Q1.Q.

The manager of a discretionary account places client funds in a suitable investment because it
provides a higher commission than alternatives that are also suitable for the client. The selected
investment subsequently appreciates in value. This investment manager did not:

place the client’s interests first.

face an ethical dilemma because the investment was profitable.
have a conflict of interest because the investment was suitable for the client.

Q.2 The recommended way to address situations that pose ethical dilemmas is to:

seek advice from colleagues.

obey all local laws and securities regulations.
have an explicit ethical framework, on both a personal and firm-wide level.

Ans: C

Q.3 Which of the following is an example of systematic risk?

Industry consolidation
Changes in interest rates
Failure of a company's computer network

Ans: B – not confirmed…

Q.4 The price-to-earnings ratio is the ratio of a company’s:

stock price to earnings per share.

market capitalisation to earnings per share.
stock price to discounted present value of earnings

Ans: A

Q.5 Debt securities with maturities of greater than ten years are referred to as:

bills.
notes.
bonds.

Ans: C

Q.6 Risk management is an activity most likely associated with a firm’s:

front office.
middle office.
back office.

Ans: B

Q.7 Sovereign wealth funds invest assets on behalf of a:

foundation.
government.
trust company.

Ans:

Q.8 A pension fund manager is best described as:

a buy-side firm.
a sell-side firm.
an investment bank.

Ans: A

Q.9 Which type of regulatory regime would most likely prohibit the sale of certain types of products?

Merit-based
Principles-based
Disclosure-based

Ans: A

Q.10 A fund’s performance relative to its benchmark index is estimated by the fund’s:

Beta.
Sharpe ratio.
Information ratio.

Ans: C

Q. Which of the following statements best shows the amount of debt repayment by a company during
the year?

Balance sheet
Income statement
Cash flow statement

Ans: A

Q.12 The investment industry provides which of the following benefits to an economy?

Ensures economic stability

Reduces international trade imbalances
Directs funds to the most productive businesses

Ans: C

Q.13 A framework for making ethical decisions should include:

having quantitative data.

identifying the available options for acting.
allowing for a reasonable amount of time before acting.

Ans: A

Q.14 Marketing documentation typically includes:

offering documentation.
know-your-client documents.
statements by third-party custodians.

Ans: C

Q.15 In the investment industry, cash management is most likely the responsibility of the:

treasurer.
general counsel.
chief risk officer.

Ans: A treasurer

Q.16 In practice, most regulatory regimes are:

only rules-based systems.

only principles-based systems.
a hybrid of rules-based and principles-based systems.

Ans: C

Q.17 A potential disadvantage to an investor in hedge funds is the:

hurdle rate.
lock-up period.
high-water mark.

Ans: B

Q.18 All else being equal, the future value will be greatest if interest is compounded:

monthly.
quarterly.
semi-annually.

Ans: A

Q.19 As the time until a future sum is received increases, the present value will:

decrease.
remain the same.
increase.
Ans: A

Q.20 A benchmark index is reconstituted when the index:

list has changed.

constituents have stock splits.
security weights have changed.

Ans: A

Q.21 Direct investments allow investors to:

reduce risk by investing in mutual funds.

own limited partnership interests in venture capital funds.
choose when to buy or sell their investments to minimise their tax liabilities.

Ans: C

Q.22 The incremental satisfaction consumers get from each additional unit of consumption is subject to
the law of:

supply.
demand.
diminishing marginal utility.

Ans: C

Q.23 Which of the following institutional investors most likely must spend a target percentage of the
portfolio annually?

Endowments
Life insurance firms
Property and casualty insurance firms

Ans: C

Q.24 A bank may require collateral to limit its exposure to:

credit risk.
market risk.
compliance risk.

Ans: A

Q.25 A bond manager uses the S&P 500 Index as a performance benchmark. The manager’s benchmark
violates the criterion of:

clarity.
investability.
compatibility.
Ans: A - clarity

Q.26 One of the functions of internal auditors in the risk management process is to:

identify key risk measures.

establish internal risk limits.
advise on how to improve risk management, controls, and efficiency.

Ans: C – tentative

Q.27 One of the properties of key risk measures is that they:

are consistent among industries.

give warnings when risk levels are rising.
limit the amount of risky securities that can be held.

Ans: B

Q.28 Which of the following economic measures will most likely increase as a result of a general increase
in the price of goods produced in a country?

Real GDP
Nominal GDP
Constant dollar GDP

Ans: B

Q.29 Protecting consumers of financial products from abusive practices is a goal of:

regulation.
fiscal policy.
capital markets.

Ans: A

Q.30 Higher level executives of an investment firm can be disciplined for the regulatory violations of
lower level employees:

by monetary fines only.

due to failure to properly supervise.
only when criminal conduct is involved.

Ans: B

Q.31 A property of a document is that it:

is always standardised.
represents an official record.
exists only in written or printed form.
Q.32 Letters, memos and emails are best described as examples of:

policy documents.
ad hoc documents.
standardised documents.

Ans: B - doubt

Q.33 A register can be described as an internal document that:

describes an organisation’s mission, values and objectives.

articulates business relationships and obligations undertaken by parties.
contains obligations, past actions, and future or outstanding requirements.

Ans: A

Q.34 The average compound return earned per year over a multi-year period is known as the:

arithmetic mean return.

geometric average return.
normal distribution of returns.

Ans: B

Q.35 Standard deviation measures the:

average return.
frequency of negative returns.
volatility of the security’s return.

Ans: C

Q.36 Performance attribution on an active portfolio strategy is designed to:

measure the levels of risk within a portfolio.

assess from where a fund manager's performance was derived.
measure how well a fund manager is performing relative to an expected return.

Ans: B - doubt

Q.37 An investor holding a short position in a maturing futures contract may:

have to deliver the underlying asset to the holder of the long position.
exercise the option to sell the asset to the holder of the long position.
take delivery of the underlying asset from the holder of the long position.

Ans:

Q.38 The coupon rate on a callable bond compared to an otherwise identical non-callable bond would
most likely be:
lower.
equal.
higher.

Ans: C _ Higher

Q.39 The discount rate that equates the present value of a bond's future cash flows to its market price
represents the bond's:

yield curve.
current yield.
yield to maturity.

Ans: C - YTM

Q. All else being equal, which bonds typically have the widest credit spreads?

A-rated corporate bonds

AA-rated corporate bonds
AAA-rated corporate bonds

Ans: A

Q.41 Which of the following types of funds sells shares to the public in an initial public offering?

Closed-end funds
Exchange-traded funds
Open-end mutual funds

Ans:

Q.42 Alpha is best measured by which of the following?

Market risk
A factor model
Peer-group benchmarks

Ans: A

Q.43 Microeconomics includes the study of factors that:

influence the supply of a product.

affect the level of national income.
determine the general price level of the economy.

Ans: C

Q.44 A product whose consumption is positively correlated with another is known as:

an inferior product.
a substitute product.
a complementary product.

Ans: B

Q.45 In a rights offering, the exercise price relative to the market price is generally:

lower.
the same.
higher.

Ans: Lower

Q.46 What position do investors have when they buy shares in a company?

Long
Short
Hedged

Ans: A -Long

Q47. Which of the following is most likely a benefit of real estate investments?

Low correlation to a portfolio of equity and fixed income investments

High investment liquidity relative to equity and fixed income investments
High availability of investment information relative to equity and fixed income investments

Ans: B

Q.48 In the structure of a typical private equity fund, investors are commonly referred to as:

limited partners.
general partners.
public shareholders.

Ans: A

Q.49 The buyer of an option contract:

receives the premium when the contract is initiated.

must trade the underlying asset at the exercise price.
has the right to trade the underlying asset at the exercise price.

And: C

Q.50 In primary security markets investors buy securities from:

traders.
issuers.
exchanges.
Ans: B - doubtful

Q.51 In a best efforts public offering, the investment bank:

takes price risk.

acts as a broker.
guarantees the sale of the issue.

Q.52 To prevent the transfer of non-public information about future underwritings, a firm will most likely
limit the contact between its research department and:

brokerage services.
proprietary trading.
investment banking.

Ans; A

Q.53 In periods of economic expansion, inflation will most likely:

decrease.
stay the same.
increase.

Ans: C

Q.54 A current account surplus most likely indicates a country with:

balanced capital flows.

net imports of services.
net exports of merchandise.

Ans: C

Q.55 A country’s comparative advantage in the extraction of commodities most likely stems from its:

high labour to capital ratio.

large amount of natural resources.
specialisation in capital intensive products.

Ans: A

Q.56 All else being equal, when the standard deviation is large, the normal distribution curve is:

tall and wide.

short and wide.
tall and narrow.

Ans: B - flatter and wider

Q.57 Dealers are proprietary traders who:

fill orders for their clients by trading with them.

route their clients’ orders to exchanges or to brokers.
search for traders who are willing to take the other side of their clients’ orders.

Ans: A

Q.58 A provider of an index fund most likely uses a sampling replication procedure to track the index in
order to:

reduce transaction costs.

select the constituent securities expected to provide the highest returns.
produce a portfolio that will include other securities besides those in the index.

Ans: A

Q.59 Purchase of a hotel property would most likely take place in:

brokered markets.
order-driven markets.
quote-driven markets.

Ans: A

Q.60 The market for a liquid stock is quoted at 25 bid, 26 offered. An order to sell is most likely to
execute if the order submitted is:

sell limit 25.

sell limit 25.5.
sell limit 26.

Q.61 After issue, floating-rate bond coupons are affected by the:

credit spread.
reference rate.
conversion provision.

Ans:

Q.62 The distinctive characteristic of enterprise risk management (ERM) is the:

independence of the risk management function.

support given to strategic and business planning.
consolidation and management of risks at the firm level.

Ans: A

Q.63 A downgrade of a bond reflects an increase in its:

credit risk.
liquidity risk.
interest rate risk.

Ans: A

Q.64 The expansion phase of the business cycle can be characterised by:

corporations’ declining stock values.

consumers reducing outstanding debt.
employees demanding higher wages.

Ans: B

Q.65 Bonds are:

real assets.
equity securities.
fixed-income securities.

Ans: C

Q.66 The key difference between a broker and a dealer is that:

dealers act as principals.

brokers act as market makers.
brokers trade directly with other market participants.

Ans:

Q.67 Laws and regulations are designed primarily to:

promote fairness.
eliminate financial risk.
ensure competitive returns.

Q.68 Which real estate investment vehicle is typically chosen for public market investors?

Real estate equity funds

Real estate investment trusts
Real estate limited partnerships

Q.69 A country that increases its international trade would most likely see a decrease in:

prices of domestic goods and services.

quality of domestic goods and services.
demand for domestic goods and services.

Q.70 The final stage in the performance evaluation process is:

attributing performance.
adjusting returns for risk.
measuring relative returns.

Q.71 One of the direct roles of supervisors in an investment management firm is to:

prevent financial contagion.

inform regulators promptly of violations of the firm's internal compliance policies.
ensure that employees are aware of the firm's compliance policies and procedures.

Q.72 Macroeconomics would most likely include analysis of the:

effect of a country's inflation rate on the economy.

profitability of a company under different economic scenarios.
demand for a good coupled with the ability and willingness to pay a given price for it.

Q73. Which of the following contracts trade only on exchanges?

Options
Futures
Forwards

Q.74 Under a floating exchange rate system, if a country has a persistent capital and financial account
deficit it most likely indicates that:

it runs a trade deficit.

it is a net lender to the rest of the world.
the domestic currency should depreciate.

Q.75 Documentation that conveys ideas, concepts, or information is meeting which of the following
objectives?

Measuring
Authorising
Communicating

Q.76 Company voting rights are most likely exercised by:

common shareholders.
preferred and common shareholders.
debt holders and equity shareholders.

Q.77 Investment industry participants have been able to reduce operating costs over the years because
of:

regulation.
globalisation.
computerisation.
Q.78 A trading venue that functions like an exchange but does not exercise regulatory authority over its
subscribers is known as:

a primary market.
a private placement.
an alternative trading system.

Q.79 All else being equal, as investors' time horizon increases, their risk tolerance will:

decrease.
be unchanged.
increase.

Q.80 If two variables tend to move in opposite directions, their correlation coefficient is:

negative.
zero.
positive.

Ans: A

Q.81 If an investor exercises warrants, the number of shares outstanding of the issuing company most
likely:

decreases.
remains the same.
increases.

Q.82 Creating a new company from an existing subsidiary by distributing shares of the new company to
the parent company's existing shareholders is called:

a spinoff.
an initial public offering.
a seasoned equity offering.

Q.84 An investor who needs to execute a trade in a large capitalisation stock by the end of the day would
most likely use a:

limit order.
stop order.
market order.

Q.85 Economics is best defined as the study of:

economies of scale.
allocationally efficient economies.
choices in the presence of limited or scarce resources.
Q.86 Which of the following questions can be answered by using accounting ratio analysis?

What is the company's cash balance?

What is the company's current market share?
How much profit is the company generating from its assets?
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Q.83 An investor who needs to execute a trade in a large capitalisation stock by the end of the day would
most likely use a:

limit order.
stop order.
market order.

Q.84 Economics is best defined as the study of:

economies of scale.
allocationally efficient economies.
choices in the presence of limited or scarce resources.

Q.85 Which of the following questions can be answered by using accounting ratio analysis?

What is the company's cash balance?

What is the company's current market share?
How much profit is the company generating from its assets?

Q.86 A decrease in inventories contributes to cash flow from which activity?

Investing
Financing
Operating

Q.87 Analysts who build statistical models to identify stocks that are likely to outperform are best
described as:

technical analysts.
quantitative analysts.
fundamental analysts.

Q.88 An objective of risk management is to:

maximise returns for shareholders.

eliminate risk associated with investments.
identify potential threats facing a company.

Q.89 The risk, also known as Herstatt risk, that the counterparty fails to complete its side of the deal as
agreed is commonly referred to as:
liquidity risk.
settlement risk.
compliance risk.

Q.90 An investor buys equity in a company with a major portion of its operations in the exploration,
production, and processing of oil. The investor is purchasing:

an oil derivative.
a physical commodity.
a commodity-related stock.

Ans: A

Q.91 Using a value at risk (VaR) model based on historical data to forecast future expected losses works
well:

all the time.

during times of normal market conditions.
during times of increased market volatility.

Ans: A

Q.92 A company is operating below capacity. What is the most likely result when production rises?

The fixed cost per unit will decrease.

The variable cost per unit will increase.
The total cost per unit remains constant.

Ans: A

Q.93 According to the discounted cash flow method, the value of a bond equals the sum of the:

present values of the expected coupon payments.

expected coupon payments and final principal payment.
present values of the expected coupon payments and the final principal payment.

Q. An investment management agreement between a firm and a client is most likely an:

ad hoc document.
internal document.
external document.94

Ans: A

Q.95 A convertible bond:

is a hybrid security.
usually trades below its conversion value.
typically gives the issuer the right to convert it into a pre-specified number of shares.
Q.96 The CFA Institute Code of Ethics stipulates that members must:

concentrate on the integrity and viability of domestic capital markets over international markets.
maintain and improve their professional competence as well as that of other investment professionals.
reference consensus opinions whenever researching an investment option or acting on an investment
decision.

Q.97 Which of the following is a need served by participants within the investment industry?

Custodial services
Monetary policy actions
Regulation enforcement

Q.98 The party that settles trades after the trades have been arranged is known as the:

auditor.
fund manager.
clearing house.

Q.99 A vehicle in which investment professionals promise to implement a specific active strategy in
exchange for a single flat fee is known as:

an index fund.
a hedge fund.
a managed account.

Q.100 The underlying asset of a derivative contract can be a:

real asset only.

financial asset only.
real or financial asset.