9th day of the odyssey...
For this day I am giving you a sampler of what a CFA Diagnostic exam looks like... I invite you to send your answers via comments, the one with the highest score will receive a special price from the author, (for readers residing on Philippines only)... The deadline is on March 5, 2008... I will also post the answers on the said date... Good Luck!
CFA REVIEW COURSE
Level I Diagnostic Exam
40 Questions, 60 Minutes
QUESTIONS 1 THROUGH 5 RELATE TO ETHICAL AND PROFESSIONAL STANDARDS
1. Each of the following would constitute plagiarism except:
A. Quoting sources from a “leading analyst” without any specific reference given.
B. Using a statistic from a well-known statistical reporting company without acknowledgement.
C. Verbal comment made by an analyst in a presentation which was not an original idea
D. Selected portions of another brokerage firm’s report, without attribution.
2. Mr. Richard Rikin successfully completed the Level 1 Examinations and Mr. Dennis Reinoso successfully completed the Level 3 Examinations of the CFA Program. Mr. Rikin registered for the Level 2 Examinations. Mr. Reinoso still needs to complete the work requirement for the charter. The correct way to present their involvement in the program is
For Mr. Richard Rikin For Mr. Dennis Reinoso
A. Mr. Richard Rikin, CFA Level 1 Mr. Dennis Reinoso, CFA Level 3
B. Mr. Richard Rikin, CFA Level 1 Mr. Dennis Reinoso, will be eligible for the charter upon completion of required work experience
C. Mr. Richard Rikin is a Level 2 Candidate in the CFA Program Mr. Dennis Reinoso, CFA Level 3
D. Mr. Richard Rikin is a Level 2 Candidate in the CFA Program Mr. Dennis Reinoso, will be eligible for the charter upon completion of required work experience
3.Which of the following statements is true?
I. Insider information is that which is both non-public and material.
II. An investor can make a trade based on a set of non-public and non-material information.
III. A Chartered Financial Analyst, working in the U.S., can use insider information to buy a foreign stock because there is no law prohibiting such transaction in the country where such stock is listed.
A. I only
B. I and II only
C. II and III only
D. All are true
4. Anna Nichols is a research analyst preparing a report on Enterprise Company. In order to ensure accuracy in her report, she sends the report to the Chief Financial Officer (CFO) of Enterprise to allow him to point out some factual errors. The CFO makes some corrections, which Nichols checks and agrees with. The CFO also sends Nichols several pages of market analyses that appear favorable for Enterprise. Nichols checks the analyses for accuracy and includes a summary of them in her report, pointing out that the data came from Enterprise. Nichols has:
A. violated the Standards by sending the report to the CFO before sending it to her clients.
B. violated the Standards by not including all of the data the CFO provided to her.
C. violated the Standards by including the data from the CFO in the report.
D. not violated any Standard.
5. While on a business trip, John Hayes, CFA, found a notebook that had apparently been left in the waiting area of an airport. Hayes opened the notebook and read the title: Confidential: 2001 Level II CFA Examination. Before returning the notebook to AIMR, he made a copy and gave it to Linda Sacket, one of his firm's analysts, who was a candidate for Level II of the CFA examination. Hayes reasoned that AIMR would not use these questions and that Sacket would benefit from reviewing these questions. Sacket read the questions and guideline answers before taking the Level II examination. According to the AIMR Standards of Professional Conduct involving professional misconduct:
A. Hayes violated the Standards, but Sacket did not.
B. Sacket violated the Standards, but Hayes did not.
C. both Hayes and Sacket violated the Standards.
D. neither Hayes nor Sacket violated the Standards.
QUESTIONS 6 THROUGH 13 RELATE TO ECONOMICS
6. If the reserve requirement is 20%, a new deposit of $1,000 will increase the money supply by:
A. potentially as much as $5,000.
B. at least $1,000.
C. potentially as much as $4,000.
D. potentially as much as $1,000.
7. In a perfectly competitive market,
I. each competitor faces perfectly elastic demand for its product.
II. a competitor can gain market share by differentiating it product.
III. in the long run all firms will earn zero economic profit.
IV. in the long run all firms will earn accounting profit.
A. I only.
B. I and III.
C. I, II and III.
D. I, II and IV.
8. Once a firm reaches a point of diminishing marginal returns:
A. marginal costs will decrease, causing average total costs to decrease.
B. marginal costs will increase, causing average total costs to increase.
C. marginal costs will increase, having no effect on average total costs.
D. marginal costs will increase, but the effect on average total cost will depend on the change in average fixed cost.
9. A firm in a competitive price-searcher market
A. faces an inelastic demand curve.
B. must be concerned not only with existing competitors but new potential entrants as well.
C. is somewhat protected from competition by high barriers to entry.
D. is unlikely to derive any benefit from advertising.
10. According to the Crowding-Out Model,
A. rising tax rates will reduce demand as more money is taken away from the private sector.
B. increased government spending will have no effect on aggregate demand.
C. expansionary fiscal policy puts the government in competition with the private sector for a limited supply of loanable funds.
D. the best strategy to stimulate demand during a recession is restrictive fiscal policy.
11. M1 includes all of the following except:
A. demand deposits.
B. traveler's checks.
C. passbook savings accounts
D. currency in circulation.
12. If the Japanese Yen depreciates against the U.S. Dollar:
A. It takes less Yen to buy products priced in Dollars.
B. It takes more Dollars to buy products priced in Yen.
C. It takes more Yen to buy products in any currency.
D. It takes more Yen to buy products priced in Dollars.
13. As long as the _____ production costs of goods and services differ between nations, the nations will be able to benefit from trade.
A. absolute
B. total
C. relative
D. unit
QUESTIONS 14 THROUGH 22 RELATE TO QUANTITATIVE METHODS
14. Two alternative investments, both costing PhP1,000,000 are being offered. Investment A will pay a lump sum of PhP2,000,000 after 5 years while Investment B will pay PhP300,000 per year for five years beginning one year from now. Assuming an interest rate of 10%, which of the following statements are true?
I. Investment A has a higher NPV.
II. Investment B has a higher IRR.
A. Only statement I is True.
B. Only statement II is True.
C. Statements I and II are true.
D. Statements I and II are false.
15. In a normal probability distribution:
A. The expected value is equal to both the mode and the median.
B. Large deviations from the mean are less likely than small deviations.
C. The distribution can be identified completely by the expected and the standard deviation.
D. All of the above.
16. Multiple regression analysis refers to:
A. Analyzing the effect of several dependent variables on one independent variable.
B. Analyzing the effect of several independent variables on one dependent variable.
C. Performing several iterations of a linear regression to determine the regression line with the best fit to the data.
D. Performing several iterations of a linear regression to determine the regression line with the highest R2
17. Javyee Eizaguru bought a new car, Ford, on terms. He paid $500 down, signed a note at 12% requiring $150 monthly payment for 2 years. How much did he pay for the car?
A. $3,187
B. $3,687
C. $1,253
D. $4,100
18. You have been offered perpetuity of $1,000 annually in exchange for $50,000. What interest rate is implicit in this transaction?
A. 1.0%
B. 2.0%
C. 2.5%
D. 20.0%
19. Which of the following options is the most desirable for a borrower taking out a loan?
A. Pay 8% compounded daily.
B. Pay 8.2% compounded monthly
C. Pay 8.3% compounded quarterly.
D. Pay 8.5% compounded annually.
20. Which of the measures assume that all proceeds are reinvested?
A. Time-weighted rate of return
B. IRR
C. Dollar-weighted rate of return
D. Arithmetic rate of return
21. Investing for more holding periods:
A. Will reduce overall risk
B. Will neither increase or decrease overall risk
C. Increases the amount at risk
D. Increases risk only if the holding period returns are not independent
22. Jenny Clevera would like to send her daughter Sheryl to Jasmine College in ten years. She has estimated that the cost of college by then will be $30,000 per year. Assuming she can earn 8% on her investments, how much must she set aside to meet the expected college bills?
A. $99,363
B. $62,776
C. $55,583
D. $46,025
QUESTIONS 23 THROUGH 36 RELATE TO FINANCIAL ACCOUNTING AND STATEMENT ANALYSIS
23. Among the following, the most important tool for investors is the:
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of changes in stockholders’ equity
24. The cash flow from operations can:
A. Be manipulated
B. Usually predict bankruptcy
C. Be affected by issuing stock
D. Be affected by capital expenditure
25. Many companies prefer to have operating leases rather than capital leases because:
A. In the later years of the lease, operating income will be higher.
B. In the early years of the lease, rent expense is usually less than the sum of depreciation and interest expense.
C. Operating leases are not reported in the annual report
D. Over the life of the lease, income will be greater using an operating lease.
26. The most conservative way to compute interest coverage if a company has capitalized interest is to:
A. Compute the ratio using interest actually paid.
B. Add the capitalized interest back to net income and compute the ratio.
C. Deduct capitalized interest from interest expense and compute the ratio.
D. Add capitalized interest to interest actually paid and compute the ratio.
27. Which of the following is a benefit of FIFO?
A. Higher taxes
B. Less inflation effect on COGS
C. Higher ROE
D. Higher liquidity ratios
28. An unexpected increase in inventory might be a sign of:
A. Higher future demand
B. Unexpected decline in sales
C. a & b.
D. Higher current ratio
29. The area of accounting that gives management the greatest discretion to determine timing of income is
A. Inventory accounting.
B. Accounting for marketable securities.
C. Accounting for impaired assets.
D. Convertible debt accounting.
30. A firm that tends to capitalize certain costs rather than expense them will:
A. eventually have problems with the SEC.
B. have higher net income over the long-term.
C. have higher cash flow over the near-term.
D. have smoother net income.
31. Which of the following cannot be capitalized?
A. Trademarks.
B. Software development.
C. Research and development.
D. Franchises.
32. One method of increasing net income without having a separate line item on the balance sheet is to:
A. change depreciation methods.
B. change asset lives.
C. change interest rate assumptions.
D. none of the above.
33. For bonds issued at premium, interest expense:
A. goes down over time.
B. goes up over time.
C. stays the same.
D. will depend on the effective interest rate.
34. When computing a valuation ratio, the correct method of valuing debt is:
A. face value.
B. par value.
C. market value.
D. conversion value.
35. Selling accounts receivable artificially improve the:
A. Current ratio
B. Debt/equity ratio
C. Tax rate
D. Return on equity
36. What should an analyst use to estimate real economic depreciation of a fixed asset?
A. Tax depreciation.
B. GAAP depreciation.
C. Units of production method.
D. Must be evaluated on a case by case basis.
QUESTIONS 37 THROUGH 40 RELATE TO ASSET VALUATION AND PORTFOLIO MANAGEMENT
37. In analyzing different industries, those with high P/E ratios will typically have:
A. low payout ratios
B. high payout ratios
C.low growth rates
D. too much leverage
38. Beta can be viewed as:
A. a measure of growth
B. a measure of systematic risk
C. a measure of correlation
D. a measure of total risk
39. Each of the following is a disadvantage to investing in real estate except:
A. illiquidity
B. cyclicality of the market
C. high correlation of real estate returns with common stock returns
D. high management costs
40. Company A has a substantially higher dividend pay out ratio compared to Company B. Everything else about the two companies is identical. After several years, which of the following statements about Company A and Company would most likely be TRUE?
I. Company A would have a higher stock price.
II. Company B would have a lower debt/equity ratio.
A. Only statement I is most likely True.
B. Only statement II is most likely True.
C. Statements I and II are both most likely true.
D. Neither statement I nor II are likely to be true.
CHOOSE TO BE RICH WORK BOOK
022308
Wants
1. To become a CFA...
2. To become finacially free/ultra rich...
3. To own a medieval castle at Scotland...
4. To be a best selling inspirational author and lecturer...
5. To organize and build an International NGO focusing on the rights and welfare of street children and youth...
6. To own a massive library...
7. To have a massive collection of Naruto, Samurai X, X-men, Beatles, etc...
8. To own a vintage race car with historical sentiment...
9. To build my own university focusing on financial intelligence, emotional quotient and personality development...
Don't Wants
1. To die a vagabond...
2. To work all of my life...
3. To be a part of the rat race...
4. To be a slave of money...
5. To be sickly...
6. To become a loser...
7. To become a shadow of my father and predecessors...
8. To become undisciplined and disrganized...
9. To be a traditional politician...
I AM SO HAPPY AND GREATFUL NOW THAT…
022308
1. An oppurtinity to go out of the country was presented...
2. My anti virus was updated and got the Worm/Agent A...
3. For being a CFA...
4. For the Millions!
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