Chartered Financial Analyst Exam: Trivia Quiz

30 Questions | Total Attempts: 57

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Chartered Financial Analyst Exam: Trivia Quiz

Chartered Financial Analyst exam: trivia quiz. A financial analyst is tasked with deriving meaning from how a company is performing in order to make informed decisions that help with its long term or short term goal realization. For one to hold this position they need to have accounting qualification and knowledge of software. This quiz will help see if you have what it takes. Do give it a shot and see how well you will do.


Questions and Answers
  • 1. 
    An analyst gathered the following information about a portfolio comprised of three bonds: Price ($)   Par Amount  Owned   Duration 102,000   $7 million  1.89  94.356   $5 million  7.7  88.688   $3 million  11.55  Assuming there is no accrued interest, then the portfolio duration is closest to:
    • A. 

      6.83 years

    • B. 

      5.55 years.

    • C. 

      5.76 years.

  • 2. 
    Gardner Knight, CFA, is a product development specialist at an investment band. Knight is responsible for creating collateralized debt obligations (CDOs) consisting of residential mortgage bonds. In the marketing brochure for his most recent CDO, Knight provided a list of the mortgage bonds that the CDO was created from. The brochure also states that “ an independent third party, the collateral manger, had sole authority over the selection of all mortgage bonds used as collateral in the CDO.” However, Knight met with the collateral manager and helped her select the bonds for the CDO. Knight is least likely to be in violation of which CFA Institute Standards of Professional Conduct? (Mock79‐8) 
    • A. 

      Suitability

    • B. 

      Conflicts of interest

    • C. 

      Communications with Clients and Prospective Clients

  • 3. 
    A real estate investment has the following characteristics: Annual rental income  $1,800,000 Annual operating expenses  $1,200,000 Available mortgage rate  6% Financing percentage  90% Required rate of return  15% Estimated holding period  5 years Investor’s tax rate  25% Based on the income approach, the value of the investment is closest to:
    • A. 

      $4,000,000.

    • B. 

      $5,455,000

    • C. 

      $8,696,000.

  • 4. 
    Sisse Brimberg, CFA, is responsible for performance presentations at her investment firm. The presentation that Sisse uses states her firm: (1) deducts all fees and taxes; (2) uses actual and simulated performance results; (3) bases the performance on a representative individual account. Based on the above information, which of the following is the most appropriate recommendation to help Brimberg meet the CFA Institute Standards of Professional Conduct in her performance presentations? She should present performance based on:
    • A. 

      A weighted composite for all similar portfolios.

    • B. 

      A gross of fee basis.

    • C. 

      Actual not simulated results.

  • 5. 
    For financial assets classified as available for sale, how are unrealized gains and losses reflected in shareholders' equity?
    • A. 

      They are not recognized.

    • B. 

      They are a component of accumulated other comprehensive income.

    • C. 

      They flow through retained earnings.

  • 6. 
    When comparing financial statements prepared under IFRS with those prepared under U.S. generally accepted accounting principles, analysts may need to make adjustments related to:
    • A. 

      Unrealized gains and losses for trading securities.

    • B. 

      Realized losses.

    • C. 

      Unrealized gains and losses for available‐for‐sale securities.

  • 7. 
    Assume U.S. GAAP applies unless otherwise noted. At the end of the year, a company sold equipment for $40,000 cash. The company paid $100,000 for the equipment several years ago and had accumulated depreciation of $60,000 for the equipment at the time of sale. All else equal, the equipment sale will result in the company's cash flow from:
    • A. 

      Investing activities decreasing by $10,000.

    • B. 

      Investing activities increasing by $40,000.

    • C. 

      Operating activities being $40,000 more than net income.

  • 8. 
    Carrying inventory at a value above its historical cost would most likely be permitted if:
    • A. 

      Financial statements were prepared using U.S. GAAP.

    • B. 

      The change resulted from a reversal of a previous write‐down.

    • C. 

      The inventory was held by a producer of agricultural products.

  • 9. 
    Assume U.S. GAAP applies unless otherwise noted. An analyst determined the following information concerning Franklin, Inc.’s stamping machine:                                              Acquired January 1, 1998 Cost $22 million,                               Depreciation straight-line method                                               Estimated useful life 12 years,                               Salvage value $4 million                              As of December 31, 2004, the stamping machine is expected to generate $1,500,000 per year for five more years and will then be sold for $1,000,000. The stamping machine is:
    • A. 

      Not impaired because annual expected revenue exceeds annual depreciation

    • B. 

      Impaired because expected salvage value has declined.

    • C. 

      Impaired because its carrying value exceeds expected future cash flows.

  • 10. 
    Under U.S. GAAP, a lessor's reported revenues at lease inception will be highest if the lease is classified as a(n):
    • A. 

      Operating lease.

    • B. 

      Sales‐type lease.

    • C. 

      Direct financing lease.

  • 11. 
    A company has announced that it is going to distribute a group of long‐lived assets to its owners in a spin‐off. The most appropriate way to account for the assets until the distribution occurs is to classify them as:
    • A. 

      Held for use until disposal with depreciation continuing to be taken.

    • B. 

      Held for sale with no depreciation taken.

    • C. 

      Held for use until disposal with no deprecation taken.

  • 12. 
    The following information is available for a firm.Market Risk Premium  7.0%Risk‐free Rate  2.0%Comparable Firm Return  10.4%Comparable Firm Debt‐to‐Equity Ratio  1.0Comparable Firm Tax Rate   40.0%The firm’s unlevered beta is closest to:
    • A. 

      1.05

    • B. 

      0.75.

    • C. 

      1.20

  • 13. 
    A company’s optimal capital budget is best described as the amount of new capital required to undertake all projects with an internal rate of return greater than the:
    • A. 

      Weighted average cost of capital

    • B. 

      Marginal cost of capital.

    • C. 

      Cost of new debt capital.

  • 14. 
    Freitag Company currently has assets on its balance sheet that are financed with 60% equity and 40% debt. The company can issue debt at the yield of 8% when the value of the debt doesn’t exceed 1 million. If larger amounts of debt are issued by the company, the yield of the debt will be 9%.Calculate the break points for the company.
    • A. 

      2.5 million

    • B. 

      1 million

    • C. 

      1.67 million

  • 15. 
    Jason Schmidt works for a hedge fund and he specializes in finding profit opportunitiesthat are the result of inefficiencies in the market for convertible bonds—bonds that canbe converted into a predetermined amount of a company's common stock. Schmidt triesto find convertibles that are priced inefficiently relative to the underlying stock. Thetrading strategy involves the simultaneous purchase of the convertible bond and theshort sale of the underlying common stock. The above process could best be describedas:
    • A. 

      Hedging.

    • B. 

      Securitization.

    • C. 

      Arbitrage.

  • 16. 
    Uses of market indices do not include serving as a:
    • A. 

      Measure of systematic risk.

    • B. 

      Basis for new investment products.

    • C. 

      Benchmark for evaluating portfolio performance.

  • 17. 
    An analyst made the following statement: "We should purchase Treasury notes becausethey are risk‐free. Default risk is essentially non‐existent." Is the analyst's statementcorrect with respect to:    a. risk‐free?      b. default risk?
    • A. 

      A.Yes b.No

    • B. 

      A.No b.No

    • C. 

      A.No, b.Yes

  • 18. 
    An investor purchased a European put option. The current price of the underlying stockis 30 dollars. The exercise price is 40 dollars and the put will expire in 270 days. If theput was not purchased, the investor could invest the premium in T‐bills with a discountrate of 3%. The lower bound of put value is closest to:
    • A. 

      9 dollars

    • B. 

      11 dollars

    • C. 

      10 dollars

  • 19. 
    A large industrialized country has recently devalued its currency in an attempt to correcta persistent trade deficit. Which of the following domestic industries is most likely tobenefit from the devaluation?
    • A. 

      Branded prescription drugs.

    • B. 

      Restaurants and live entertainment venues.

    • C. 

      Luxury cars.

  • 20. 
    A country with a trade deficit will most likely:
    • A. 

      Have an offsetting capital account surplus

    • B. 

      Save enough to fund its investment spending.

    • C. 

      Buy assets from foreigners to fund the imbalance.

  • 21. 
    A company is planning a new issue of $100 par preferred stock with a 12% dividend.The preferred stock can be sold for $95 per share and the company must pay flotationcosts of 5% of the market price. Assuming a marginal tax rate of 40%, the after‐tax costof the preferred stock is closest to:
    • A. 

      13.3%

    • B. 

      12.6%.

    • C. 

      8.0%.

  • 22. 
    When, at the end of an accounting period, cash has not been paid with respect to an expense that has been incurred, the business should then record:
    • A. 

      A prepaid expense, an asset.

    • B. 

      An accrued expense, a liability.

    • C. 

      An accrued expense, an asset

  • 23. 
    An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years. She noted that the hedge fund index (created from a database) had a higher average return, higher standard deviation, and higher Sharpe ratio than the stock index. All the successful funds that have been in the hedge fund database continued to accept new money over the eight-year period. Are the average return and the standard deviation, respectively, for the hedge fund index most likely overstated or understated?Average return for the hedge fund index Standard deviation for thehedge fund index Overstated Overstated Overstated Understated Understated Overstated 
    • A. 

      Overstated Overstated

    • B. 

      Understated Overstated

    • C. 

      Overstated Understated

  • 24. 
    Sam Snead, CFA, is the founder and portfolio manager of the Everglades Fund. In its first year the fund generated a return of 30%. Building on the fund’s performance, Snead created new marketing materials that showed the fund’s gross 1‐year return as well as the 3‐, and 5‐year returns which he calculated by using back‐tested performanceinformation. As the marketing material is used only for presentations to institutional clients, Snead did not mention the inclusion of back‐tested data. According to the Standards of Practice Handbook, did Snead violate any CFA Institute Standards of Professional Conduct?
    • A. 

      Yes, because he did not disclose the use of back‐tested data.

    • B. 

      No.

    • C. 

      Yes, because he failed to deduct all expenses before calculating the fund’s track record.

  • 25. 
    Kirsten Kelso, CFA, is a research analyst at a research firm. Kelso is part of a team of analysts who focus on automobile industry. Recently, Kelso disagreed with research sell recommendations written by her team even though she felt confident the research process was properly conducted. In a webcast open to all institutional but not retail clients, Kelso states “even though my name is on the sell reports, these stocks are a buy in part because sales and share prices for the company will rise due to strong demand for their vehicles.” Kelso’s actions would least likelyviolate which of the following CFA Institute Standards of Professional Conduct?
    • A. 

      Diligence and Reasonable Basis

    • B. 

      Fair Dealing

    • C. 

      Communication with Clients

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