CFA L-1 Mocks 2024

Sr. No. Title Page No.

1 Mock 1- Paper- 1 1

2 Mock 1 Paper- 2 58

3 Mock 2 Paper- 1 103

Mock 2 Paper- 2 151

Mock 3 Paper- 1 196

6 Mock 3 Paper- 2 266

7 Mock 4 Paper- 1 315

8 Mock 4 Paper- 2 364

9 Mock 5 Paper- 1 415

10 Mock 5 Paper- 2 466

 Questions)
Mock 1(Paper-1
Question 1of 90
Which of the following is a recommended procedure for compliance with the Standard relating
Question
firms to:
supervisors? Members should encourage their
to responsibilities of
fiduciary concepts.
that addresses general
A adopt a code of ethics
clients with a copy of detailed compliance procedures.
B. provide the firm's its detailed compliance procedures.
C. commingle the firm's code of ethics with
Question 2of 90
Question following is not among th.
by theStandards, which of the to independence and
According to the guidance provided the Standard relating
recommended procedures for compliance with
objectivity?
A Create a restricted list
Prohibit the acceptance of gifts
B oversight responsibilities
C. Appoint a senior compliance officer with

Question 3 of 90
Question Conduct, Standard III-Duties to Clients most
In the CFAInstitute Standards of Professional
likely includes which of the following subsections?
A. Knowledge of the Law
B. Performance Presentation
C. Independence and Objectivity

Question4 of 90
Question
Akash Gupta has just finished taking the Level II CFA exam for the second time. To protect the
integrity of the exam, Gupta is careful not to discuss the exam questions with other candidates.
Gupta calls his friend, a member, and contrasts his two atempts by highlighting that there were
many calculation questions on derivatives in the first instance and none in the second. Later, in a
public blog on investment education, Gupta shares his strong disagreement regarding CFA
Institute shifting to computer-based testing. Has Gupta violated the Standards?
A. No
B. Yes, by highlighting that there were no calculation questions on derivatives in the recent
exam
C.
Yes, by expressing his disagreement in a public blog regarding CFA Institute shifting to
computer-based testing

Question 5 of 90
Question
A portfolio manager is hired by an
the: executive manager of atrust. The duty of loyalty is owee
A trustee.
B executive manager.
C beneficiaries of the trust.

2
Question 6 of 90

QuestionKon, CFA, is an equity analyst. She recently left her job at Hamm Capital (HC)to join
Melissa
historical
Eagle Investments (EI). Kon obtains the express consent of HCto take one of her
research reports with her. AtEI, she diligently updates the report and publishes it. Afterwards.
records from sources obtained at HC. Has Kon violated the Standards?
shere-creates supporting

A No
B Yes, by publishing the updated research report
C. Yes, by re-creating the supporting records from sources obtained at Hamm Capital

Question 7 of90
Question based on historical data. Joshi
Anisha Joshi, CFA, develops a product that selects mutual funds
tests her methodology and produces simulated performance results. The promotional material for
simulated. Joshi has most likely violated the
the product does not indicate that the results are
Standards relating:
A. only to fair dealing.
B. only to performance presentation.
C. both to fair dealing and to performance presentation.
Question 8 of 90
Question recommending third-party services to clients. Before
A member receives referral fees for the following must the member disclose
entering into an agreement with a new client, which of
to the new client?

A. Flat fees only

B. In kind benefits only
C. Both flat fees and in kind benefits

Question 9 of 90
Question
firm that utilizes external mutual funds.
Maria Perez, CFA, is a portfolio manager for an advisory
analytical model todetermine their
The firm has a committee that selects external funds, using an research process, she does not
choices. Although Perez has no reason to question the committee's
appropriate for all her clients. She
like the committee's choice for a bond fund because it is not needs, but her manager
researches and selects a different bond fund that better meets her clients'
decisions. She then invests
tells her that she is not permitted to make independent fund purchase violated the
in the fund chosen by the committee for allof her clients. Has Perez most likely
Standards?
A. No
B. Yes, the Standard relating to suitability
C. Yes, the Standard relating to diligence and reasonable basis
Question 10 of 90
Question
Suzanna Bermi, CFA, manages portfolios for retail clients. A friend asks her if Bermi can
provide investment advice in Bermi's spare time. The friend offers adonation to Bermi's tavont
charity in exchange for Bermi's advice. Bermi accepts the offer and starts providing investmen
advice to her friend immediately after sending an email to her firm's compliance deparune
about the arrangement, including the fact that she receives no cash payments from her moe
Has Bermi most likely violated the Standards?
A. No

3
 B. Yes,the Standard relating to additional compensation arrangements
C. Yes,the Standard relating to communication with clients and prospective clients

Question 1l of90
Question
Which of the following is a violation according to the Standard relating to preservation of
confidentiality?
A. Members share details relating to former clients with third party service providers.
B. Members convey to clients that not all firm-sponsored resources may be appropriate for
communicating confidential information.
C. When allowed under the law, members share confidential client information to defend
themselves in an investigation by the CFAInstitute Professional Conduct Program.

Question 12 of 90
Question company, is an independent board
Adira Badawi, CFA, who owns a research and consulting market. Because of Badawi's
member of a leading cement manufacturer in a small local
manufacturer looking to enter the local market
expertise in the cement industry, a foreign cement
what circumstances can Badawi most
has hired him to undertake a feasibility study. Under
Standards?
likely undertake the assignment without violating the
A. By making fulldisclosure to both companies
company
B. By receiving written permission from the local companies
C. By signing confidentiality agreements with both

Question 13 of90
Question small cap firmn he stopped
manager, is considering investing in a
David Kertz, CFA, a portfolio stock exchange data,
trading liquidity. Based on publishedto obtain some third
following three years ago due to poor arranges
has inmproved considerably. Kertz
the company's trading liquidityfirm. He assesses the assumptions used, determines the rigor of
the
party research reportson the additional actions should
and the reports' published dates. Which of the following
analysis, meet the Standards?
next to
Kertz most likely undertake
trading liquidity data
A. Consider the validity of the published
third-party recommendations recommendation
B Evaluate the independence of the opinion reflects their firm's
C. Determine if each third party analyst's
A.

Question 14 of 90
CFA, an
Question lounge before boarding an airplane, Becca Msafari,
While waiting in the business
class managers, including members of
overhears a conversation by a group of senior changes necessary to
equity analyst,
large publicly listed bank. The managers discuss staff names mentioned.
the Board, from a plans. Msafari hears several
staff
accommodate their regional expansion
Msafari most likely use this information when making an
Under what circumstances could
her clients?
investment recommendation to
Under no circumstances
A
the confidentiality of names of staff
B If she does not breach
unlikely to affect investor perception of the bank
are
C. If the discussed changes

4
 Question 15 of 90
According to the
Question procedures for block trades and new issues.
member is developing allocation the member's
A compliance with the Standard relating to fair dealing,
recommended procedures forinvolve:
allocation procedures should
advanced interest when allocating trades for new issues.
A prohibiting consideration of basis for efficiency as appropriate
for the asset
bundling orders on afirst-in, first-out
B
class. participating in a block trade execution prices corresponding to
C giving client accounts
order arrival time.

Question 16 of90

Question
following is most accurate according to the Standard relating to knowledge of the
Which of the
law? Members are required to:activities they believe are unethical.
dissociate from client
A
could potentially govern their activities.
have detailed knowledge of all the laws thatStandards
violations of the Code and committed by fellow members to
C. report potential
the CFA Institute Professional Conduct Program.

Question 17 of90
Question Prakash
Ekta Prakash, CFA, works as an investment advisor for TXM Investments (TXM).
advises a client to transfer $150,000 from a tax-deferred investment account to TXM's multi-cap
fund. Prakash discloses to her client that withdrawals from the tax-deferred account will attract a
penalty of $15,000 but assures the client that the cost can be recovered through better investment
returns from TXM's fund. Prakash has violated the Standard(s) relating to:

A only misrepresentation.
B only loyalty, prudence, and care.
C. both misrepresentation and loyalty, prudence, and care.
Question 18 of 90
Question
Pia Nilsson is a sole proprietor investment advisor. An economic recession has reduced the
humber of clients she advises and caused revenues to decline. As a result, Nilsson has not paid
her CFA Institute membershipdues for the past two years. When anational financial publication
recently interviewed Nilsson, she indicated that up until two years ago she had been a CFA
charterholder and a CFA Institute member in good standing. In addition, she stated the
completion of the CFA Program enhanced her portfolio management skills and enabled her to
achieve superior returns on behalf of her clients, Which
likely violated the CFA Institute Standards of ofNilsson's following actions mOst
A.
Nonpayment of CFA Institute membership Professional Conduct?
B. dues
Attributing her superior returns to participation
C. in the CFA
Indicating that being aCFA charterholder has enhanced her Program
portfolio management skills
 Question 19 of 90
Question
According to the Standard related to communication with clients and prospective clients,
members must:
A. only distinguish between fact and opinion in the presentation of investment analyses.
B. only promptly disclose material and nonmaterial changes in the investment processes
they use to select securities.
C. both distinguish between fact and opinion in the presentation of investment analyses and
promptly disclose material and nonmaterial changes in the investment processes they use to
select securities.

Question 20 of 90
Question
According to the Standards,transaction-based manipulation includes:
A. acquiring adominant position in a derivative to exploit the price ofa related underlying.
B. taking an aggressive investment position in a security with an intent to exploit market
inefficiencies.
C. issuing an overly optimistic projection of a security's value toinduce trading by other
market participants.

Question 21 of90
Question
Which of the following statements is accurate according to the GIPS standards?
Statement 1: A firm must perform verification to claim compliance with the GIPS
standards.
Statement 2: Verification ensures accuracy of specific composite presentations.
Statement 3: Verification is performed with respect to an entire firm.
A. Statement 1
B Statement 2
C. Statement 3

Question 22 of 90
Question
According to the GIPS standards, a firm's definition of discretion establishes criteria to judge
which of the following?
A. Investment strategy the firm must implement
B. Portfolios the firm must include in a composite
C. Accounts the firm may exclude based on performance criteria

6
 Question 23 of 90
Question
Vin WaiYin, a CFA candidate, is an independent mutual fund sales agent. For every front-end
load product
of sale. she promotes,
For every back-end Yip
loadreceives
fund sheasells,
portion
Yipofreceives
the front-end fee as
a smaller commission
commission at the time
naid
end of the year. Yip always informs her clients that she is paid a commission as an agent bt
does not provide details of the compensation structure. When pitching her favored front-end lood
d t line she tells clients 20% of her commission is always invested in the same fund as proof
likely violate?
of her confidence in the fund she recommends. Which Standard does Yipleast
A. Referral Fees.
B Disclosure of Conflicts.
C. Priority of Transactions.

Question 24 of 90

Question GIPS-compliant firm's composite, it will most

For aretail client's account to be included in a
likely be in a composite:
restricted to retail accounts.
A.
B. composed of discretionary accounts.
C. with both fee-paying and non-fee-paying accounts.

Question 25 of 90
Question
The Standard relating to misconduct addresses:
professional integrity.
A. only all conduct that reflects poorly on members' and private lives.
B only all actions violating trust in members' professional integrity and all actions
C. both all conduct that reflects poorly on members' professional
violating trust in members' professional and private lives.

Question 26 of 90
Question manager for North South
Thomas Turkman recently hired Georgia Viggen, CFA, as a portfolio Bank, the move was
Bank. Although Viggen worked many years for a competitor, West Star employer.
straightforward since she did not have a non-compete agreement with her previous software
thing she does is to bring a trading
Once Viggen starts working for Turkman, the first Using public information,
package she developed and used at West Star to her new employer. move with her to North South.
Viggen contacts all of her former clients to convince them to
join her at her new
Viggen also convinces one of the analysts she worked with at West Star to Standards of
employer. Viggen most likely violated the CFA Institute Code of Ethics and
Professional Conduct concerning her actions involving:
A. clients.
B. the analyst.
C. trading software.

7
 Question 27 of 90
Question
Which of the following claims can an asset management firm most likely make regarding the
GIPS standards?
A. Claim GIPS compliance using the GIPS Compliance Statement
B State that the firm will achieve GIPS compliance by a future date
C. Claim partial GIPS compliance with details on areas of non-compliance

Question 28 of 90
Question
Countries who are global leaders and use their economic influence to control resources
are best described as:
A. autarkic.
B hegemonic.
C. multilateral.

Question 29 of 90
Question
An analyst gathers the followinginformation for a company's fiscal year beginning 1January:
Net income $1,800,000
Dividends declared and paid on convertible preferred $600,000
Weighted average common shares outstanding during the year 200,000
Convertible preferred shares outstanding during the year 50,000
If one preferred share can be converted into four common shares and there are no other
potentially dilutive securities outstanding, reported diluted EPS for the year is:
A. $3.00.
B. $4.50.
C. $6.00.

Question 30 of 90
Question
Normalized earnings are best defined as the:
A. average level of achievedearnings over along-term historical period.
B estimated going-concern value of the company after the explicit forecast period.
C. expected level of mid-cycle earnings in the absence of any unusual or temporary factors.

Question 31 of90
Question
All else being equal, an increase in the central bank's policy rate most likely puts downward
pressure on domestic inflation by:
A. increasing consumption growth.
B. improving investors' confidence.
C. strengthening the country's currency.
 Question 32of 90
Question
Atechnology company, reporting under US GAAP, has three classes of intangible assets. The
table below shows information on each of the three classes (in USD thousands):
Goodwill Licenses Computer Software
3|December of Year 1 65,321 8,243 S,257
Exchange movements in Year 2 7,324 821 334
Amortization charge for Year 2 1,244 2,102
Net additions (disposals) in Year 2 (25)

31 December of Year 2 73,194 10,856 8,214

Based on the data provided, the intangible asset that has the largest absolute
for the period ended 31 December of Year 2 is: impairment charge
A goodwill.
B. licenses.
C. computer software.

Question 33 of 90
Question
Allelse being equal, a decrease in which of the following financial
likely result in a lower return on equity (ROE)? metrics would most
A
B
Leverage
The taxX rate
C Days of sales outstanding

Question 34 of 90
Question
An analyst regresses net profit margin (NPM)on research and development expenditure scaled
by revenues (RDR)and gathers the following information:
Estimate
Intercept 17.38%
Slope coefficient -0.6000
The predicted value of NPM for a forecasted RDR of 7% is closest to:
A. 4.20%.
B 13.18%.
C. 21.58%.

Question 35 of 90
Question
For a company with taxable income, if interest expense becomes tax deductible, the effective
marginal cost of debt:
A. decreases.
B remains the same.
C. increases.
 Question 36 of 90
Question
The supply curve for a specific good shows the highest:
A quantity sellers are willing to offer at each price.
B. price buyers are willing to pay for each quantity.
C. price sellers are willing toaccept for each quantity.

Question 37 of90
Question
Which of the following expense recognition choices is least consistent with conservative
accounting of reported net income?
A Recognizing expenses later rather than earlier
B Reflecting lower warranty expenses due to improved product quality
C. Estimating lower uncollectible accounts due to stricter credit policies

Question 38 of90
Question
inventory write-down?
Which of the following ratios will most likely increase as a result of an
A. Current ratio
B. Total asset turnover ratio
C. Receivables turnover ratio

Question 39 of 90

Question accurate?
Which of the following statements about evaluating a project with a real option is most
A. The cost of the real option should be ignored as it represents a sunk cost
included in the project
The value of the real option less the incremental cost should be
B.
NPV
should not
C. If the project NPV is negative before considering the real option, management
undertake the project

Question 40 of90
Question
In asimple linear regression model, the residual for an observation of Yis computed as:
A. the observed value of Ydivided by the expected value of Y.
B. variation in Y.
the unexplained variation in Ydivided by the explained estimated
the difference between the observed value ofY and the value of Y.
C

Question 41of90
Question
rate:
An analyst gathers the following information about two projects with the same discount
Year Project 1 Cash Flows Project 2 Cash Flows
-$1,000 -$1,300
1 $400 $500
2 $400 $500
3 $400 $500

10
 Ifthe NPVof Project is $0, the NPV of Project 2 is:
A negative.
B zero.
C positive

Question 42 of 90
Question
In machine learning, overfitting can most ikely be mitigated by using:
A higher computing power.
B a simpler machine-learning model.
an unsupervised machine-learning model.

Question 43 of 90
Question
Under the revaluation model, an initial revaluation that increases the carrying value of an
asset most likely results in a:
A higher net profit margin.
B. lower financial leverage ratio.
higher total asset turnover ratio.

Question 44 of 90
Question
With respect to fiscal policy, which of the following is an automatic stabilizer?
A. Tax rate changes
B. Infrastructure spending
C. Payment of unemployment benefits

Question 45 of 90
Question
The regulation of economic activity over time is associated with:
A. fiscal policy only.
B. monetary policy only.
C. both fiscal policy and monetary policy.

Question 46 of 90
Question
Ignoring income taxes, an impairment loss on equipment will most likely
A. net profit margin. decrease:
B. total asset turnover.
C. working capital turnover.

11
Question 47 of 90
Question
If an auditor is experiencing some scope limitation, but can still issue an opinion, the
auditor most likely issues a(n):
A adverse opinion.
B qualified opinion.
C. disclaimer of opinion.

Question 48 of90
Question
An analyst gathers the following annual information on three companies:
Company A_ Company B_ Company C
Sales $40,000 $200,000 $450,000
Cost of sales $21,000 $110,000 $240,000
Selling, general and administrative $6,000 $24,000 $48,000

$1,000 $2,000 $5,000

All other operating expenses
$12,000 $64,000 $157,000
Operating income
$2,000 $0 $14,000
Interest and other expense
Taxes $4,000 $26,000 $58,000
$6,000 $38,000 $85,000
Net income
The company with the highest gross profit margin is:
A. Company A.
B. Company B.
C. CompanyC.

Question 49 of 90
Question
directors is to act in the best interest of the:
The primary responsibility ofa corporation's
A creditors.
B managers.
C. shareholders.

Question 50 of 90
Question greatest in which of the following life-cycle
Debt as a proportion of total capital is most likely
stages ofa company?
A. Start-up
B. Growth
C. Mature

12
 Question S1 of 90
Question
Real exchange rates:
A reflect changes in relative purchasing power.
R are quoted in global foreign exchange markets.
have a strong track record as a predictor of future nominal exchange rates.

Question 52 of90
Question
Under a franchise model, the franchisee:
A earns a royalty on sales.
B isresponsible for product development and advertising.
C operates under a specific brand with proprietary products and processes.

Question 53 of90
Question
Accounting goodwill is created when an acquisition's purchase price:
A results in a "bargain purchase."
B exceeds the value of acquired net identifiable assets.
C is attributed solely to separately identifiable assets and liabilities.

Question 54 of 90
Question
Ananalyst gathers the following closing prices of a stock:
Date Closing Price ($)
1January 30
15 January 38
The continuously compounded return for the period 1 January to 15 January is closest to:
A. 7.0%.
B. 23.6%.
C. 26.7%.

Question 55 of 90
Question
A positive movement in a lagging indicator would least likely be used to:
A. identify a past condition of the economy.
B. identify an expected future economic upturn.
C. confirm that an expansion is currently underway.
Question 56 of 90
Question
A fund initially has SS0 million under management and earns 17% in Year 1. The fund receives
12% in Year 2. The
additional investments of $125 million at the beginning of Year 2 and earns
annualized money-weighted rate of return over the 2-year period isclosest to:
A. 13.2%.
B. 14.5%.
C. 15.5%.

Question 57 of90
Question
A
central bank is least likely to:
A. implement fiscal policy.
B. oversee the payments system.
C. manage foreign currency reserves.

Question 58 of90
Question
An analyst gathers the following data on the Sharpe ratios of seven portfolios:
Portfolio Sharne Ratio
1 0.2
2 0.6
3 0.7
0.9
5 1.0
6 1.4
7 1.6
The interquartile range of the Sharpe ratios is closestto:
A. 0.6.
B. 0.8.
C. 1.4.

Question 59 of 90
Question
An analyst gathers the following information about a company:
Before-tax cost of debt 5%
Marginal tax rate 30%
Cost of equity 8%
Target debt-to-equity ratio 50%
The company's WACC is equal to:
A. 5.75%.
B. 6.50%.
C. 7.00%.
 Question 60 of 90
Question
Based on good corporate governance practices, it is most appropriate for a company's
compensation committee to:
A include some company executives.
B develop director remuneration policies.
C. recommend remuneration for the external auditors.

Question 6l of 90
Question
If differences between accounting profit and taxable income are recoverable, deferred tax assets
are created when:

A. accounting profit is less than taxable income.

B accounting profit is greater than taxable income.
C income taxes payable is less than income tax expense.

Question 62 of 90
Question
An analyst gathers the following exchange rate information:
Spot rate 4.6895
1-year forward points -12.7
The 1-year forward rate is closest to:
A. 4.67680.
B. 4.68823.
C. 4.69077.

Question 63 of 90
Question
An investor plans to contribute $10,000 each year
rate of 5%. If the first contribution is made one into an account that earns an annual interest
year
immediately after the 10 contribution is closest to: from today, the value of the account
A $125,779.
B $132,068.
C. $142,068.

Question 64 of 90
Question
According to Modigliani and Miller's Proposition IIwithout taxes, a
the capital structure of a company results in: higher proportion of debt in
A, thesame WACC.
B. a lower cost of equity.
C. a greater company value.
 Question 65 of 90
Question
In a smallcountry, an export subsidy for a good most likely
domestic: results in adecrease in the good's
A. price.
B. production.
C. consumption.

Question 66 of 90
Question
In the statement of cash flows, interest paid by acompany is most likely included in:
A. either the operating or financing section under IFRS.
B either the operating or financing section under US GAAP.
C. only the financing section under both IFRS and US GAAP.

Question 67of 90
Question
An analyst is comparing the solvency of a company over the past two years using the
information below:

Year 2 MIllions
Total debt 2,300
Total shareholders' equity 17,000
Total assets 20,000
Net income 375

Interest payments/interest expense 200

Taxes paid 125

Ratios in Year 1
Debt to capital 12.7%

Interest coverage 2.9

the
The best conclusion the analyst can make about Year 2 is that compared with Yearl,
company's solvency has:
A. remained the same.
B. deteriorated because both ratios have weakened.
C. improved because both ratios have strengthened.

Question 68 of90
Question
Which action is most likely considered a secondary source of liquidity?
A Increasing the availability of bank lines of credit
B Increasing the efficiency of cash flow management
C. Renegotiating curent debt contracts to lower interest payments
 Question 69 of 90
Question
The returns of a fund are as follows:
Year. Return (%)
-20.60
2 15.00

0.50
4 9.80
4.60
the fund is closest to:
The mean absolute deviation (MAD) of returns for
A. 9.53%.
B 11.91%.
C 13.69%.

Question 70of 90
Question
The time-weighted rate of return:
A is affected by the amount and timing of cash flows to and from aportfolio.
B calculates multi-period cash flows mirroringaportfolio's compound growth rate.
C. results in a lower return when compared with the money-weighted rate of return.

Question 71 of 90
Question
Ananalyst gathers the following information about a company:
Year 2 Year 1
Revenue ¬725,000 ¬720,000
EBIT ¬93,500 ¬91,500
Net income ES7,500 ¬58,000
Weighted average common shares outstanding during the year 650,000 635,000
Which of the following increased from Year Ito Year 2?
A Basic EPS
B. EBIT margin
C. Net profit margin

Question 72 of 90
Question
Allelse being equal, in an environment of rising inventory unit costs and constant
quantities, the LIFO inventory valuation method most likely results in a higher: inventory
A. ending inventory than under the FIFO method.
B. gross profit margin than under the FIFO method.
C. inventory turnover ratio than under the FIFO method.
 Question 73 of 90
Question
For a company reporting under IFRS, which of the following events most likelyrepresents low
financial reporting quality? The company:
A reported an increase in EPS as a result of the sale of a subsidiary.
B included gains from foreign exchange rate changes in its cost of goods sold.
C entered a long-term lease for a customized piece of equipment and classified it as a
finance lease.

Question 74 of 90
Question
An analyst gathers the following information (in Smillions) about acompany reporting under
US GAAP:

Cash flow from operations 500

Capital expenditures 40
Interest expensed and paid 20

Net borrowing 10

If the tax rate is 25%, free cash flow to the firm (in $ millions) is:
A. 460.
B. 470.
C. 475.

Question 75 of 90
Question
For a hypothesis test concerning the correlation between two normally distributed variables with
sample size n each, the number of degrees of freedom is:
A. n-2.
B. n-1.
C. 2n -2.

Question 76 of 90
Question
Aportfolio has two stocks with equal weighting. The variance of returns for each stock is 100
percent squared, and the covariance is 50 percent squared. The portfolio standard deviation of
returns is closest to:
A. 7.9%.
B. 8.7%.
C. 75.0%.
 Question 77 of 90
interviewing 4
Question level of consumer confidence in acountry hy method is an
the randomly selected cities. This
Aresearcher wants to measure
ten consumers from three
simple random sample of
example of:

A cluster sampling.
B
systematic sampling.
stratified random sampling.

Question 78 of 90

Question
operating in perfect competition.
The following data apply to a finm
QuantityTotal RevenueTotal Cost
21 $210 $138
22 $220 $145
23 $230 $154
24 $240 $165
The firm's profit maximizing output (in units) is most likely:
A. 21.
B. 23.
C. 24.

Question 79 of 90
Question
The money supply most likely increases when a central bank:
A. purchases bonds.
B. increases the policy rate.
C. raises the reserve requirement.

Question 80 of 90
Question
Under IFRS, which component of the change in the net pension asset or liability each period is
recognized in other comprehensive income?
A.
B.
Employees' service costs
Actuarial gains and losses and other remeasurements
C.
The net interest expense or income accrued on the beginning net pension plan asset or
liability
 Question 81 of 90
Question
The following information is available for a
company:
Year 2
(in ¬MiIlions)
EBIT (earnings before interest and taxes) 1,015.0
Interest expense 73.4
Tax expense 201.4
Total assets 5,305.0
Average total assets 5,421.0
Total debt 1,048.0
Year1
Interest coverage 15.3x
Debt to total assets 18.2%
Operating return on assets (ROA) 17.3%
Compared with Year 1, which of the following ratios most likely indicates an improvement in the
creditworthiness of the company? The change in the company's:
A. operating ROA.
B. interest coverage.
C. debt-to-total assets.

Question 82 of 90
Question
When considering ESG factors, energy efficiency is best described as a(n):

A. environmental factor.
B. Social factor.
C. governance factor.

Question 83 of 90
Question
An analyst gathers the following information about a company:

Target DIE 0.80

Current D/E 0.65
Yield to maturity 4%
Cost of equity 9%
Tax rate 30%
closest to:
The WACCto be used in financial analysis is
A. 6.24%.
B. 6.56%.
C. 6.78%.
 Question 84 of 90
on the balance sheet
Question declines below the carrying amount
value of inventory value recognized as
In the event that the amount must be written down and the reduction in
the inventory carrying
a(n):
statement.
A. expenseon the income account.
B. decrease in the revaluation surplus allowance account.
decrease inthe inventory valuation
C.

Question 85 of 90
Question
provide funds to create basic economic
The international organization most likely to
infrastructure in developing countries is the:
A. World Bank.
B. World Trade Organization.
C. International Monetary Fund.

Question 86 of 90
Question
Ifa paired comparison test of mean differences supports rejecting the null hypothesis, then the:
A. difference in means is not statistically significant.
B. independence of the samples is statistically significant.
C. standard error of the mean differences is low relative to the sample mean difference.

Question 87 of90
Question
The possibility of new entrants into an industry is considered in the calculation of:
A. the concentration ratio.
B. the Herfindahl-Hirschman index.
C. neither the concentration ratio nor the Herfindahl-Hirschman index.

Question 88 of 90
Question
Under the indirect method, which of the following should be subtracted from net income to
arrive at cash flow from operating activities?
A. Purchase of equipment
B. Decrease in accounts payable
C.
Amortization expense of intangible assets
 Question 89 of 90
Question
An analyst gathers the following probabilites concerning Event Xand some new information:
Prior probability of X 0.70

Probability of the new information given X 0.50

Unconditional probability of the new information 0.60
Using Bayes' fornula, the updated probability of Xgiven the new information is clovest to:
A 0.43.
B. 0.58.
C. 0.84.

Question 90 of90
Question
Conflicts of interest between shareholders and management most likely occur when:
A. executive remuneration plans include deferred shares.
B. shareholders do not influence the design of executive compensation packages.
C. risky projects that match shareholders'risk tolerance are pursued by the company.
 Mock 1 (Pape

Answer 1 of 90
Answer
Solution procedures for compllance with Standard IV (C)
Correct because the recommended members and candidates are encouraged to
Responsibilities of Supervisors, state
that addition, stand-alone codes of
A.
adopt a code of ethics. In
recommend that their employers language and should address general fiduciary concepts.
ethics should be written in plain compliance with Standard IV (C),
procedures for
B. Incorrect because the recommended members and candidates should encourage their employers to
Responsibilities of Supervisors, state that case also, a simple,straightforward code of ethics
will be
to clients. In this willbe
provide their codes of ethicsUnencumbered by the compllance procedures, the code of ethics and
best understood by clients. conducting business in an ethical manner in the
that the firm is committed to
effective in conveying
best interests of the clients.

because the recommended procedures for compliance with Standard IV

C. Incorrect combine the code of ethics with a detailed
(C), Responsibilities of Supervisors, is to not states that mingling compliance procedures
compliance procedures manual. The Standard reinforcing the ethical obligations of
in the firm's code of ethics goes against the goal of
employees.

Answer 2of 90
Answer
Solution
A. Incorrect because it is a recommended procedure. Among the recommended
procedures for Standard I (B) is to create arestricted list and put companies on that list if
the firm is unwilling to permit dissemination of adverse opinions about that company.
B. Correct because according to Standard I (B), Independence and Objectivity,a
recommernded procedure for compliance is to limit gifts, not prohibit gifts.
C. Incorrect because according to the recommended procedures for Standard I (B),
firms should appoint a senior officer with oversight responsibilities for compliance with
the firm's code of ethics and all regulations concerning its business.

Answer 3 of 90
Answer
Solution
A. Incorrect because Knowledge of the Law is a sub-section of Standard I
Professionalism.
B. Correct because Performance
Presentation sub-section of Standard IlI-Duties
is a
toClients. The other sub-sections include:
Loyalty,
Suitability, and Preservation of Confidentiality. Prudence and Care, Fair Dealing,
C. Incorrect because Independence and Objectivity is a sub-section of
Professionalism. Standard I
 Answer 4 of 90
Answer
Solution
A.
Incorrect because according to Standard Vil(A)
relating to
Programs, examples of information that cannot be disclosed by Conduct Participants in CFA Institute
as
but are not limited to broad
topical areas and candidates sitting for an exam include
formulas tested or not tested on the exam.
violated Standard VIl(A). Gupta has
B.
Correct because
CFAInstitute Programs, according
to Standard VII(A) relating to
Conduct as Participants in
examples information that cannot be disclosed
of
sitting for an exam include but are not limited to by candidates
not tested on the exam. Gupta has violated broad topical areas and formulas tested or
Standard VII(A.
C. Incorrect because Standard VII(A) relating to Conduct as
Institute Programs does not cover expressing Participants in CFA
opinions regarding CFA Institute, the CFA
Program, or other CFA Institute programs. Members and
and express their disagreement with CFA Institute on its candidates are free todisagree
advocacy positions taken by the organization. policies, its procedures, or any

Answer 5 of 90
Answer
Solution
A. Incorrect because according to Standard ll (A), Loyalty, Prudence, and Care, when the manager is
responsible for the portfolios of pension plans or trusts, however, the client is not the person or entity
who hires the manager but, rather, the beneficiaries of the plan or trust. The duty of loyalty is owed to the
ultimate beneficiaries.

B Incorrect because according to Standard IlI (A), Loyalty, Prudence, and Care, when the manager
is responsible for the portfolios of pension plans or trusts, however, the client is not the person or entity
who hires the manager but, rather, the beneficiaries of the plan or trust. The duty of loyalty is owed to
the ultimate beneficiaries.

C. Correct because according to Standard III(A), Loyalty,Prudence, and Care, when

the manager isresponsible for the portfolios of pensionplans or trusts, however, the client
is not the person or entity who hires the manager but, rather, the beneficiaries of the plan
or trust. The duty of loyalty is owed to the ultimate beneficiaries.

Answer 6 of 90

Answer
Solution
re-creating
A. Incorrect because Kon violated Standard V (C), Record Retention by
supporting records from memory.
updated research
B. Incorrect because Kon did not violate the Standards by publishing the
employer. Standard V(C), Record
report since she obtained the express consent of her former
firm to seek other employment,
Retention, states that when a member or candidate leaves a
firm, including original forms or
the member or candidate cannot take the property of the
candidate's work, to the new employer
copies of supporting records of the member's or
without the express consent of the previous employer.
 C. Correct because a member must not re-create supporting records from sources
obtained at the previous employer. Standard V(C),Record Retention, states that the
member or candidate cannot use historical recomnmendations or research reports created
at the previous firm because the supporting documentation is unavailable. For future use,
the member or candidate must re-create the supporting records at the new firm with
information gathered through public sources or directly from the covered company and not
from memory or sources obtained at the previous employer.

Answer 7 of 90

Answer
Solution
A. Incorrect because according to Standard II(B), Fair Dealing, members and
candidates must deal fairly and objectively with all clients when providing investment
analysis, making investment recommendations, taking investment action, or engaging in
other professional activities. There is nothing to suggest that Joshi has not dealt fairly and
objectively with her clients. So, there is no violation of Standard III(B).
B. Correct because Standard II(D). Performance Presentation, requires members and
candidates toprovide credible performance information to clients and prospective clients
and to avoid misstating performance or misleading clients and prospective clients about
the investment performance of members or candidates or their firms. Thisstandard
encourages full disclosure of investment performance data to clients and prospective
clients. By not disclosing that the results related to the product were simulated Joshi has
violated the Standard.
C Incorrect because according to Standard III(B), Fair Dealing, members and
candidates must deal fairly and objectively with all clients when providing investment
analysis, making investment recommendations, taking investment action, or engaging in
other professional activities. There is nothing to suggest that Joshi has
objectively with her clients. So, there is no violation of Standard III(B). not dealt fairly and

Answer8 of 90
Answer
Solution
A Incorrect because members and candidates must disclose the
consideration or benefit and consideration includes all fees, whether nature of the
paid in cash, in soft
dollars, or in kind. Therefore, the member is also
new client. required to disclose in kind benefits to the
B. Incorrect because members and
benefit and consideration includes al fees,candidates must disclose the nature of the consideration or
whether paid in
member is also required to disclose flat fees to the new cash, in soft dollars, or in kind. Therefore, the
client.
C. Correct because members and candidates must
consideration or benefit-for example, flat fee. Further, disclose the nature of the
whether paid in cash, in soft consideration includes all fees,
disclose both flat fees and in dollars, or in kind. Therefore,
kind benefits to the new client.the member is required to
 Answer 9 of 90
Answer
Solution
A.
Incorrect because Perez has violated Standard ll(C), Suitability, as described in the
Response Rationale for the correct answer.
B. Correct because Perez has violated Standard IIl (C), Suitability, since the
committee-selected bond fund may not be suitable for all of her clients. Standard Ili (C)
states that when members and candidates are in an advisory relationship with a client, they
must:

Make a reasonable inquiry into a client's or prospective client's investment experience,

risk and return objectives, and financialconstraints prior to making any investment
recommendation or taking investment action and must reassess and update this
information regularly.
Determine that an investment is suitable to the client's financial situation and consistent
with the client's written objectives, mandates, and constraints before making an
investment recommendation or taking investment action.
Judge the suitability of investments in the context of the client's total portfolio.
By purchasing the bond fund that she feels is inappropriate for all of her clients,
Perez has violated this Standard.
C. Incorrect because according to Standard V(A), Diligence and Reasonable Basis,
Perez is allowed to rely on others at her firm to determine which managers the firm selects.
If members and candidates rely on secondary or third-party research, they must make
reasonable and diligent efforts to determine whether such research is sound. Secondary
research is defined as research conducted by someone else in the member's or candidate's
firm. Additionally, a member or candidate may rely on others in his or her firm to
determine whether secondary or third-party research is sound and use the information in
good faith unless the mnember or candidate has reason to Answer its validity or the
processes and procedures used by those responsible for the research. Perez has not
violated this Standard by accepting and acting on the committee decision.

Answer 10 of 90
Answer
Solution
A. Incorrect because Bermi has violated Standard IV (B), AdditionalCompensation
her
Arrangements, by failing toobtain prior approval from her firm for providing advice to
B.friend. Correct because Standard IV(B), Additional Compensation Arrangements, requires
members and candidates toobtain permission from their employer before accepting
compensation or other benefits from third parties for the services rendered to the
employer or for any services that might create a conflict with their employer's interest.
Compensation and benefits include direct compensation by the client and any indirect
compensation or other benefits received from third parties. Bermihas violated this
Standard because the donations to her favorite charity represent a form of compensation
of interest
for services provided to her friend. In addition, her services constitute a conflict
service.
with her employer since she provides a service that competes with her firm's
Therefore, an email notification tothe firm's compliance department will not suffice. Bermi
has to obtain prior written permission from her employer.
C Incorrect because Bermi has not violated Standard V(B), Communication with
candidates disclose to
Clients and Prospective Clients, which requires that members and
clients and prospective clients the basic format and general principals of the investment
processes they use to analyze investments, select securities, and construct portfolios.

26
 Answer 11 of 90
Answer
Confidentiality, requires that
Solution Preservation of information communicated to
Standard III(E),
Correct because preserve the confidentiality of former clients
A.
and candidates former clients. Details of Standard
members
clients, prospective clients, providers and this is a violation of theimportant to
and
their it is
them by third party service
Standard llI(E), Preservation
of Confidentiality,
cannot be sharedwith to communicating
B
Incorrect because according
firm-sponsored resources may be
appropriate for
all
convey to clients that not
Preservation of Confidentiality. an
confidential information.
to Standard III(E), consider the PCP
Incorrect because according law, mnembers and candidates shall
C applicable
when permissible under when requested to provide information aboutthe a client in support
Standards when
extension of themselves their own conduct. This is not a violation of
into
of aPCP investigation
permitted by law.

Answer 12 of 90
Answer
Solution
all matters that could reasonably
A. Correct because making fulland fair disclosure of
objectivity or interfere with respective
be expected to impair one's independence andVI(A), Disclosure of Conflicts.
duties to one's clients is required by Standard parties would be needed to provide full and fair
B. Incorrect because written permission from both
independence and objectivity
disclosure of all matters that could reasonably be expected to impair their
to disclose under Standard VI A),
or interfere with respective duties to their clients. The requirement
candidates have
Disclosure of Conflicts,does not mandate that this be in writing. In fact, members and
circumstances the
the responsibility of determining how often, in what manner, and in what particular
disclosure must be made.

C. Incorrect because the signing of confidentiality agreements does not necessarily

provide full and fair disclosure of all matters that could reasonably be expected to impair
Badawi's independence and objectivity or interfere with respective duties to his clients as
required by Standard VI(A), Disclosure of Conflicts.

Answer 13 of 90
Answer
Solution
B Incorrect because published stock exchange data is considered valid data. There is
no evidence the stock exchange is an unreliable source of accurate
data. Therefore, as per
Standard V(A) Diligence and Reasonable Basis, it is not necessary to consider
the stock exchange trading volumes reported and Kertz can use the datain the validityor
C. "good faith"
Correct because according to Standard V(A) Diligence and Reasonable Basis, if
members rely on secondary or third-party research,they must make
diligent efforts to determine whether such research is sound. reasonable and
use in forming an opinion on whether research is Criteria that a member can
sound includes an evaluation of the
objectivity and independence of the recommendations.
 Reasonable Basis,
D. Incorrect because according to Standard V(A) Diligence and not necessarily tne
research recommendations reflect the consensus of the group and are
included on the report. lT
views of the member, even through the name of the member isneed to dissociate from the
process, the member does not
the member is confident in the Kertz does not need to
report even if it does not reflect his or her opinion. Therefore, analyst.
confirm the investment recommendation was 100% supported by each

Answer 14 of 90

Answer
Solution
termination are in low
A. Incorrect because if the staff under discussion for possible
level positions, the information is unlikely to be considered material. the
B.
specific names being mentioned does not necessarily make
Incorrect because the absence of
dissemination.
information non-material when disclosed to clients prior to any public
Standards, a member or
C Correct because in order to comply with the Code and
when making investmernt
candidate cannot use material nonpublic information considered materialonly if any
recommendations. The information overheard would be
would be likely to move the share price of the
public announcement of the staff removal
bank. In this case, the discussed changes are unlikely to affect investor perception of the
investment recommendation.
bank, so Msafari could use the information when making an

Answer 15 of 90

Answer
Solution
Standard III (B), Fair
A. Incorrect because according to the recommendations for
should include obtaining
Dealing, when allocating trades for new issues, procedures (rather than portfolio
advance indications of interest, allocating securities by client
allocations.
manager), and providing a method for calculating
recommendations for Standard III (B), Fair
B. Correct becausse according to the
orders on a first-in, first-out
Dealing, procedures should include processing and executingappropriate for the asset class
basis with consideration of bundling orders for efficiency as
or the security.
Standard II (B),Fair
C. Incorrect because according to the recommendations for
Dealing, procedures should include giving all client accounts participating in ablock trade
commission. So, the price should be the
the same execution price and charging the same
same, not based on order arrival time.

Answer 16 of 90

Answer
Solution
A. Correct because according to Standard I(A), Knowledge of the Law, if a member or
candidate has reasonable grounds to believe that imminent or ongoing client or employer
activities are illegal or unethical, the member or candidate must dissociate, or separate,
from the activity.
B Incorrect because according to Standard I(A), Knowledge of the Law, while members
and candidates must understand the applicable laws and regulations of the countries and
jurisdictions where they engage in professional activities they are not required to have detailed
knowledge of or be experts on all the laws that could potentially govern their activities.

28
C. Incorrect because even though Standard 1(A), Knowledge of the Law, states that
CFA Institute strongly encourages members and candidates to report potential violationsof
the Code and Standards committed by fellow members and candidates, the Standard does
not make this a requirement.

Answer 17 of 90
Answer
Solution
A Incorrect because Standard I(C), Misrepresentation, prohibits members and
candidates from making any statements that promise or guarantee a specific rate of return
on volatile investments. Because the equity-based investment is inherently volatile, andthe
future returm is unpredictable, Prakash's promises about future returns making up for the
penalty of withdrawing the funds violates Standard I(C). Trust is the foundation of the
investment profession. Investment professionals who make false or misleading statements
not only harm investors but also reduce the level of investor confidence in the investment
profession and threaten the integrity of the capital markets. Therefore, Prakash has
violated Standard I(C).
Further, according to Standard lll(A), Loyalty, Prudence, and Care prudence requires caution and
discretion. The exercise of prudence by investment professionals requires that they act with the
care, skil, and diligence that a reasonable person acting in a like capacity and familiar with such
matters would use. Acting with care requires members and candidates to act in a prudent and
judicious manner in avoiding harm to clients. Prakash causes harm to her client by
recommending that the client transfer money from a tax-deferred account to TXM's large-cap
fund, a process that willcost the client $15,000 in penalties. Therefore, Prakash also
violated
Standard l(C).
B. Incorrect because Standard lll(A), Loyalty, Prudence, and Care prudence requires caution
and discretion. The exercise of prudence by investment professionals
requires that they act with
the care, skil, and diligence that a reasonable person acting in a like capacity and
familiar with
such matters would use. Acting with care requires members and
candidates to act in a prudent
and judicious manner in avoiding harm to clients. Prakash causes harm to her client by
recommending that the client transfer money from a tax-deferred account to TXM's large-cap
fund, a process that willcost the client $15,000 in penalties. Therefore, Prakash also
violated
Standard lI(C).
Further, according to Standard i(C), Misrepresentation, prohibits members and
candidates from
making any statements that promise or guarantee a specific rate of return on volatile
investments.Because the equity-based investment is inherently volatile, and the future return is
unpredictable, Prakash's promises about future returns making up for the penalty of
withdrawing the funds violates Standard I(C). Trust is the foundation of the investment
profession. Investment professionals who make false or misleading statements not only
investors but also reduce the level of investor confidence in the investment harm
profession
threaten the integrity of the capital markets. Therefore, Prakash has also violated
and
Standard I(C).
C. Correct because Standard I(C), Misrepresentation, prohibits
candidates from making any statemnents that promise or guarantee amembers and
specific rate of return
on volatile investments. Because the equity-based
future return is unpredictable, Prakash'spromisesinvestment
is inherently volatile, and the
about future returns making up for the
penalty of withdrawing the funds violates Standard I(C). Trust is the foundation of the
investment profession. Investment professionals who make false or misleading
not only harm investors but also reduce the level of investor confidence in the statements
investment
profession and threaten the integrity of the capital markets. Therefore, Prakash has
violated Standard I(C).
29
 Further, according to Standard l|(A), Loyalty, Prudence, and Care prudence requires caution and
discretion. The exercise of prudence by investment professionals requires that they act with the care,
skill,and diligence that a reasonable person acting in a like capacity and familiar with such matters would
use. Acting with care requires members and candidates to act in a prudent and judicious manner in
avoiding harm to clients. Prakash causes harm to her client byrecommending that the client transfer
money from atax-deferred account to TXM's large-cap fund, a process that will cost the client $15,000 in
penalties. Therefore, Prakash also violated Standard lIc).

Answer 18 of 90
Answer
Solution
A. Incorrect because it is not a violation to not pay fees if the person does not claim to
be a CFA charterholder or a member of the CFA Institute.
B. Correct because according to Standard VII(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program, it is aviolation to claim that the CFA charter helped her
toachieve superior returns.
C. Incorrect because it is appropriate to claim that being a charterholder has improved
her portfolio management skills.

Answer 19 of 90
Answer
Solution
A. Correct because according to Standard V(B), Communication with Clients and
Prospective Clients, members must distinguish between fact and opinion in the
presentation of investment analyses and recommendations.
B. Incorrect because according to Standard V(B), Communication with Clients and Prospective
Clients,members must promptly disclose any material, not nonmaterial, changes affecting the
investment process. Disclose to clients and prospective clients the basic format and general principles of
the investment processes they use to analyze investments, select securities, and construct portfolios and
must promptly disclose any changes that might materially affect those processes.

C. Incorrect because according toStandard V(B), Communication with Clients and

Prospective Clients, members must promptly disclose any material, not nonmaterial,
changes affecting the investment process. Disclose to clients and prospective clients the
basic formatand general principles of the investment processes they use to analyze
investments, select securities, and construct portfolios and must promptly disclose any
changes that might materially affect those processes.

Answer 20 of 90

Answer
Solution
A. Correct because transaction-based manipulation involves instances where a
member or candidate knew or should have known that his or her actions could affect the
pricing of a security. This type of manipulation includes, but is not limited to, the following:
securingacontrolling, dominant position in a financial instrument to exploit and
manipulate the price of a related derivative and/or the underlying asset.

30
B. Incorrect because Standard i (B) is not intended to preciude transactions undertaken on
legitimate trading strategies based on percelved market inefficlencles. Therefore, taking
investment positions - even aggressive ones - with an intent to exploit market inefficiencies
does not represent market manipulatlon.
C. Incorrect because information-based manipulation includes, but is not limited to,
spreading false rumors to induce trading by others. For example, members and candidates
must refrain from "pumping up" the price of an investment by issuing misleading positive
information or overly optimisticprojections of asecurity's worth. Therefore, overly
optimistic projections that induce trading by other market participants forms part of
information-based, and not transaction-based manipulation.

Answer 21 of 90
Answer
Solution
A. Incorrect because according to the GIPSstandards, once a firm claims compliance
with the standards, they may voluntarily hire an independent third party to perform a
verification in order to increase confidence in the firm's claim of compliance. Therefore,
Statement 1 is incorrect.
B. Incorrect because according to the GIPS standards verification is performed with respect
to an entire firm, not on specific composites. Verification does not ensure the accuracy of any
specific composite presentation. Therefore, Statement 2 is incorrect.
C. Correct because according to the GIPS standards, verification is performed with
respect toan entire firm, not on specific composites. Therefore, Statement 3 is correct.

Answer 22 of 90

Answer
Solution
A. Incorrect because the causality is reversed; strategy determines discretion for
portfolios, not vice versa The firm'sdefinition of discretion establishes criteria to judge
which portfolios must be included in a composite and is based on the firm's ability to
implement its investment strategies.
B. Correct because the firm'sdefinition of discretion establishes criteria to judge
which portfolios must be included in a composite and is based on the firm's ability to
implement its investment strategies.
C. Incorrect because firms may not choose portfoliosto include in acomposite based
on performance: the requirement to create, use and maintain composites is designed to
prevent firms from cherry-picking-using the best-performing accounts to represent the
performance of an investment strategy.

Answer 23 of 90

Answer
Solution
A. Incorrect because by not detailing the commission structure to her clients, Yip does
not disclose the potential reason for her favoring front-end load funds over back-end load
as the commission is higher and is paid inmmediately, rather than at the end of the year.

31
 Incorrect because Yip does not disclose the commission structure in detail, which could impair
mutual funds
her independence when recommending front-load mutual funds rather than back-end load
to her clients.
clients
C Correct because Yip's investments do not adversely affect the interest of the
A candidate having
and therefore do not violate the Priority of Transactions requirement.interest, and in some
the same investment positions does not always create a conflict of
the client.
instances having an aligned investment portfolio can be beneficial to the potential By not
not disclose reason
detailing the commission structure to her clients, Yip does higher and is
for her favoring front-end load funds over back-end load as the commission is
paid immediately rather than at the end of the year and is in violation of Standard VI(A),
Disclosure of Conflicts. Yip also does not disclose the commission structure in detail, which
recommending front-load mutual funds rather than
could impair her independence when Standard VI(C), Referral Fees.
back-end load mutual funds to her clients, a violation of

Answer 24 of 90

Answer
Solution
included in acomnposite with retail
A. Incorrect because institutional accounts may be
accounts if they have a similar investment mandate, objective, or strategy.
fee-paying, discretionary
B. Correct because a composite must include all actual,investment mandate, objective,
the same
segregated accounts managed in accordance with
or strategy.
not required to be in a GIPS
C. Incorrect because non-fee-paying accounts are
compliant composite.

Answer 25 of 90

Answer
Solution
addresses all conduct that reflects
Correct because Standard I(D), Misconduct,
reputation, or competence of members and
A.
poorly on the professional integrity, good
candidates. primarily aimed at conduct and actions related
B. Incorrect because Standard I (D), Misconduct, is
life.
to a member's or candidate'sprofessional
conduct that reflects poorly on the
incorrect because Standard I(D) addresses all
C.
of members and candidates; the
professional integrity, good reputation, or competence
private lives.
Standard doesn't address all actions in members'

Answer 26 of 90

Answer
Solution
using information from her
A. Incorrect because the member did not contact clients
IV(A)-Loyalty by these actions.
previous employer so she did not violate Standard of client lists or other information
Contacting former clients for any reason through the usebe aviolation of the standard
would
taken from a prior employer without permission
because client records are the property of the firm.

32
B Incorrect because West Star does not have any non-compete agreements so the analvst
is free to seek employment elsewhere.
C Correct because the portfolio manager violated Standard
proprietary trading software from her former employer. AlthoughIV(A)-Loyalty
by taking
the manager created the
software, it was during a period of time when West Star employed her, so the software is
not her property to take with her to her new emnployer. The member contacted clients
using public information, so she did not violate Standard IV(A)-Loyalty. Because Viggen
was not obligated to abide by a non-compete agreement that would likely restrict
recruitment of former colleagues,Viggen is most likely free to recruit the analyst from his
former employer.

Answer 27 of 90
Answer
Solution
A. Correct because a firm has only two options with regard to compliance with the
GIPS standards: fully comply with all requirements of the GIPS standards and claim
compliance through the use of the GIPS Compliance Statement; or not comply with all
requirements or the GIPS standards and not claim compliance with, or make any reference
to, the GIPS standards.
B. Incorrect because the firm is referencing the GIPS standards improperly by makinga
intention to be in GIPS compliance by a future date. A firm has only two options with statement
of its
regard to
cornpliance with the GIPS standards: fully comply with allrequirements of the GIPS standards and claim
compliance through the use of the GIPS Compliance Statement; or not comply with all
the GIPSstandards and not claim compliance with, or make any requirements or
reference to, the GIPS standards.
C. Incorrect because a firm is not allowed to claim partial compliance. A firm has only
two options with regard to compliance with the GIPS standards: fully comply with all
requirements of the GIPS standards and claim compliance through the use of the GIPS
Compliance Statement; or not comply with all requirements or the GIPS
claim compliance with, or make any reference to, the GIPS standards. standards and not

Answer 28 of 90
Answer
Solution
A. Incorrect because autarky describes countries seeking political
little or no external trade or finance. self-sufficiency with
B. Correct because hegemonic countries tend to be regional or even
and they use their political or economic global leaders,
influence of others to control resources.
C. Incorrect because multilateralism describes countries that participate in
beneficial trade relationships and extensive rules
mutually
harmonization.

33
 Answer 29 of 90
Answer
Solution
A Incorrect because itsubtracts Preferred ividends in thenumerator of the Diluted
EPS formula. If the convertible shares had been converted, there would be two effects.
First, the convertible preferred securittes would nolonger be outstanding; instead,
additional common stock would be outstanding, second, if such a converston had taken
place, the company would not have paid preferred dividends. The calculation becomes
Diluted EPS (Net income -Preferred dividends) / (Weighted average number of shares
outstanding + New common shares that would have been issued at conversion); or =
($1,800,000 -$600,000) / (200,000 +(50,000 4))=$1,200,000/400,000 - $3.00.
B Correct because the effect of using If-converted method would be a reported diluted
EPS of $4.50. The if-converted method is based on what EPS would have been if the
convertible preferred securities had been converted at the beginning of the period. If the
convertible shares had been converted, there would be two effects. First, the convertible
preferred securities would no longer be outstanding: instead, additional common stock
would be outstanding. Thus, under the if-converted method,the weighted average number
of shares outstanding would be higher than in the basic EPS calculation. Second, if such a
conversion had taken place, the company would not have paid preferred dividends. Diluted
EPS using the if-converted method for preferred stock is Net income/ (Weighted average
number of shares outstanding + New common shares that would have been issued at
conversion); or = $1,800,000/(200,000 +(50,000 x 4)] =$1,800,000/400,000 =$4.50.
Basic EPS = (Net income - Preferred dividends) /Weighted average number of shares
outstanding = ($1,800,000 - $600,000)/ 200,000 =$6.00. As Basic EPS of $6.00 is higher
than diluted EPS of $4.50, the convertible preferred stock is dilutive (rather than
antidilutive), and the diluted EPS of $4.50 should thus be reported.
C. Incorrect because it calculates Basic EPS = (Net income - Preferred dividends) /
Weighted average number of shares outstanding = ($1,800,000 - $600,000) / 200,000=
$6.00.

Answer 30 of 90

Answer
Solution
A. Incorrect because while normalized earningsmay be estimated in certain cases as
the historical average, in others instances the best fit regression model is used Also, the
definition should adjust for unusual or temporary factors: normalized earnings are the
expected level of mid-cycle earnings for a company in the absence of any unusual or
temporary factors that affect profitability (either positively or negatively).
Incorrect because if an analyst is creating a valuation model such as a DCF model, estimating a
B.
terminal value is required to capture the going-concern value of the company after the explicit forecast
period. Also, normalized earnings are the expected level of mid-cycle earnings for a company in the
absence of any unusual or temporary factors that affect profitability (either positively or negatively).
C. Correct because normalized earnings are the expected level of mid-cycle earnings
for a company in the absence of any unusual or temporary factors that affect profitability
(either positively or negatively).

34
 Answer 31 of 90
Answer
Solution
A. Incorrect because market participants would then come to the view that higher
interest rates will lead to slower economicgrowth, reduced profits, and reduced borrowing
to finance asset purchases. The fall inasset prices as wellas an increase in prices would
reduce household financial wealth and therefore lead to a reduction in consumption
growth.
B. Incorrect because arise in the central bank's policy rate is likely weaken investors'
confidence. Market participants would then come to the view that higher interest rates will lead
to slower economic growth,reduced profits, and reduced borrowing to finance asset purchases
C. Correct because there is awhole range of interconnected ways inwhich a rise in the
central bank'spolicy rate can reduce real domestic demand and net external demand (that
is, the difference between export and import consumption). Weaker total demand would
tend to put downward pressure on the rate of domestic inflation-as would a stronger
currency, which would reduce the prices of imports.Taken together, these might begin to
put downward pressure on the overall measure of inflation.

Answer 32 of 90
Answer
Solution
A. Incorrect because the amount of the
that of licenses. The goodwillimpairment impairment charge due to goodwillis less than
7,324) = 549. charge for 20X2 in dollars = 73,194 - (65,321 +
B. Correct because licenses will have the
income statement due to the size of the impliedlargest dollar impairment charge on the
Accumulated impairment losses and amortization impairment charge, which is calculated as:
as of 31 December Year 1-
impairment losses and amortization as of 31 December (Accumulated
Year 1+ Exchange movements +
Amortization charge for year + Net Additions (Disposals)). In this case
impairment loss that willbe the largest
= 10,856 - (8,243 + 821 + reported is due to licenses. Inmpairment charge due to
1,244- 25) = 573. licenses
C.
Incorrect because the
lessthan that of licenses. The amount of the impairment charge due to computer software is
8,214 - (5,257 + 334 + 2,102) computer
= 521.
software impairment charge for 20X2 in dollars =

Answer 33 of 90
Answer
Solution
A.
Correct
DuPont Analysis.because leverage is a component of the return on
If leverage
decreases, so will return on equity. equity equation under tn
ROE = Tax burden x
margin x Total asset Interest burden x Earnings
turnover Leverage
x before interest and taxes
 Incorrect because the tax burden is one of the components of ROE in the 5-factor model:

Tax burden = Net income/EBT =(EBT - Tax)/EBT =1 - Tax/EBT =1

Effective tax rate

Alower tax rate means the company keeps more of its pre-tax profits (and has a
higher tax burden). A lower tax rate increases net income and increases ROE: an
increase in any of the 5 components increases ROE.
C. Incorrect because days of sales outstanding is a component of the asset turnover
measure. Allelse equal, if days of sales outstanding decreased,total asset turnover would
increase. If asset turnover increases, so will return on equity.

Answer 34 of 90

Answer
Solution
A. Incorrect because this is the change of NPM when RDR decreases by 7%. The change
of NPM is equal to slope coefficient times change in RDR. When RDR decreases by 7%, the
change of NPM is equal to -0.6 x (-7%) = 4.20%.
B. Correct because the predicted value of NPM when the forecasted RDR is 7% is equal
to 17.38% - 0.6 x 7% = 13.18%.
C. Incorrect because it mistakenly uses 0.6 instead of -0.6 for the slope coefficient in
the calculation. When -0.6 is used, the predicted value of NPM when the forecasted RDR is
7% is equal to 17.38% + 0.6 x 7% = 21.58%.

Answer 35 of 90

Answer
Solution
A. Correct because if interest can be deducted the tax deductibility of debt reduces the
effective marginal cost of debt.
B Incorrect because if interest can be deducted the tax deductibility of debt reduces the effective
marginal cost of debt.
C. Incorrect because if interest can be deducted the tax deductibility of debt reduces
the effective marginal cost of debt.

Answer 36 of 90
Answer
Solution
A. Correct because the firm's supply curve should measure the quantity the firm is
willingto supply at various prices. Also, the market supply curve is the sum of the supply
curves of the individual firms.
B. Incorrect because the effects of the actions of the buyers on price and quantity are
described by the demand curve, not the supply curve: The demand curve shows the highest
price consumers would be willing to pay for each additionalunit. In effect, the demand curve is
the willingness of consumers to pay for each additionalunit.

36
C. Incorrect because the supply curve shows the lowest price (not the highest price)
sellers are willing to accept for each quantity.

Answer 37 of 90

Answer
Solution
A. Correct because allelse equal, recognizing
considered to be less conservative in reporting netexpenses
income.
later rather than sooner is
B. Incorrect because reflecting fewer warranty claims as a percentage of sales
could be due to
improved product quality and a change in business operations, not toan
reported net income. aggressive calculation of
C. Incorrect because estimating lower
policies would reflect a change in business uncollectible accounts due to stricter credit
operations not indicate a more aggressive
and
accounting approach.

Answer 38 of 90
Answer
Solution
A Incorrect because the Current ratio
an inventory write-down. Current ratio = would decrease instead of increase as a result of
is classified as Current assets. Current assets/ Current liabilities and inventory
Among the current assets' required line items are cash and
cash equivalents, trade and other
receivables,
maturities). Current assets would decrease while inventories, financial assets (with short
and
Current liabilities would remain
unchanged, and the Current ratio will therefore decrease
down. as a result of an inventory write
B Correct because an inventory write-down reduces
amount of inventory on the balance sheet both profit and the
and thus hasa negative effect on carrying
liquidity, and solvency ratios. However, activity ratios (for profitability,
total asset turnover) will be positively example, inventory turnover and
affected by a write-down because the asset
(denominator) reduced. Total asset
is base
carrying amount decreases as a result turnover = Revenue/ Average total
of the write-down. Thus the assets. Inventory
total assets decreases while the denominator,
numerator, Revenue remains unchanged. Total asset Average
turnover ratio will therefore increase as a result of an
C.
inventory write-down.
Incorrect because the
of increase as a result of an Receivables turnover ratio would remain
Average receivables.Neitherinyentory write-down. Receivables turnoverunchanged
ratio =
instead
Revenue/
Receivables turnover ratio willRevenue
therefore
nor Average receivables are
remain unchanged as a result impacted and the
write-down. of an inventory

Answer 39 of 90
Answer
Solution
A Incorrect because a sunk cost is one that has
ofthe option will only be
incurred already been incurred whereas the cost
if management proceeds with
real option. the project which has the
B. Correct because there are several approaches acompany's management may use in
evaluating capital investments with real options and one approach is to consider the
Project NPV =NPV (based on DCF (discounted cash flow) alone) -Cost of options Value of
options. Calculate the NPV based on expected cash flows. Then simply add the value
associated with real options less their incremental cost.
C Incorrect because if the value of the real option less the incremental cost is positive
undertaken. There
and exceeds the project NPV on an absolute basis, the project should be
are several approaches a company's management may use in evaluating capital
investments with real options and one approach is to consider the Project NPV = NPV
(based on DCF [discounted cash flow] alone) - Cost of options +Value of options. Calculate
value associated with real
the NPV based on expected cash flows. Then simply add the is positive without
options less their incremental cost. On the other hand, if the NPV
add more value,
considering real options and the project has real options that would simplyundertake the
it is unnecessary to evaluate the options. Management should simply
investment.

Answer 40of 90
Answer
Solution
e, is how much the observed
A. Incorrect because the residual for the ith observation,
value of Y differs from the Y, estimated using the regression line.
e, is how much the observed
B Incorrect because the residual for the ith observation,
value of Y.differs from the Y, estimated using the regression line.
observation, e, is how much the observed
C. Correct because the residual for the fth
regression line.
value of Ydiffers from the Y, estimated using the

Answer 41 of 90

Answer
Solution
(IRR) is the discount rate that makes the
A Correct because the internal rate of return rate must
present value (NP) equal to zero. As the NPV of Project 1 is $0, the discount
net
1 is the solution to the
be equalto its IRR. The IRR of Project
equation: 0=-$1,000+s40o(1+1RR)1+$s400(1+IRR)2+$400(1+IRR)30=
$1,000+$400(1+¢)1+$400(1+0)2+$400(1+0)3, where IRR =9.7%.
= 400; solve for IRR = 9.7%.
Calculator solution: CF, =-1,000; CF = 400; CF, = 400; CF,
Next,
2; use this discount rate to calculate the NPV of Project
NVP=-$1,300+$500(1+0.097)1+$500(1+0.097)2+$500(1+0.097)3=-$50=
Calculator solution:
$1,300+$500(1+0.097) 1+$500(1+0.097)2+$500(1+0.097)3=-$50.
solve for NPV= -50. The Answer can
CF, =-1,300; CF, = 500;CF, = 500; CF,=500;I=9.7;
discount rate for Project 1 has to be
also be solved intuitively by recognizing 1) that the ($1,300) for the samne net
positive and 2) that Project 2 has a greater initial investment
this has to resultina
cash flow($200) as Project 1,whose NPV is $0.Taken together,
negative NPV for Project 2. candidate
-$50. A
Project 2 is
B Incorrect because, although the NPV of Project 1 is $0,the NPV of
uses the same discount rate for both
may assume the NPV of both projects is $0 because the analyst
projects or because the projects have the same net cash flow ($200).
C Incorrect because the NPV of Project 2is negative, not positive. Acandidate may
or because the
choose thisanswer because the future cash flows are greater for Project 2
net cash flow ($200) is positive.

38
 Answer 42 of 90
Answer
Solution
A. Incorrect because increasing computing power can speed up the machine learninn
(ML) algorithm only. The same overfitting issue will still occur if the same ML model is
used.
B. Correct because overfitting occurs when the ML [machine learning] model learns
the input and target dataset too precisely. An ML model that has been overfitted is not
to accurately predict outcomes using a different dataset and may be
abl,
too complex. Whena
model has been underfitted, the ML model treats true parameters as if they are
not able to recognize relationships within the training data. In such cases, the noise and ie
model mav
be too simplistic. Hence, using a less complex ML model may alleviate the
issue.
C. Incorrect because unsupervised learning is one of the classes of machine learning
techniques. In unsupervised learning, computers are not given labeled data but instead are
given only data from which the algorithm seeks to describe the data and their
The stem does not indicate whethera supervised or structure.
unsupervised model is being used.

Answer 43 of 90
Answer
Solution
A. Incorrect because it would result in a lower net profit margin since net
woulddrop as a result of higher depreciation expense and income
unchanged. Net profit margin = Net income/ Revenue. Asset revenue would remain
revaluations that increase the
carrying amount of an asset initially increase depreciation expense,
shareholders' equity total assets, and
upward asset revaluations also generally decrease income (through
higher depreciation expense).
B. Correct because an increase in the carrying amount of
increases total assets and shareholders' equity, soasset depreciable long-lived assets
carrying amount of an asset can be used to reduce reported revaluations that increase the
average total assets divided by average shareholders' equity,leverage. Defining leverage as
numerator (assets) and denominator (equity) by the same amount increasing both the
ratio. (Mathematically, when a ratio is greater than one, as leads to a decline in the
in this case, an
the numerator and the
denominator by the same amount leads to a declineincrease in both
in the ratio).
C.
Incorrect because an increase in the asset carrying value
asset turnover ratio. Total asset turnover ratio results in a lower total
= Revenue / Average total
revenue would remain unchanged, average total assets would assets. While
asset turnover ratiowould decrease. Asset increase therefore the total
of an asset initially increase revaluations that increase the carrying amount
depreciation expense, total assets, and shareholders' equity.

Answer 44 of 90
Answer
Solution
A. Incorrect because automatic stabilizers are indeed automatic, not requiring the
jdentification of shocksto which policy makers must considera response. They shoula be
distinguished from discretionary fiscal policies,
tax rates, which are actively used to stabilize such as changes in government spendins
discretionary policy action. aggregate demand. Changing tax rates 1S a

39
 B. Incorrect because automatic stabilizers are indeed automatic. not requiring the identification of
shocks to which policy makers must consider a response. They should be distinguished from
discretionary fiscal policies,such as changes in government spending or tax rates, which are actively
used to stabilize aggregate demand.Spending on infrastructure is a discretionary policy action.
C. Correct because automatic stabilizers are indeed automatic, not requiring the
identification of shocks to which policy makers must consider a response. They should be
distinguished from discretionary fiscal policies, such as changes in government spending Or
tax rates, which are actively used to stabilize aggregate demand. Unemployment benefits
satisfies the definition of automaticstabilizer. For example, as an economy slows and
unemployment rises, government spending on unemployment benefits will also rise and
add to aggregate demand. This is known as an automatic stabilizer.

Answer 45 of 90
Answer
Solution
A. Incorrect because both monetary and fiscal policies are used to regulate economic
activity over time.
B
Incorrect because both monetary and fiscal policies are used to regulate economic activity over
time.
C. Correct because both monetary and fiscal policies are used to regulate economic
activity over time.

Answer 46 of 90

Answer
Solution
A.
Correct because net profit margin is calculated by dividing net income by revenue.
the asset on the
The amount of the impairment loss will reduce the carrying amount of impairment
balance sheet and will reduce net income on the income statement. Thus, the
have no effect on revenue, resulting in a reduction of
loss will reduce net income but will
net profit margin. average total assets.
B Incorrect because total asset turnover is calculated by dividing revenue by
asset on the balance sheet
The amount of the impairment loss will reduce the carrying amount of the
will have no effect on
and will reduce net income on the income statement. Thus, the impairment loss
revenue but will reduce total assets, resulting in an increase in total asset turnover.

C. Incorrect because working capital turnover is calculated by dividing revenue by

average working capital. Working capital is defined as current assets minus current
liabilities. The amount of the impairment loss will reduce the carrying amount of the asset
on the balance sheet and will reduce net income on the income statement. Thus, the
impairment loss although reduces total assets, does not affect current assets or revenue
and therefore does not affect the working capital turnover ratio.

Answer 47 of 90
Answer
Solution
A. Incorrect because an adverse audit opinion is issued when an auditor determines
that the financial statements materially depart from accounting standards and are not
fairly presented.
40
 B Correct because aqualified audit opinion is one in which there is some scope
limitation or exception to accounting standards.
C. Incorrect because a disclaimer of opinion occurs when, for some reason, such as a
scope limitation, the auditors are unable to issue an opinion.

Answer 48 of 90
Answer
Solution
A. Correct. The gross profit is sales minus cost of sales and the gross profit
calculated as gross profit divided by sales. The calculations for the three margin is
follows: companies are as
Company A: Gross profit =$40,000- $21,000 = $19,000 and the gross profit margin is 47.5%
($19,000/$40,000). Of the three companies, this gross profit margin is the highest.
Company B: Gross profit =$200,000 -$110,000 = $90,000 and the gross profit margin is
45.0%
($90,000/$200,000).
Company C: Gross profit = $450,000-$240,000 = $210,000 and the gross profit
margin is 46.7%
($210,000/$450,000).
B
Incorrect because Company B: Gross profit =
margin is 45.0% ($90,000/$200,000). $200,000-$110,000 = $90,000 and the gross profit
C.
Incorrect because Company C: Gross profit= $450,000- $240,000 =
the gross profit margin is 46.7% $210,000 and
($210,000/$450,000).

Answer 49 of 90
Answer
Solution
A. Incorrect because
on apre-specified date in corporations
can borrow (issue debt) and
the future with interest. However, the the debt must be repaid
the best interest of shareholders. directors primarily act in
B.
Incorrect because directors (the board)
have the primary responsibility to act in the bestappoint the managers (key executives)and managers
interest of shareholders.
C. Correct because directors and managers have a
best interest of shareholders and, primary responsibility to act in the
indirectly, all stakeholders. Further, if a board or
management does not act in shareholders' best interests,
through exercising voting rights attached to their shareholders can enact change
the boardof directors. shares--for example, by voting to replace

Answer 50 of 90
Answer
Solution
A.
Incorrect because debt is a negligible component of the
start-up companies. capital structures of most
B.
Incorrect because many growth companies use
operational and financial flexibility and minimize the riskdebt conservatively in order to preserve
of financial
predominant source of capital. distress. Equity remains the

41
C. Correct because at the maturity stage, the company becomes able to support low
cost debt, oftenon anunsecured basis. From the company's perspective, debt financing S
likely to be more attractive than higher-cost equity financing

Answer51 of 90
Answer
Solution
A Correct because realexchange rates reflect changes in relative purchasing power.
B. Incorrect because it is important to note that real exchange rates are not quoted or
traded in global FX markets.
C. Incorrect because real exchange rates have a poor track record as a predictor of
future nominalexchange rate movements.

Answer 52 of 90
Answer
Solution
A. Incorrect because this applies to the franchisor not the franchisee. Under franchise
models the franchisor earns a royalty on the franchisee's sales. The franchisor is
responsible for product development and advertising, for which it often collects an
additional fee from franchisees.
franchise
B Incorrect because this applies to the franchisor not the franchisee. Under
The franchisor is responsible for
models the franchisor earns a royalty on the franchisee's sales.
additional fee from
product development and advertising, for which it often collects an
franchisees.
C. Correct because under franchise models franchisees have a tightly defined and
exclusive relationship with a franchisor to operate under a specific brand with proprietary
products and processes.

Answer 53 of 90
Answer
Solution
A. Incorrect because a bargain purchase results when the purchase of a company
involves the purchase of net identifiable assets with a value greater than the cost to
purchase. In these instances, no goodwill is created and any gain from the purchase is
recognized as profit in the periodduring which it was earned.
B. Correct because accounting goodwill arising from an acquisition is the excess of the
cost to purchase atarget company over the acquired net identifiable assets (fair value of
identifiable assets minus fair value of the liabilities and contingent liabilities).
C. Incorrect because when the purchase price for a company can be attributed solely to
separately identifiable assets and liabilities, there isno goodwill.

42
 Answer 54 of 90
Answer
Solution
A. Incorrect because this response applies the formula
incorrectly and
assumes the
continuously compounded returnis equal to: r = In(S.)/In(S.) - 1= In($38)/In($30)-1
1.0695 - l=6.95% 7.0%.
B. Correct because the continuously compounded return from tto t + 1is
In(S./S) =In(1 + Re).
Therefore,the continuous compounded return from 1 January to 15 January is
o= In(So/S1) =In($38/$30) = 23.64% 23.6%.
C. Incorrect because this response calculates the holding period
to 15 January. That is, S./S, = 1+ Rt return from 1 January
26.7%. Therefore, R.t S./S - 1 = $38/$30 - 1 = 26.67%

Answer 55 of 90
Answer
Solution
A
Incorrect because a positive move in a lagging indicator is most likely identifying an
upturn in economicactivity that occurred in the
B past.
Correct because a positive
used toconfirm that an existing movement
in a lagging indicator would most
likely be
expansion is underway or has already
leading indicator would help identify or predict a occurred. Only a
future economic event.
C Incorrect because a positive move in a lagging
indicate a positive expansion. However, indicator by itself is insufficient to
confirmation
changes in a coincident indicator to indicate would be required from positive
expansion.

Answer 56 of 90
Answer
Solution
A.
Correct because the money-weighted return and its
internal rate of return and the yield to maturity. Just like thecalculation are similar to the
amounts invested are cash outflows from the investor's internal rate of return,
or withdrawn by the
investor, or the money that perspective and
at the end of anamounts return
isa cash inflow for the
investor. The remains investment cyCI
value of the fund at the end of Year 2 is
50(1.17)(1.14)
43
+ 125(1.12)= 205.52. To find the IRR -- the money-weighted return -- using a calculator:
CF, =-50; CF, = -125; CF, = +205.52; compute IRR = 13.1785% 13.2%.
B Incorrect because it is the time-weightedrate of return, which is calculated as the
geometricmean of the two annual returns: r= |(1 + r)(1 + r)]u - 1= [(1.17)(1.12)]" - 1=
0.1447 14.5%. The rounded answer is also the arithmetic mean of the two annual
returns; (0.17 + 0.12)/2 = 0.145 = 14.5%.
C. Incorrect because it calculates the compound rate of return and divides it by 2: r=
I(1 +r)(1 + r)-1]/2 = [(1.17)(1.12) - 1]/2 = 0.1552 15.5%.

Answer 57 of 90

Answer
Solution
A. Correct because while centralbanks are usually responsible for the operation of a
country's monetary policy," they are not responsible for setting or implementing fiscal
policy. Monetary policy refers to central bank activities that are directed toward
influencing the quantity of money and credit in an economy. By contrast, fiscal policy refers
tothe government's decisions about taxation and spending.
B. Incorrect because perhaps the least appreciated role of a central bank is its role in the payments
system. Central banks are usually asked to oversee, regulate, and set standards for a country's payments
system.
C. Incorrect because most central banks will also be responsible for managing their
country's foreign currency reserves and also itsgold reserves.

Answer 58 of 90
Answer
Solution
A. Incorrect because it computes the wrong locations for the first and third quartiles.
The location of the first quartile (Q) and the third quartile (Q:) with a sample of size 7
should be calculated as: (7+ 1)(25/100)=2and (7+1)(75/100)=6, respectively.
However, if the"+1" is omitted, the locations willbe incorrectly assumed to be 7(25/100) =
1.75and 7(75/100) = 5.25. Since these locations are not whole numbers, we must use
linear interpolation. The difference between the Sharpe ratio of Portfolio 2 and Portfolio 1
is 0.5 - 0.1=0.4, hence the interpolated value at position 1.75 is 0.2 +(0.75)(0.4) =0.2 +
0.3 =0.5. Similarly, the interpolated value at position 5.25 would be 1.0 +(0.25)(1.4 - 1.0) =
1.0 +0.1 =1.1. Hence, IQR =Q. - Q=1.1- 0.5 =0.6.
B Correct because quartiles divide the distribution into quarters and the interquartile
range (1QR) 0s the difference between the third quartile and the first quartile, IQR =Q -Qu
Moreover, the locationof the first quartile (0)and the third quartile (Q) can be calculated
as: (7 + 1)(25/100)=2and (7 +1)(75/100) =6, respectively. Since the portfolios are
already in increasing order, the first quartile (Q) is given by the Sharpe ratio of Portfolio 2
and the thirdquartile (0:) bythe Sharpe ratio of Portfolio6. Hence, 1QR =Q-Qi=1.4 - 0.6
=0.8.

C. Incorrect because it is the range, rather than the interquartile range, of the Sharpe
ratios. The range is the difference between the maximum and minimum values in a dataset.
Hence, the range of the Sharpe ratios is 1.6 - 0.2 = 1.4.
44
 Answer 59 of 90
Answer
Solution
A Incorrect because this distractor incorrectly interprets the debt-to-equity ratio a.
50% weight for debt and 50% weight for equity. WACC war.(1 - t) +w,r, +W.r.= 0.5
0.05 x(1 - 0.30) + 0.5 x 0.08 =5.75%.
B Correct because WACC = War.(1 - t) + W;r, + W.r.. Given that there is no preferred
stock in the capital structure, WACC = War(1 - t) + W.r. Also, a simple way of transformin
adebt-to-equity ratio D/E into aweight-that is, D/(D +E)-is to divide D/E by 1+)E
a result, WACC = (D/E)/[1 + (D/E)] × r, x (1 - t) + 1/[1+ (D/E)] × r.= 0.5/(1+0.5) x 0,05
(1 - 0.30) + 1/(1+0.5) x 0.08 =6.50%.
C. Incorrect because this distractor incorrectlyomits the tax rate. WACC (D/E)/n4
(D/E)}] x r, + 1/[1 + (D/E)] x r. =0.5/(1+0.5) x 0.05 + 1/(1 + 0.5) x 0.08 =7.00%.

Answer 60 of 90
Answer
Solution
A.
Incorrect because the corporate governance committee should be
independent (non-executive )members only. composed of
B. Correct because under good corporate
committee develops remuneration policies for governance practices the compensation
directors as well as key executives.
C. Incorrect because the audit committee is responsible for
auditor's remuneration. proposing the external

Answer 61 of 90
Answer
Solution
A. Correct because deferred tax
taxes (taxable income higher than assetsarise when an excess amount is paid for income
the difference during the course ofaccounting profit) and the company expects to recover
B future operations.
Incorrect because it has the relationship
amount is paid for income taxes (taxable income reversed. Deferred tax assets arise when an excess
expects to recover the difference during the higher than accounting profit) and the
course of future operations. company
C
Incorrect because it has the relationship
payable exceed income tax expense, reversed; when income taxes
arise when an eXcess amount is paidthat creates adeferred tax asset.
for income taxes (taxable Deferred tax assetS
accounting profit) and the company expects torecover the income higher than
future operations. difference during the
course ol

45
Answer 62 of 90

Answer
Solution
A Incorrect because the forward points are scaled down by 1,000 instead of 10,000:
4.6895 + (-12.7/1,000) = 4.6895 - 0.0127 =4.67680.
B Correct because to convert any of these quoted forward points into a forward rate,
one would divide the number of points by 10,000(to scale down to the fourth decimal
place, the last decimal place in the spot quote) and then add the result to the spot exchange
rate quote 4.6895 +(-12.7/10,000) =4.6895 - 0.00127 = 4.68823.
C. Incorrect because the forward points are subtracted from the spot rate: 4.6895 -(
12.7/10,000) = 4.6895 + 0.00127 z 4.69077.

Answer 63 of 90

Answer
Solution
A Correct because it is the future value of the ordinaryannuity: FV = A x [(1+r)N
1]/r= $10,000[(1 +0.05)10 - 1]/0.05 $125,779. Calculator solution: [PMT] = 10,000; [N] =
10;
B.
[L/Y] = 5; [CPT] [FV] =125,779.
Incorrect because it is the future value of an annuity due (not an ordinary annuity):
FV of annuity due = (1+ r) x FV of ordinary annuity = (1 + 0.05) x $125,779 =$132,068.
discounted one
Compared to an ordinary annuity, the paymnents in an annuity due are each
less period. Therefore,we can modify [the formula for the FV of an ordinary annuity] to
handle annuities due by multiplying the right-hand side of the equation by (1 + r).
Calculator solution:in BGN mode; [PMT] = 10,000; [N]=10; [[/Y] = 5; [CPT] [FV] =
132,068.
C. Incorrect because it assumes the investment is an 11-year (instead of a 10-year)
ordinary annuity, thus calculating FV =$10,000[(1 + 0.05)11 - 1]/0.05 =$142,068.
Calculator solution: [PMT] = 10,000; [N] =11; [I/Y] =5; [CPT] [FV]= 142,068.

Answer 64 of 90

Answer
Solution
A. Correct because the more debt the company uses, the greater the cost of equity, but
the total value of the company does not change and neither does the weighted average cost
of capital.
B Incorrect because the cost of equity increases. The more debt the company uses, the greater the
cost of equity,but the total value of the company does not change and neither does the weighted
average cost of capital.
C. Incorrect because the value of the company remains the same. The more debt the
company uses, the greater the cost of equity, but the total value of the company does not
change and neither does the weighted average cost of capital.
 Answer 65 of 90

Answer
Solution market bythe
raises the price in the domestic
A Incorrect because an export subsidy
subsidy plus subsidy).
amount of the subsidy (price before domestic production
subsidy, there will be an increase
in
B Incorrect because in an export
domesticconsumption will most Iikely
C. Correct because as the price increases,
decrease.

Answer 66 of 90

Answer
Solution
an operating
A Correct because US GAAP requires that interest paid be classified as
either an operating or financing
cash flow; IFRS allows interest paid to be classified as
activity.Incorrect because US GAAP requires that interest paid be classified as an operating cash flow:
B
IFRS allows interest paid to be classified as either an operating or financing activity.
C. Incorrect because US GAAP requires that interest paid be classified as an operating
cash flow; IFRS allows interest paid to be classified as either an operating or financing
activity.

Answer 67 of 90

Answer
Solution
A. Incorrect because both ratios have improved from Year 1 to Year 2, thus the
company is more solvent in Year2
B. incorrect because it calculates interest coverage using net income instead of EBIT (1.875),and
interprets the change in debt to capital as a deterioration because the value has decreased.
C. Correct because both ratios have improved from Year 1 to Year 2, thus the company
is more solvent in Year 2.
Year 1 Year 2 calculations Year 2
Debt to capital 12.7% 2,300/(2,300 + 17,000) = 11.9% 11.9%
Interest coverage 2.9 (375 + 200 + 125)/200 = 3.5 3.5

Answer 68 of 90
Answer
Solution
A. Incorrect because increasing bank lines of credit is a primary source of liquidity.
B. Incorrect because increasing cash flow management efficiency is a primary source of
liquidly.
C. Correct because renegotiating debt contractsis asecondary source of liquidity
because it may affect the company's operating and/or financial positions.

47
 Answer 69 of 90
Answer
Solution
A. Correct. The mean absolute deviation (MAD) for a sample is calculated as
follows: MAD=S-n||X-X |nMAD-20 Iwhere
X, =the return of the fund duringyear i
X the mean of the returns of the sample
n= the number of returns in the sample
i=the index for the year
In this problem:
Mean: X (-20.60% + 15.00% + 0.50% +9.80% + 4.60%)/5 = 1.86%
Deviations from Mean Absolute Deviation(%)
|-20.60% - 1.86%| 22.46

|15.00% - 1.86%|l 13.14

|0.50% - 1.86%| 1.36

|9.80% - 1.86%| 7.94

|4.60% - 1.86%| 2.74

Total 47.64
MAD = 47.64/5 9.53
formula of MAD:
B. Incorrect. It uses the term "n - 1" in the denominator of the
Swin||X-XHin=1¢|0-=47.64%/4 = 11.91%
C Incorrect. It is the sample standard deviation (SD):

SD = in(X1-X)zn-1 -Vi=1( -)2-12

= {[(-20.60% - 1.86%)2 + (15.00% - 1.86%)2 + (0.50%- 1.86%)2 + (9.809% -
1.86%)2 + (4.60% - 1.86%):1/4}os = 13.69%.

Answer 70 of 90

Answer
Solution
A. Incorrect because this is the explanation for money-weighted return.
growth
B. Correct because time-weighted rate of return reflects the compound rate of
measurement period, and it removes the
of one unit of currency invested over a stated
portfolio.
effects of timing and amount of withdrawals and additionsto the
or lower
C. Incorrect because time-weighted rate of return can be the same, higher,
than money-weighted rate of return.

48
Answer 71 of 90
Answer
Solution
A Incorrect because Basic EPS = Net income / Weighted average number of ordinary
shares outstanding.
Year 1 = ¬58,000/ 635,000 0.0913
Year 2 = ¬57,500 / 650,000 0.0885
Accordingly, Basic EPS decreased from Year 1to Year 2.
B. Correct because EBIT margin = EBIT /Total revenues.

Year 1 = ¬91,500/ ¬720,000 12.71%

Year 2 = ¬93,500/ ¬725,000 12.90%

Accordingly, EBIT margin increased from Year 1 to Year 2.

C
Incorrect because Net profit margin = Net income / Total revenues.
Year 1 = ¬58,000 /¬720,000 8.06%
Year 2= ¬57,500 /¬725,000 7.93%
Accordingly,Net profit margin decreased from Year 1 to Year 2.

Answer 72 of 90
Answer
Solution
A. Incorrect because in an environment of rising
increasing inventory quantities, FIFO (in comparison inventory
with
unit costs and constant or
will allocate a lower amount of the total cost of weighted average cost or LIFO)
the income statement and a higher goods available for sale to cost of sales on
B. amount to ending inventory on the balance sheet.
Incorrect because in an environment of rising inventory unit
inventory quantities, FIFO (in comparison with weighted costs and constant or increasing
amount the totalcost of goods available for sale to
of average cost or LIFO) will allocate a lower
cost of sales on the income
amount to ending inventory on the balance sheet. statement and a higher
than under FIFO, which leads to a lower, not Consequently, under LIFO the cost of sales is higher
higher,gross profit margin (Gross profit/
under FIFO. Revenue) than
C
Correct because in an environment of rising
increasing inventory quantities, inventory unit costs and constant or
FIFO
will allocate a lower amount of the (in comparison with weighted average cost or LIFO)
the income statement and a higher total cost of goods available for sale to cost of sales on
amount to ending inventory on the balance
Consequently, under LIFOthe cost of goods sold is higher and inventory is sheet.
inventory turnover (Cost of sales / Average lower, so
inventory) is higher than under FIFO.

4
 Answer 73 of 90

Answer
Solution
A. Incorrect because if properly disclosed, an increase in EPS from the sale of a
subsidiary does not represent low quality financial reporting, but it may be low quality
earnings.
B. Correct because high financial reporting quality provides useful information to
decision makers. Since foreign exchange gains and losses may not recur, they should be
disclosed separately and not included in cost of goods sold.
C. Incorrect because long-term leases for customized pieces of equipment should be
reported as finance leases and conforms to IFRS, therefore this is not low quality reporting.

Answer 74 of 90

Answer
Solution
A Incorrect because FCFF= CFO + Int(1 - Tax rate) - FCInv.
$500 -
The answer choice $460 ignores the net-of-tax interest and is calculated as
$40.
Incorrect because it calculates FCFE. The value of $470 million is calculated as $500-$40 + $10,
B
which represents free cash flow to equity. FCFE = CFO -FCinv+ Net borrowing.
C.
Correct because FCFF= CFO+ Int(1 - Tax rate) - FCInv. Free cash flow to the firm is
calculated as $500 + $20 *(1- 0.25) - $40 = $500 + $15 - $40 = $475.

Answer 75 of 90

Answer
Solution
A. Correct because if the two variables are normally distributed, we can test to
determine whether the null hypothesis (Ho: p= 0) should be rejected. This test statistic is t
distributed withn -2 degrees of freedom, wherep represents the population correlation
coefficient.
B. Incorrect because if the two variables are normally distributed, we can test to
determine whether the null hypothesis (Ho: p = 0) should be rejected. This test statistic is t
distributed withn -2 degrees of freedom.
C. Incorrect because if the two variables are normally distributed, we can test to
determine whether the null hypothesis (Ho: p= 0) should be rejected. This test statisticis t
distributed withn -2 degrees of freedom.

50
 Answer 76 of 90

Answer
Solution
A Incorrect because it is the portfolio standard deviation calculated from. an
formula for portfoliovariance, where the "2" is omitted from the covariance terc

(R.) = W,a+ W,02+ W,w.o=(h)(100) +(h)2(100) +

incorrect
(2)(2)(50) A(10) 4
=
100 +50) = 250/4 = 62.5 (%], whích gives a portfolio standard deviation of
= V(0.00625) = 0.07906 0.079 =7.9%.
B Correct because g(R.) = Ei.n Ej.sn wwCov(Ri,R{).
For two assets, n= 2, a(R-) = W20,2 + W0,2 +2w,W,Oz',
where, from given values, ; = 02= 100%:, agl= 50%,
Since the portfolio is equally weighted, w, = 1/n= h.
Hence, the portfolio variance, o(R-) = (2)(100) + (2)(100) + 2(2)(V)(50)
V(100+ 100 + 100) = 300/4 = 75 [%], i.e. portfoliostandard deviation, a(R)
V(0.0075) = 0.08660 0.087 = 8.7%.
C. Incorrect because it is the portfolio variance a(R-) = (2)(100) + (2)(100)+
2(4)(Y4)(50) =75 (%:], incorrectly expressed in %, and not the portfolio standard
deviation.

Answer 77 of 90

Answer
Solution
A. Correct because cluster sampling requires the division or
classification of the
population into subpopulation groups,called clusters. In this method,
divided into clusters, each of which is essentially a the population is
mini-representation
populations. Then certain clusters are chosen as awhole using simple of the entire
a subsample is random sampling. If
randomly selected from each selected cluster, then the plan is referred
two-stage cluster samplíng. In this case, each city represents a cluster, from as
of ten consumers is randomly selected, i.e. the which a sample
researcher uses a two-stage cluster
sampling
B Incorrect because with systematic sampling, we select every kth
have a sample of the desired size. Systematic member until we
sampling does not involve the division or
classification of the population
into subpopulation groups.
C. Incorrect because a major
is that in cluster sampling, a wholedifferenceis between cluster and stratified random samples
cluster regarded as a sampling unit and only sampled
clusters are included. Instratified random
and only specific elements withineach sampling, however, allthe strata are included
stratum
stratified random sampling, the population is dividedare then selected as sampling unit. Also, in
one or more classification criteria. into subpopulations (strata) based on
Simple random samples
stratum insizes proportionalto the relative size of each are then drawn from each
would have been a stratified random stratum in the population. This
sampling if
consumers from each city based on the size of each citythe researcher randomly selected
relative to the whole population.

51
 Answer 78 of 90

Answer
Solution
A
Incorrect because higher quantities deliver marginal revenue above marginal cost.
when
B. Correct because under perfect competition, economic profits are maximized
$10
marginal revenue equals short-run marginal cost--in this case, marginalcost crossesexcess
because marginal cost is in
per unit. Profits are maximized at 23 units of production
of marginal revenue at 24 units.
C. Incorrect because at 24 units, marginal costs exceed marginal revenue.

Answer 79 of 90

Answer
Solution
increase the supply of money, it might
A. Correct because if the central bank wishes to with an agreement to sell them
from the banks,
buy bonds (usually government bonds) transaction is known as a repurchase agreement.
back at some time in the future. This rate, acentral bank can manipulate the
B. Incorrect because through the setting of a policy
Generally speaking, the higher the policy rate, the
amount of money in the money markets. they run short of
will have to pay to the central bank if
higher the potential penalty that banks and the more likely that broad money
lending,
reduce
liquidity, the greater their willingness to
growth will shrink.
restrict money creation by raising the
C. Incorrect because a central bank could
reserve requirements of banks.

Answer 80of 90
Answer
Solution expense in
costs are reported as pension
A. Incorrect because employees' service
liability each
profit and loss.
under IFRS, the change in the net pension asset or
B. Correct because
three general components. Two of the components of this
period is viewed as having service costs
as pension expense in profit and loss: (1) employees'
pension asset or
change are recognized expense or income accrued on the beginning net
income.
and (2) the net interest remeasurements, is recognized in other comprehensive
liability. The third item, beginning net
interest expense or income accrued on the
C. Incorrect because the net pension expense in profit and
loss.
liability is reported as
pension plan asset or
 Answer 81 of 90
Answer
Solution
decreased and debt to tr,.
A Correct. When calculated for Year 2, interest coverage in interest coverage
assets and return on assets both increased. In general, a decrease
total assets would reduce creditworthiness, but an increase in rot.
an increase in debt to as follows:
Calculations are
on assets would improve creditworthiness.
Calculation Year 2 Comment

Debt to total Total debt/Total assets 19.8% Higher than year 1(18.2%).
assets = ¬1,048/¬5,305 = which would reduce
creditworthiness
Interest EBIT/Interest 13.8x Lower than Year 1(15.3x), which
coverage payments = would reduce creditworthiness
¬1,015/¬73.4 =
Operating EBIT/Average total 18.7% Higher than year 1 (17.3%),
ROA assetS = which would improve
¬1,015/E5,421 = creditworthiness
B Incorrect because a decrease in the interest coverage ratio would likely reduce creditworthiness
C Incorrect because an increase in debt-to-total assets would likely reduce
creditworthiness.

Answer 82 of 90
Answer
Solution
A. Correct because energy efficiency is best described as an environmental factor.
Environmentalfactors that are generally considered material in investment analysis
include natural resource management, pollution prevention, water conservation, energy
efficiency and reduced emissions, the existence of carbon assets, and adherence to
environmnental safety and regulatory standards.
B Incorrect because energy efficiency is best described as an environmental factor, not a social
factor.

C. Incorrect because energy efficiency is best described as an environmental factor, not

a governance factor.

Answer 83 of 90
Answer
Solution
A Correct because the target D/E ratio is used to determine WACC. The
structure is the company'schosen proportions of debt and equity as opposedtarget capital
to the actual
weightings. If we knowthe company's target capital structure,then of course we should
use this in our analysis.
Weight of debt,Wa = (D/E)/(1+(D/E))= 0.8/(1+0.8) =0.4444
Weight of equity, w,= 1-W.= 0.5556
WACC =War.(1 - t) +W,r, + W.r.=(0.4444) (4%)(1-30%)
6.2444% 6.24% = +0+(0.5556)(9%)
where

53
 Wa = the target proportion of debt in the capital structure when the company
raises new funds
r= the before-tax marginal cost of debt

t= the company's marginal tax rate

W,= the target proportion of preferred stock in the capital structure when the
company raises new funds
r, =the marginalcost of preferred stock
W. =the target proportionof common stock in the capital structure when the
company raises new funds
r. =the marginal cost of common stock
B. Incorrect because the current capitalstructure (determined byusing the current D/E ratio)was
used instead of the target capital structure. The target capital structure is the company's chosen
proportions of debt and equity as opposed to the actual weightings. If we know the company's target
capital structure, then of course we should use this in our analysis.
Weight of equity,w. # (D/E)/(1+(D/E))= 0.65/(1+0.65) = 0.3939
Weight of debt, wa # 1-W, = 0.6061

WACC * (0.3939)(4%)(1-30%)+(0.6061)(9%) = 6.5576% 6.56%

Incorrect because the tax shield was not applied to the weighted cost of debt in the WACC
formula.

Weight of debt, w,= (D/E)/(1+(D/E)) =0.8/(1+0.8) =0.4444

Weight of equity, w. = 1-w, = 0.5556
WACC (0.4444)(4%) +(0.5556)(9%) =6.7778% 6.78%

Answer 84 of 90

Answer
Solution
A. Correct because in the event that the value of inventory declines below the carrying
amount on the balance sheet, the inventory carrying amount must be written down to its
net realizable value and the loss (reduction in value) recognized as an expense on the
income statement.
B. Incorrect because in the event that the value of inventory declines below the carrying amount
on the balance sheet, the inventory carrying amount must be written down to its net realizable value
and the loss (reduction in value) recognized as an expense on the income statement. Also, the
revaluation surplus account is used under the revaluation model for long-lived assets (and not
inventory). Thus, IFRS allow companies to value long-lived assets either under a cost model at historical
fair value if a
cost minus accumulated depreciation or amortisation or under a revaluation model at
revaluation inítially increases the carrying amount of the asset class, the increase in the carrying amount
heading of
of the asset class bypasses the income statement and goes directly to equity under the
revaluation surplus. Any subsequent decrease in the asset's value first decreases the revaluation surplus
and then goes to income.
C. Incorrect because in the event that the value of inventory declines below the
carrying amount on the balance sheet, the inventory carrying amount must be written
down to its net realizable value and the loss (reduction in value) recognized as an expense
on the income statement. Also, in case an inventory valuation allowance is used, its balance
should increase (and not decrease) because frequently, rather than writing inventory down
directly, an inventory valuation allowance account is used. The allowance account is netted
with the inventory accounts to arriveat the carrying amount that appears on the balance
sheet.

54
 Answer 85 of 90
Answer
Solution
A Correct because the World Bank helps to create the basic
that is essential for the creation of domestic financial markets andeconomic
-fuinctnfriaosnitrunctg ure
a well-
financial industry in developing countries.
Incorrect because the WTO's (World Trade Organization's) most important functions ars .
implementation, administration,and operation of individual agreements;acting as a platform fo.
negotiations; and settling disputes. The WTO's primary focus is the promotion of
not creating basiceconomic infrastructure. international free
C Incorrect because the focus of the International Monetary Fund
trade,
term, such as supporting exchange-rate flexibility (IMF) is more ek
and lending money on a
Basic economic infrastructure issues are not the IMF's
focus. temporary
basis.

Answer 86 of 90
Answer
Solution
A.
Incorrect because, if the null hypothesis is rejected, the
significant.
B
evidence is statistically
Incorrect because when we want to conduct tests on
believe are dependent, we use the test of the two means based on
mean of the differences(a paired samples that we
Therefore, it is not used to test whether samples are comparisons test).
dependent or
independent.
C.
Correct because, according to the test
lower the standard error in the statistic, t=d--d0sd 0 , the
denominator,
statistic calculation includes the sample meanthe higher the value of the t-statistic. The t
lower standard error difference in the numerator. Therefore, a
(denominator)
results in a higher t-statistic value. relative to the sample mean
difference (numerator)

Answer 87 of 90
Answer
Solution
A
Incorrect because just like the
possibility
B
of entry into account. concentration ratio, the HHI does not take the
Incorrect because just like the
into account. concentration ratio, the HHIdoes not take the possibility of entry
C.
Correct because just like the
possibility of entry into account. concentration ratio, the HHÊ does not take the

55
 Answer 88 of 90
Answer
Solution
A. Incorrect, because the purchase of equipment is a cash flow from investing
activities, not an operating cash flow. Investing activities include purchasing and selling
long-term assets and other investments. These long-term assets and other investments
include property, plant, and equipment.
payable
B. Correct, because adecrease in current operating liabilities (e.g., accounts method.
using the indirect
and accrued expense liabilities) is a subtraction from net income
addition to net
C. Incorrect, because amortizationexpense of intangible assets is an
income using the indirect method.

Answer 89 of 90

Answer
Solution
Probability of Xgiven the new
A. Incorrect because Bayes' formula is misapplied as Prior probability of X>x
information = Probability of the new information given X/ 0.6 = 0.4286 0.43.
Unconditional probability of the new information, 0.5/0.7 x
Correct because applying Bayes' formula, Probability of Xgiven the new
B.
Unconditional probability of the
information = Probability of the new information given X/
results in 0.5/0.6 x 0.7 = 0.5833 0.58.
new information x Prior probability ofX,
Probability ofX given the new
C. Incorrect because Bayes' formulais misapplied as
information/ Probability of the new
information = Unconditionalprobability of the new x 0.7 = 0.84.
informationgiven Xx Prior probability of X, 0.6/0.5

Answer 90 of 90

Answer
Solution
plan offers cash only, the interests of
Incorrect because if an executive remuneration
A.
may be misaligned. An equity-based
management and investors (and other stakeholders)
management interests with those of
compensation plan is commonly used to align equity, can be employed to align management
shareholders. Therefore, deferred shares, i.e.,
interests with those of shareholders.
express their views on remuneration
B Correct because by allowing shareholders to
discretion of directors and managers in granting
matters, companies can limit the
thus not allowing managers to have
themselves excessive (or inadequate) remuneration, influence
if shareholders do not or miss to
greater discretion over their own pay. Hence, shareholders
packages, conflicts of interest between
the design of executive compensation
and management may OCcur.
seeks to motivate managers to
Incorrect because while management compensation
C interests may diverge as it relates
maximize shareholder value, manager and shareholder and options can motivate
stock grants
torísk appetite. Compensation dominated by participate only in upside share price
excessive management risk-taking, as option holders options in compensation plans can lead
moves. Similarly, little or nouse of stock grants and
56
to unduly risk-averse corporate decision -making and the inability to attract talent. This
misalignment may be at odds with the company's value creation objective or shareholders
desire for higher-risk, higher-reward endeavors. Since investors can hold diversified
portfolios, they may have a higher risk tolerance than managers, whose reputation and
time are concentrated ina single company. In other words, when risky projects that match
shareholders' risk tolerance are pursued by the company, there is no conflict of interest
between shareholders and management.

57