, the test statistic equals: (4.25 0)/(6.25/25) = 3.40. Because 3.40 > 2.807, the null
hypothesis that the mean difference is zero is rejected.
CFA Level I
Hypothesis Testing, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 3.3
Question
68 of 120
Over the past four years, a portfolio experienced returns of 8%, 4%, 17%, and 12%. The geometric mean return of the portfolio over the
four-year period is closest to:
0.37%.
0.99%.
0.25%.
Add one to each of the given returns, then multiply them together and take the fourth root of the resulting product. 0.92 1.04 1.17 0.88 =
0.985121; 0.985121 raised to the 0.25 power is 0.996259. Subtracting one and multiplying by 100 gives the correct geometric mean return:
[(0.92 1.04 1.17 0.88)0.25 1] 100 = 0.37%.
CFA Level I
"Statistical Concepts and Market Returns," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 5.4.2
Question
69 of 120
Based on historical returns, a portfolio has a Sharpe ratio of 2.0. If the mean return to the portfolio is 20%, and the mean return to a risk-free
asset is 4%, the standard deviation of return on the portfolio is closest to:
12%.
10%.
8%.
CFA Level I
Section 7.8
Question
70 of 120
The following 10 observations are a sample drawn from an approximately normal population:
Observation 1 2 3 4 5 6 7 8 9 10
Value 3 11 3 18 18 20 6 9 2 16
The sample standard deviation is closest to:
13.18.
12.50.
11.92.
The sample mean is:
Difference vs. Mean Difference

Value [Value (0.20)] Squared
3 2.8 7.84
11 10.8 116.64
3 3.2 10.24
18 17.8 316.84
18 18.2 331.24
20 20.2 408.04
6 5.8 33.64
9 9.2 84.64
2 2.2 4.84
16 15.8 249.64
Sum of squared
differences 1563.6
Divided by n 1 173.7333333
Square root 13.18079411
CFA Level I
Section 7.4
Question
71 of 120
Event X and Event Y are independent events. The probability of X is 0.2 [P(X) = 0.2] and the probability of Y is 0.5 [P(Y) = 0.5]. The joint
probability of X and Y, P(XY), is closest to:
0.3.
0.7.
0.1.
Given that X and Y are independent, their joint probability is equal to the product of their individual probabilities. In this case: P(XY) = P(X)P(Y)
= 0.2 0.5 = 0.1.
CFA Level I
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 2
Question
72 of 120
A portfolio provides the following returns over a five-year period.
Year 1 2 3 4 5
Return 10% 25% 8% 5% 7%
The compound rate of return of the portfolio across the five-year period is closest to:
1.00%.
9.31%.
0.02%.
The geometric mean return is the correct approach to calculate portfolio average returns across a period of time:
CFA Level I
Section 5.4.2
Question
73 of 120
By definition, the probability of any Event E is a number between:
minus one and positive one.
zero and positive one.
zero and positive infinity.
The two defining properties of a probability are as follows:
1. The probability of any Event E is a number between zero and one.
2. The sum of the probabilities of any set of mutually exclusive and exhaustive events equals one.
CFA Level I
Section 2
Question
74 of 120
When an investigator wants to test whether a particular parameter is greater than a specific value, the null and alternative hypothesis are best
defined as:
H 0: = 0 versus Ha: 0 .
H 0: 0 versus Ha: < 0.
H 0: 0 versus Ha: > 0.
A positive "hoped for" condition means that the null will be rejected (and the alternative accepted) only if the evidence indicates that the
population parameter is greater than 0. Thus, H0: 0 versus Ha: > 0 is the correct statement of the null and alternative hypotheses,
respectively.
CFA Level I
"Hypothesis Testing," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 2
Question
75 of 120
Use the following values from a student's t-distribution to establish a 95% confidence interval for the population mean given a sample size of
10, a sample mean of 6.25, and a sample standard deviation of 12. Assume that the population from which the sample is drawn is normally
distributed and the population variance is not known.
Degrees of
p = 0.10 p = 0.05 p = 0.025 p = 0.01
Freedom
9 1.383 1.833 2.262 2.821
10 1.372 1.812 2.228 2.764
11 1.363 1.796 2.201 2.718
The 95% confidence interval is closest to a:

lower bound of 2.33 and an upper bound of 14.83.

With a sample size of 10, there are 9 degrees of freedom. The confidence interval concept is based on a two-tailed approach. For a 95%
confidence interval, 2.5% of the distribution will be in each tail. Thus, the correct t-statistic to use is 2.262. The confidence interval is calculated
as:
where is the sample mean, s is the sample standard deviation, and n is the sample size. In this case: 6.25 2.262 12/10 = 6.25 8.58369 or
2.33 to 14.83.
CFA Level I
Sampling and Estimation, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 4.2
Question
76 of 120
The following information applies to a portfolio composed of Fund A and Fund B:
Fund A Fund B
Portfolio weights (%) 70 30
Expected returns (%) 10 16
Standard deviations (%) 7 13
Correlation between the returns of Fund A and Fund B 0.80
The portfolio's standard deviation of return is closest to:

8.80%.
7.38%.
8.35%.
CFA Level I
Section 3
Question
77 of 120
The number of permutations that are possible when choosing 4 objects from a total of 10 objects is closest to:
210.
5,040.
30.
CFA Level I
Section 4.2
Question
78 of 120
Investor A and Investor B invest in a fund for two years:
Year 1 Year 2
Positive Negative
Fund Return
Portfolio Money-Weighted Rate

of Return
Investor A 7.5%
Investor B 8.2%
Given the information in the table, which of the following is least likely to be an explanation for the difference between the two money-
weighted rates of return?
Investor A increased the investment in the fund at the end of year 1 whereas investor B did not make any additions or withdrawals.
Investor B decreased the investment in the fund at the end of year 1 whereas investor A did not make any additions or withdrawals.
The investors invested different amounts at inception and afterward did not make any additions or withdrawals.
The money-weighted rate of return (MWR) is sensitive to the additions and withdrawals of funds in a portfolio over the course of an investment.
If, at inception, investor A and B invest amounts of different size in the same fund but then neither add nor withdraw any cash for two years, they
will obtain exactly the same MWR. In contrast, if investor A increases the investment in the fund at the end of year 1 and investor B does not
make any additions or withdrawals, then Investor A will have a lower MWR than investor B because in year 2 the fund underperformed with
respect to year 1. By the same token, if investor B decreases the investment at the end of year 1 and investor A does not make any additions or
withdrawals, then investor B will have a higher MWR than investor A because she decreased the investment before an underperforming year.
CFA Level I
"Discounted Cash Flow Applications," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle
Section 3
Question
79 of 120
Assuming no short selling, a diversification benefit is most likely to occur when the correlations among the securities contained in the portfolio
are:
greater than +1.
less than +1.
equal to +1.
As long as security returns are not perfectly positively correlated, diversification benefits are possible.
CFA Level I
Section 3
Question
80 of 120
The most likely impact of adding commodities to a portfolio of equities and bonds is to:
provide higher current income.
reduce exposure to inflation.
increase risk.
Over the long term, commodity prices are closely related to inflation and thus including commodities in a portfolio of equities and bonds will
reduce its exposure to inflation.
CFA Level I
"Introduction to Alternative Investments," Terri Duhon, George Spentzos, and Scott D. Stewart
Section 6.3
Question
81 of 120
An alternative investments fund that uses leverage and takes long and short positions in securities is most likely a:
venture capital fund.
leveraged buyout fund.
hedge fund.
Hedge funds invest in securities and may take long and short positions. They may also use leverage.
CFA Level I
"Introduction to Alternative Investments," Terri Duhon, George Spentzos, and Scott D. Stewart
Section 2.1
Question
82 of 120
In the context of venture capital financing, seed-stage financing most likely supports:
product development and/or marketing efforts.
initial commercial production and sales.
transformation of an idea into a business plan.
Support of product development and/or marketing efforts takes place during seed-stage financing.
2014 CFA Level I

"Introduction to Alternative Investments," by Terri Duhon, George Spentzos, and Scott D. Stewart
Section 4.2.2
Question
83 of 120
The underlying in a forward rate agreement is most likely a(n):
growth rate of an equity index.
exchange rate.
interest rate.

The underlying in a forward rate agreement is an interest rate.
CFA Level 1
Basics of Derivative Pricing and Valuation, Don M. Chance
Section 3.1.4
Question
84 of 120
If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:
market interest rates have gone up.
the broad-based equity market index has gone up in value.
the general level of market uncertainty has gone up.

One benefit of derivatives markets is information discovery. Implied volatility reveals information about the risk of the underlying. Increases in implied
volatility are an implication of increased market uncertainty.
CFA Level I
Derivative Markets and Instruments, Don M. Chance
Section 5.2
Question
85 of 120
A high convenience yield is most likely associated with holding:
bonds.
commodities.
equities.
Convenience yield is primarily associated with commodities and generally exists as a result of difficulty in shorting the commodity or unusually
tight supplies.
CFA Level I
"Basics of Derivative Pricing and Valuation," Don M. Chance
Section 2.2.5
Question
86 of 120
A swap in which the investor receives a variable payment in line with market conditions and makes a fixed payment can best be replicated by
purchasing a:
set of long futures contracts which are matched with short forward contracts.
floating rate bond which is financed using a fixed rate bond.
series of forward contracts, each with an initial value of zero.
The payment structure is replicated by being long the floating rate bond, while being short the fixed rate bond.
CFA Level I
Section 3.3
Question
87 of 120
An investor with $5,000 to invest believes that the price of ABC Corp. stock will appreciate by $7 to $95 in two months. The two-month at-
the-money put on one share of ABC stock costs $1.76, whereas the two-month at-the-money call costs $1.56. To profit from his view on
ABC stock, he will most likely:
sell puts on shares of ABC.
buy calls on shares of ABC.
sell calls on shares of ABC.
Buying a call gives the owner the right to buy the stock at the exercise price. The investor predicts that the stock will increase to $95 at the end
of two months. He will likely be able to sell his calls for at least $7 and realize a profit.
CFA Level I
"Risk Management Applications of Option Strategies," Don M. Chance
Section 2.1
Question
88 of 120
Using put-call parity, a long call can best be replicated by going:
long the put, long the asset and short the bond.
short the put, long the asset and short the bond.
long the put, short the asset and long the bond.
According to put-call parity, a long call is equal to long put, long asset, short bond.
CFA Level I
Section 4.1.9
Question
89 of 120
A trader who owns shares of a stock currently trading at $100 per share places a GTC, stop $90, limit $85 sell order (GTC means good till
cancelled). Assuming the specified stop condition is satisfied and the order becomes executed, which of the following statements is most
accurate?
The order becomes a market order when the price falls below $85 and remains valid for execution.
The order will be executed at either $90 or $85.
The trader faces a maximum realized loss of $15.

The order becomes valid when the price falls to, or below, $90. The limit $85 sell indicates that the trader is unwilling to sell below $85. Thus, the
trader faces a maximum loss of $15 ($100 $85).
CFA Level I
Market Organization and Structure, Larry Harris
Section 6.2
Question
90 of 120
Accounting standards and reporting requirements that produce meaningful and timely financial disclosures are most critical for achieving which of
the following efficiencies associated with a well-functioning financial system?
Informational
Allocational
Operational

Accounting standards and reporting requirements that allow meaningful and timely financial disclosures reduce the costs of obtaining fundamental
information and thereby allow analysts to form more accurate estimates of fundamental values. They support informationally efficient markets.
CFA Level I
Section 9
Question
91 of 120
A market index contains the following two securities:
Stock Shares in Start-of-Period Price End-of-Period Price Dividend per

Index ($) ($) Share ($)
A 600 40 37 2.00
B 500 50 52 1.50
The total return on an equal-weighted basis is closest to:
1.75%.
2.78%.
2.25%.

Stock Shares Start-of- End-of- Dividend Price Return Total Return
in Index Period Period per (%) (%)
Price Price Share
($) ($) ($)
(1) (2) (3) (4) = (3)/(2) 1 = [(3) + (4)]/(2) 1
A 600 40 37 2 7.50% 2.50%
B 500 50 52 1.5 4.00% 7.00%
Total return = [(-2.5 + 7)/2] 2.25%
CFA Level I
Security Market Indices, Paul D. Kaplan and Dorothy C. Kelly
Section 3.2
Question
92 of 120
A trader seeking to sell a very large block of stock for her client will most likely execute the trade in a(n):
quote-driven market.
order-driven market.
brokered market.

Instruments that are infrequently traded and expensive to carry as inventory (e.g., very large blocks of stock, real estate properties, fine art
masterpieces, and liquor licenses) are executed in brokered markets. Organizing order-driven markets for such instruments is not sensible because
too few traders would submit orders to them.
CFA Level I
Section 8.2
Question
93 of 120
If the following three stocks are held in a portfolio, the portfolios total return on an equal-weighted basis is closest to:
Stock Number of Shares Beginning of Period End of Period Price Dividend per Share
Owned Price per Share ($) per Share ($) during the Period ($)
A 500 40 37 2.00
B 320 50 52 1.50
C 800 30 34 0.00
6.37%.
3.28%.
5.94%.

Equal weighting assigns an equal weight to each constituent security at inception. Therefore, it is the sum of the total return from each security
divided by the number of securities in the portfolios.
Stock (P1 P0 + D)/P0 Total Return

(%)
A (37 40 + 2.00)/40 = 2.5
B (52 50 + 1.50)/50 = 7.00
C (34 30 + 0)/30 = 13.33
Portfolio return with equal weighting: 5.94
(2.50 + 7.00 + 13.33)/3 =
CFA Level I
Security Market Indices, Paul D. Kaplan and Dorothy C. Kelly
Section 3.2.2
Question
94 of 120
Which of the following statements concerning financial regulatory bodies is least accurate? Financial regulatory bodies:
define minimum standards of competence for agents.

require that regulated firms maintain optimum levels of capital.
act to level the playing field for market participants.

Financial regulators impose minimum levels of capital that apply across the board to all regulated firmsnot the optimum level, which is firm specific.
CFA Level I
Section 10
Question
95 of 120
Which of the following statements is most accurate concerning a short position of 100 shares of a stock at $50 per share?
Maximum loss of $5,000
Unlimited maximum gain
Maximum gain of $5,000
The potential gains on a short position are limited to no more than 100% whereas the potential losses are unbounded. The lowest market price
per share an investor can repurchase the stock to return to the security's lender is $0 so the maximum gain is ($50 -$0) 100 = $5,000.
CFA Level I
"Market Organization and Structure," Larry Harris
Section 5.1
Question
96 of 120
In futures markets, contract performance is most lik ely guaranteed by:
the futures exchanges.
regulatory agencies.
clearing houses.

Clearing houses arrange for financial settlement of trades. In futures markets, they guarantee contract performance.
CFA Level I
Section 3.4.2
Question
97 of 120
An investor buys a stock on margin. Assume that the interest on the loan and the dividend are both paid at the end of the holding period. The data
related to the transaction are as follows:
Number of shares 500
Purchase price per share $28
Leverage ratio 3.33
Commission $0.05/share
Position holding period Six months
Sale price per share $30
Call money rate 5% per year
Dividend $0.40 / share
The investors total return on this investment over the margin holding period is closest to:
15.6%.
21.4%.
16.7%.
Initial investment [($28 500) (1/3.33)] + ($0.05 500) $4,229

Purchase commission $0.05 500 25
+ Trading gain ($30 $28) 500 1,000
Margin interest paid $9,800 0.05 6 months 245
+ Dividends received $0.40 500 200
Sales commission paid $0.05 500 25
= Remaining equity $5,134
Return on investment ($5,134 $4,229)/$4,229 21.4%
CFA Level I
Section 5.2
Question
98 of 120
A stop-buy order is most likely placed when a trader:
wants to limit the loss on a long position.
wants to limit the loss on a short position.
thinks that the stock is overvalued.

A trader who has entered into a short sale will incur losses if the stock price begins to increase. A stop-buy order helps limit the loss on a short
position because it becomes valid for execution when the stock price rises above the specified stop price.
CFA Level I
Section 6.2.1
Question
99 of 120
For portfolio managers of passive funds, market indices are least useful as:
tools to develop exchange-traded funds for non-accessible markets.
benchmarks for portfolio performance attribution.
proxies to measure systematic risk.
Market indices are used as benchmarks for actively managed portfolios which is not relevant to passively managed funds.
CFA Level I
"Security Market Indices," Paul D. Kaplan and Dorothy C. Kelly
Section 4
Question
100 of 120
The following data pertain to a margin purchase of a stock:
Purchase price $50/share
Sale price $55/share
Shares purchased 500
Margin 45%
Call money rate 6%
Dividend $1.80/share
Commission on purchase and sale $0.05/share
If the stock is sold exactly one year after the purchase, the total return on this investment is closest to:
22.4%.
19.4%.
14.4%.
Proceeds on sale $55 500 $27,500

Minus payoff loan $50 500 0.55 $13,750
Minus margin interest paid $13,750 0.06 $825
Plus dividend received $1.80 500 $900
Minus sales commission paid on sale $0.05 500 $25
= Remaining equity $13,800
Initial Investment (including commission) ($50 500 0.45) + ($0.05 500) $11,275
Return on the initial investment: ($13,800 $11,275) 22.4%
$11,275
CFA Level I
Section 5.2
Question
101 of 120
An analyst uses a valuation model to estimate the value of an option-free bond at 92.733 to yield 11%. If the value is 94.474 for a 60 bp
decrease in yield and 91.041 for a 60 bp increase in yield, the approximate modified duration of the bond is closest to:
1.85.
6.17.
3.09.
The approximate modified duration of a bond is, where PV_ , PV0, and PV+ are the values of the
bond when the yield falls, under the current yield, and when the yield rises, respectively, and Yield is the size of the yield change. Therefore,
CFA Level 1
"Understanding FixedIncome Risk and Return," James F. Adams and Donald J. Smith Section 3.2
Question
102 of 120
A credit analyst is least likely to use matrix pricing to estimate the required yield and price of a(n):
inactively traded investment grade bond.
actively traded speculative grade bond.
newly underwritten bond.
Matrix pricing is most suited to pricing inactively traded bonds and newly underwritten bonds. A credit analyst is least likely to use matrix pricing
to price an actively traded bond.
CFA Level I
"Introduction to Fixed-Income Valuation", James F. Adams and Donald J. Smith
Section 3.2
Question
103 of 120
A long-term bond investor with an investment horizon of 8 years invests in option-free, fixed-rate bonds with a Macaulay duration of 10.5.
The investor most likely currently has a:
negative duration gap and is currently exposed to the risk of higher interest rates.
positive duration gap and is currently exposed to the risk of lower interest rates.
positive duration gap and is currently exposed to the risk of higher interest rates.
The duration gap is the bond's Macaulay duration minus the investment horizon, which is positive in this case. A positive duration gap implies
that the investor is currently exposed to the risk of higher interest rates.
CFA Level I
"Understanding Fixed-Income Risk and Return", James F. Adams and Donald J. Smith
Section 4.2
Question
104 of 120
The following table provides a history of a fixed-income security's coupon rate and the risk-free rate over a five-year period.
Year Risk-Free Rate Coupon Rate

1 3.00% 6.00%
2 3.50% 5.00%
3 4.25% 3.50%
4 3.70% 4.60%
5 3.25% 5.50%
The security is most likely a(n):

inverse floater.
deferred coupon bond.
step-up note.
Because the security's coupon rate moves in the opposite direction (or inversely) from the risk-free rate, it is an inverse floater. (Specifically,
Coupon rate = 12.00% 2 Risk-free rate.)
CFA Level 1
"Fixed-Income Securities: Defining Elements," Moorad Choudhry and Stephen E. Wilcox
Section 4.2
Question
105 of 120
Assume the following annual forward rates were calculated from the yield curve.
Time Period Forward Rate
0y1y 0.50%
1y1y 0.70%
2y1y 1.00%
3y1y 1.50%
4y1y 2.20%
The four-year spot rate is closest to:

0.924%.
1.348%.
1.178%.
The four-year spot rate can be computed as:
CFA Level I
"Introduction to Fixed-Income Valuation," James F. Adams and Donald J. Smith
Section 4
Question
106 of 120
An investor sells a bond at the quoted price of $98.00. In addition, she receives accrued interest of $4.40. The flat price of the bond is equal
to the:
agreed on bond price excluding accrued interest.
accrued interest plus the agreed on bond price.
par value plus accrued interest.
The agreed on bond price without accrued interest is referred to as the flat price.
CFA Level 1
Section 3.1
Question
107 of 120
Which of the following statements is most likely correct regarding the spot and forward curves. The spot curve:
can be calculated from the forward curve, and the forward curve can be calculated from the spot curve.
cannot be calculated from the forward curve, but the forward curve can be calculated from the spot curve.
can be calculated from the forward curve, but the forward curve cannot be calculated from the spot curve.
The forward and spot curves are interconnected to each other. The spot curve can be calculated from the forward curve, and the forward curve
can be calculated from the spot curve. Either curve can be used to value fixed-rate bonds.
CFA Level I
"Introduction to Fixed-Income Valuation", James F. Adams and Donald J. Smith
Section 4
Question
108 of 120
Given two otherwise identical bonds, when interest rates rise, the price of Bond A declines more than the price of Bond B. Compared with
Bond B, Bond A most likely:
has a lower coupon.
has a shorter maturity.
is callable.
The lower the coupon rate, the more sensitive the bond's price is to changes in interest rates.
CFA Level 1
Section 2.3
Question
109 of 120
Which of the following bonds is most likely to trade at a lower price relative to an otherwise identical option-free bond?
Convertible bond
Putable bond
Callable bond
A callable bond benefits the issuer because it gives the issuer the right to redeem all (or part) of the bonds before the maturity date. Thus, the
price of a callable bond will typically be lower than the price of an otherwise identical non-callable bond.
CFA Level I
"Fixed-Income Securities: Defining Elements," Moorad Choudhry and Stephen E. Wilcox
Section 5.1
Question
110 of 120
For bonds that are otherwise identical, the one exhibiting the highest level of positive convexity is most likely the one that is:
putable.
option-free.
callable.
When interest rates rise, a putable bond is more likely to be put back to the issuer by the investor, limiting the loss of value and giving the bond
more positive convexity than an option-free bond. In contrast, a callable bond is likely to be called from the investor when interest rates fall,
limiting the gain in value and giving the bond negative convexity.
CFA Level I
"Understanding Fixed-Income Risk and Return," James F. Adams and Donald J. Smith
Section 3.3
Question
111 of 120
The option-free bonds issued by ALS Corp. are currently priced at 108.50. Based on a portfolio manager's valuation model, a 1bp increase
in interest rates will result in the bond price falling to 108.40, whereas a 1bp decrease in interest rates will result in the bond price rising to
108.59. The price value of a basis point (PVBP) for the bonds is closest to:
0.088.
0.190.
0.095.
The bond's PVBP is computed using
so,
CFA Level 1
"Understanding FixedIncome Risk and Return," James F. Adams and Donald J. Smith
Section 3.5
Question
112 of 120
The process of securitization is least likely to allow banks to:
reduce the layers between borrowers and ultimate investors.
originate loans.
repackage loans into simpler structures.
Securitization allows banks to originate (or create) loans and the process results in a reduction in the layers between borrowers and ultimate
investors. The loans are repackaged into more complex, not simpler, structures.
CFA Level I
"Introduction to Asset-Backed Securities", Frank J. Fabozzi
Section 2
Question
113 of 120
Consider a five-year option-free bond that is priced at a discount to par value. Assuming the discount rate does not change, one year from
now the value of the bond will most likely:
stay the same.
increase.
decrease.
The bond is priced below its par value but will be worth exactly par value at maturity. Over time, assuming a stable discount rate, the value of
the bond must rise so that it is equal to par at maturity. That is, the price is "pulled to par."
CFA Level 1
Section 2.3
Question
114 of 120
An investor purchases a 5% coupon bond maturing in 15 years for par value. Immediately after purchase, the yield required by the market
increases. The investor would then most likely have to sell the bond at:
par.
a premium.
a discount.
The bond would sell below par or at a discount if the yield required by the market rises above the coupon rate. Because the bond initially was
purchased at par, the coupon rate equals the yield required by the market. Subsequently, if yields rise above the coupon, the bond's market
price would fall below par.
CFA Level 1
Section 2.3
Question
115 of 120
A correlation matrix of the returns for securities A, B, and C is reported below:
Security A B C
A 1
B 0.5 1
C 0 0.5 1
Assuming that the expected return and the standard deviation of each security are the same, a portfolio consisting of an equal allocation of
which two securities will be most effective for portfolio diversification?
Securities B and C
Securities A and B
Securities A and C
The negative correlation of 0.5 between investment securities B and C is the lowest and thus is the most effective for portfolio diversification.
CFA Level I
"Portfolio Risk and Return: Part I," Vijay Singal
Section 4.3
Question
116 of 120
The execution step of the portfolio management process includes:
preparing the investment policy statement.
finalizing the asset allocation.
monitoring the portfolio performance.
Asset allocation occurs in the execution step.
CFA Level I
"Portfolio Management: An Overview," Robert M. Conroy and Alistair Byrne
Section 4
Question
117 of 120
An asset has an annual return of 19.9%, standard deviation of returns of 18.5%, and correlation with the market of 0.9. If the standard
deviation of returns on the market is15.9% and the risk-free rate is 1%, the beta of this asset is closest to:
1.02.
1.16
1.05.
= (i,mi)/m
= (0.90 0.185)/0.159
= 1.047.
CFA Level I
"Portfolio Risk and Return: Part II," Vijay Singal
Section 3.2.4
Question
118 of 120
A portfolio manager generated a rate of return of 15.5% on a portfolio with beta of 1.2. If the risk-free rate of return is 2.5% and the market
return is 11.8%, Jensen's alpha for the portfolio is closest to:
1.84%.
4.34%.
3.70%.
Jensen's alpha = Rp [Rf + p(Rm Rf)]
= 0.155 [0.025 + 1.2 (0.118 0.025)] = 0.0184.
CFA Level I
"Portfolio Risk and Return: Part II," Vijay Singal
Section 4.3.2
Question
119 of 120
A portfolio manager decides to temporarily invest more of a portfolio in equities than the investment policy statement prescribes because he
expects equities will generate a higher return than other asset classes. This decision is most likely an example of:
strategic asset allocation.
tactical asset allocation.
rebalancing.
Tactical asset allocation is the decision to deliberately deviate from the policy exposures to systematic risk factors with the intent to add value
based on forecasts of the near-term returns of those asset classes.
CFA Level I
Basics of Portfolio Planning and Construction," Alistair Byrne and Frank E. Smudde
Section 3.3
Question
120 of 120
Which of the following institutional investors is most likely to have a low tolerance for investment risk and relatively high liquidity needs?
Charitable foundation
Defined benefit pension plan
Insurance company
Insurance companies need to be relatively conservative and liquid, given the necessity of paying claims when due.
CFA Level I
"Portfolio Management: An Overview," Robert M. Conroy and Alistair Byrne
Section 3

Mock

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mock

Uploaded by

Copyright:

Available Formats

6/4/15 Questionmark Perception

Block 2: Question block created by wizard

10 years of GIPS-compliant performance.

Question not answered

Question not answered

Question not answered

Question not answered

Security Quantity Broker Prior Clearance

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

Question not answered

below par value.

The following example illustrates the direction of change:

Labor force participation rate = Labor force/Working age population

The company's economic profit is closest to:

Question not answered

Economic profit = Accounting profit - Total implicit opportunity costs

Opportunity cost of capital $1,550,000 0.125 $193,750 Investment x Required return

Quantity of Labor (L) Total Product (TP)

Question not answered

Monetary and Fiscal Policy, Andrew Clare and Stephen Thomas

Question not answered

Question not answered

Question not answered

Sections 5.1, 5.2

Type of Input Marginal Product (MP) of Input Current Price of Input

Question not answered

Double Declining Balance Method of Depreciation

Year Net Book Value at Depreciation Net Book Value at End of

2 16,667 11,111 5,555

3 5,555* 555** 5,000

* Alternative calculation for start of Year 3 net book value:

Long-Lived Assets, Elaine Henry and Elizabeth A. Gordon

"Understanding Income Statements," Elaine Henry and Thomas R. Robinson

"Financial Statement Analysis: An Introduction," Elaine Henry and Thomas R. Robinson

The annual report is not a requirement of the SEC.

Summarized Income Statement $ 000s

Income tax expense 823

Partial Cash Flow Statement $ 000s

Question not answered

Sections 3.2.1.2, 3.3

Inventories, Michael A. Broihahn

Sections 3.1, 3.2, 3.4

Average cost: 52,700/2,200 = $23.95

Event Units $/Unit Total ($)

The cost of sales (in thousands) is closest to:

$3,850 using FIFO.

"Understanding Income Statements," Elaine Henry and Thomas R. Robinson

Item Description Thousands

Question not answered

Cost Determination Thousands

Question not answered

Metric ($ millions) Company X Company Y

Question not answered

Metric (common size) Company X Company Y Comparison

"Understanding Income Statements," Elaine Henry and Thomas R. Robinson