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WorksheetsMocktest2 ss2 Te8
Total questions: 90
Worksheet time: 3hrs 0mins
Name
Class
Date
1.
Q. The rate interpreted to be the incremental return for extending the time-to-maturity of an investment for an additional time period is the:
a)
A. add-on rate.
b)
B. forward rate.
c)
C. yield-to-maturity.
d)
None
e)
None
2.
A disadvantage of a fund of hedge funds as compared to a large multi-strategy fund is:
a)
A. due diligence expertise.
b)
B. higher management fees.
c)
C. diversified exposure to various hedge fund strategies.
d)
None
e)
None
3.
The price of a forward contract most likely:
a)
A. decreases as the price of the underlying goes up.
b)
B. is constant and set as part of the contract specifications.
c)
C. increases as market risk increases.
d)
None
e)
None
4.
Q. Economic value is created for an industry’s shareholders when the industry earns a return:
a)
A. below the cost of capital.
b)
B. equal to the cost of capital.
c)
C. above the cost of capital.
d)
None
e)
None
5.
Q. A book publisher requires substantial quantities of paper. The publisher and a paper producer have entered into an agreement for the publisher to buy and the producer to supply a given quantity of paper four months later at a price agreed upon today. This agreement is a:
a)
A. futures contract.
b)
B. forward contract.
c)
C. commodity swap.
d)
None
e)
None
6.
Calculating portfolio duration as the weighted average of time to receipt of the aggregate cash flows:
a)
A. accommodates portfolios that include callable bonds.
b)
B. facilitates the evaluation of the effect of benchmark yield changes on portfolio value.
c)
C. results in a theoretically correct but less commonly used measure of portfolio interest rate risk.
d)
None
e)
None
7.
Q. Alternative investment funds are typically managed:
a)
A. actively.
b)
B. to generate positive beta return.
c)
C. assuming that markets are efficient.
d)
None
e)
None
8.
Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?
a)
A. Differences in the pattern of cash flows of forwards and futures can explain pricing differences.
b)
B. Pricing differences can arise if futures prices and interest rates are uncorrelated.
c)
C. Interest rate volatility can explain pricing differences.
d)
None
e)
None
9.
Consider two bonds that are identical except for their coupon rates. The bond that will have the highest interest rate risk most likely has the:
a)
A. lowest coupon rate.
b)
B. coupon rate closest to its market yield.
c)
C. highest coupon rate.
d)
None
e)
None
10.
Based on the historical record, adding alternative investments to a traditional investment portfolio consisting of publicly traded debt and equity will most likely decrease the portfolio’s:
a)
A. liquidity.
b)
B. downside risk.
c)
C. risk-adjusted return.
d)
None
e)
None
11.
Q. An investor is considering the purchase of a common stock with a $2.00 annual dividend. The dividend is expected to grow at a rate of 4 percent annually. If the investor’s required rate of return is 7 percent, the intrinsic value of the stock is closest to:
a)
A. $50.00.
b)
B. $66.67.
c)
C. $69.33.
d)
None
e)
None
12.
Q. An investor in a private equity fund is concerned that the general partner can receive incentive fees in excess of the agreed-on incentive fees by making distributions over time based on profits earned rather than making distributions only at exit from investments of the fund. Which of the following is most likely to protect the investor from the general partner receiving excess fees? (2020 Q32)
a)
A. A high hurdle rate
b)
B. A clawback provision
c)
C. A lower capital commitment
d)
None
e)
None
13.
Q. If a US-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is:
a)
A. lower than the ETF’s total return.
b)
B. higher than the ETF’s total return.
c)
C. the same as the ETF’s total return.
d)
None
e)
None
14.
Q. When classified by type of issuer, asset-backed securities are part of the:
a)
A. corporate sector.
b)
B. structured finance sector.
c)
C. government and government-related sector.
d)
None
e)
None
15.
None
a)
A. Company A
b)
B. Company B
c)
C. Company C
d)
None
e)
None
16.
Q. Which type of security is most likely to have the same rating as the issuer?
a)
A. Preferred stock
b)
B. Senior secured bond
c)
C. Senior unsecured bond
d)
None
e)
None
17.
None
a)
A. $107.03.
b)
B. $105.65.
c)
C. $99.75.
d)
None
e)
None
18.
When a bond investor’s coupon reinvestment risk dominates market price risk, the investor’s investment horizon must be:
a)
A. less than the Macaulay duration of the bond.
b)
B. equal to the Macaulay duration of the bond.
c)
C. greater than the Macaulay duration of the bond.
d)
None
e)
None
19.
Q. All of the following are characteristics of preference shares except:
a)
A. They are either callable or putable.
b)
B. They generally do not have voting rights.
c)
C. They do not share in the operating performance of the company.
d)
None
e)
None
20.
Q. A beneficial opportunity created by the derivatives market is the ability to:
a)
A. adjust risk exposures to desired levels.
b)
B. generate returns proportional to movements in the underlying.
c)
C. simultaneously take long positions in multiple highly liquid fixed-income securities.
d)
None
e)
None
21.
Conceptually, a forward rate agreement most likely allows a company that wants to invest money in the future to lock in a rate by making a:
a)
A. variable payment and receiving a fixed payment.
b)
B. fixed payment and receiving a different fixed payment.
c)
C. fixed payment and receiving a variable payment.
d)
None
e)
None
22.
Q. The market value of an undervalued asset is:
a)
A. greater than the asset’s intrinsic value.
b)
B. the value at which the asset can currently be bought or sold.
c)
C. equal to the present value of all the asset’s expected cash flows.
d)
None
e)
None
23.
Q. An investor may prefer a single hedge fund to a fund of funds if she seeks: (2022 Q8)
a)
A. due diligence expertise.
b)
B. better redemption terms.
c)
C. a less complex fee structure.
d)
None
e)
None
24.
A real estate investor looking for equity exposure in the public market is most likely to invest in:
a)
A. real estate limited partnerships.
b)
B. shares of real estate investment trusts.
c)
C. collateralized mortgage obligations.
d)
None
e)
None
25.
Q. Lisa Smith owns a manufacturing company in the United States. Her company has sold goods to a customer in Brazil and will be paid in Brazilian real (BRL) in three months. Smith is concerned about the possibility of the BRL depreciating more than expected against the US dollar (USD). Therefore, she is planning to sell three-month futures contracts on the BRL. The seller of such contracts generally gains when the BRL depreciates against the USD. If Smith were to sell these future contracts, she would most appropriately be described as a(n):
a)
A. hedger.
b)
B. investor.
c)
C. information-motivated trader.
d)
None
e)
None
26.
In the secondary market for corporate bonds, settlement typically occurs:
a)
A. the day after the trade.
b)
B. on the day of the trade.
c)
C. two or more days after the trade.
d)
None
e)
None
27.
Q. The Standard & Poor’s Depositary Receipts (SPDRs) is an exchange-traded fund in the United States that is designed to track the S&P 500 stock market index. The latest price of a share of SPDRs is $290. A trader has just bought call options on shares of SPDRs for a premium of $3 per share. The call options expire in six months and have an exercise price of $305 per share. On the expiration date, the trader will exercise the call options (ignore any transaction costs) if and only if the shares of SPDRs are trading:
a)
A. below $305 per share.
b)
B. above $305 per share.
c)
C. above $308 per share.
d)
None
e)
None
28.
Q. In contrast to contingent claims, forward commitments provide the:
a)
A. right to buy or sell the underlying asset in the future.
b)
B. obligation to buy or sell the underlying asset in the future.
c)
C. promise to provide credit protection in the event of default.
d)
None
e)
None
29.
Q. For a European call option with two months until expiration, if the spot price is below the exercise price, the call option will most likely have:
a)
A. zero time value.
b)
B. positive time value.
c)
C. positive exercise value.
d)
None
e)
None
30.
Q. An option-adjusted spread (OAS) on a callable bond is the Z-spread:
a)
A. over the benchmark spot curve.
b)
B. minus the standard swap rate in that currency of the same tenor.
c)
C. minus the value of the embedded call option expressed in basis points per year.
d)
None
e)
None
31.
Q. Which of the following statements about commercial and government industry classification systems is most accurate?
a)
A. Many commercial classification systems include private for-profit companies.
b)
B. Both commercial and government classification systems exclude not-for-profit companies.
c)
C. Commercial classification systems are generally updated more frequently than government classification systems.
d)
None
e)
None
32.
Q. In a bankruptcy proceeding, when the absolute priority of claims is enforced:
a)
A. senior subordinated creditors rank above second lien holders.
b)
B. preferred equity shareholders rank above unsecured creditors.
c)
C. creditors with a secured claim have the first right to the value of that specific property.
d)
None
e)
None
33.
Q. Private capital is:
a)
A. accurately described by the generic term “private equity.”
b)
B. a source of diversification benefits from both debt and equity.
c)
C. predisposed to invest in both the debt and equity of a client’s firm.
d)
None
e)
None
34.
Assume the current dividend of a security is $9.50. The dividend is expected to grow by 12% each year for two years and then 3% afterwards. The required rate of return is 15%. The security’s value is closest to:
a)
A. $95.58.
b)
B. $120.51.
c)
C. $94.99.
d)
None
e)
None
35.
None
a)
A. €20 million
b)
B. €25 million
c)
C. €26 million
d)
None
e)
None
36.
A trader buys a stock at $64 on margin with a leverage ratio of 2.5 and a maintenance margin of 30%. Below what price will a margin call most likely occur?
a)
A. $36.57.
b)
B. $54.86.
c)
C. $44.80.
d)
None
e)
None
37.
Q. The notional principal of a swap is:
a)
A. not exchanged in the case of an interest rate swap.
b)
B. a fixed amount whenever it is matched with a loan.
c)
C. equal to the amount owed by one swap party to the other.
d)
None
e)
None
38.
Q. A 10-year, capital-indexed bond linked to the Consumer Price Index (CPI) is issued with a coupon rate of 6% and a par value of 1,000. The bond pays interest semi-annually. During the first six months after the bond’s issuance, the CPI increases by 2%. On the first coupon payment date, the bond’s:
a)
A. coupon rate increases to 8%.
b)
B. coupon payment is equal to 40.
c)
C. principal amount increases to 1,020.
d)
None
e)
None
39.
Which of the following statements is most accurate concerning a short position of 100 shares of a stock at $50 per share?
a)
A. Maximum loss of $5,000
b)
B. Maximum gain of $5,000
c)
C. Unlimited maximum gain
d)
None
e)
None
40.
According to put–call parity, if a fiduciary call expires in the money, the payoff is most likely equal to the:
a)
A. difference between the market value of the asset and the face value of the risk-free bond.
b)
B. market value of the asset.
c)
C. face value of the risk-free bond.
d)
None
e)
None
41.
In a securitization structure, credit tranching allows investors to choose between:
a)
A. subordinated bonds and senior bonds.
b)
B. extension risk and contraction risk.
c)
C. partially amortizing loans and fully amortizing loans.
d)
None
e)
None
42.
Q. Which of the following statements about company analysis is most accurate?
a)
A. The complexity of spreadsheet modeling ensures precise forecasts of financial statements.
b)
B. The interpretation of financial ratios should focus on comparing the company’s results over time but not with competitors.
c)
C. The corporate profile would include a description of the company’s business, investment activities, governance, and strengths and weaknesses.
d)
None
e)
None
43.
Q. In the event of default, the recovery rate of which of the following bonds would most likely be the highest?
a)
A. First mortgage debt
b)
B. Senior unsecured debt
c)
C. Junior subordinate debt
d)
None
e)
None
44.
Q. Risks in infrastructure investing are most likely greatest when the project involves:
a)
A. construction of infrastructure assets.
b)
B. investment in existing infrastructure assets.
c)
C. investing in assets that will be leased back to a government.
d)
None
e)
None
45.
A pension fund has decided to invest in alternative investments. Which of the following assets is the fund most likely to include in this strategy?
a)
A. Securitized debt
b)
B. Convertible bonds
c)
C. Equity exchange-traded funds
d)
None
e)
None
46.
None
a)
A. lower.
b)
B. the same.
c)
C. higher.
d)
None
e)
None
47.
Q. Fill in the blanks with the correct words: An American waterfall distributes performance fees on a(n) _____ basis and is more advantageous to the _____.
a)
A. deal-by-deal; LPs
b)
B. aggregate fund; LPs
c)
C. deal-by-deal; GP
d)
None
e)
None
48.
Which of the following is most likely a private real estate investment vehicle?
a)
A. Real estate limited partnership
b)
B. Real estate investment trust
c)
C. Collateralized mortgage obligation
d)
None
e)
None
49.
Q. Which of the following is least likely to be considered an alternative investment?
a)
A. Real estate
b)
B. Commodities
c)
C. Long-only equity funds
d)
None
e)
None
50.
None
a)
A. 7.1%.
b)
B. 11.0%.
c)
C. 21.4%.
d)
None
e)
None
51.
Q. Which of the following is most likely to be a destabilizing consequence of speculation using derivatives?
a)
A. Increased defaults by speculators and creditors
b)
B. Market price swings resulting from arbitrage activities
c)
C. The creation of trading strategies that result in asymmetric performance
d)
None
e)
None
52.
None
a)
A. 1.04%.
b)
B. –5.35%.
c)
C. –10.23%.
d)
None
e)
None
53.
Q. Which of the following is incorrect about the risk of an equity security? The risk of an equity security is:
a)
A. based on the uncertainty of its cash flows.
b)
B. based on the uncertainty of its future price.
c)
C. measured using the standard deviation of its dividends.
d)
None
e)
None
54.
Q. The bond equivalent yield of a 180-day banker’s acceptance quoted at a discount rate of 4.25% for a 360-day year is closest to:
a)
A. 4.31%.
b)
B. 4.34%.
c)
C. 4.40%.
d)
None
e)
None
55.
Q. In a declining interest rate environment, compared with a CMO’s Class A tranche, its Class C tranche will be repaid:
a)
A. earlier.
b)
B. at the same pace.
c)
C. later.
d)
None
e)
None
56.
Q. An arbitrage opportunity is least likely to be exploited when:
a)
A. one position is illiquid.
b)
B. the price differential between assets is large.
c)
C. the investor can execute a transaction in large volumes.
d)
None
e)
None
57.
An analyst will most likely put a “sell” recommendation on a stock when its:
a)
A. intrinsic value is positive.
b)
B. market value is higher than intrinsic value.
c)
C. market value is lower than fundamental value.
d)
None
e)
None
58.
None
a)
A. 87.50.
b)
B. 92.54.
c)
C. 92.76.
d)
None
e)
None
59.
None
a)
A. 24.89×
b)
B. 35.78×
c)
C. 40.06×
d)
None
e)
None
60.
Q. The creation of bond classes with a waterfall structure for sharing losses is referred to as:
a)
A. time tranching.
b)
B. credit tranching.
c)
C. overcollateralization.
d)
None
e)
None
61.
Q. The CDO tranche with a credit-rating status between senior and subordinated bond classes is called the:
a)
A. equity tranche.
b)
B. residual tranche.
c)
C. mezzanine tranche.
d)
None
e)
None
62.
Q. Enterprise value is most often determined as market capitalization of common equity and preferred stock minus the value of cash equivalents plus the:
a)
A. book value of debt.
b)
B. market value of debt.
c)
C. market value of long-term debt.
d)
None
e)
None
63.
None
a)
A. lower.
b)
B. equal.
c)
C. higher.
d)
None
e)
None
64.
None
a)
A. 7.65%.
b)
B. 9.23%.
c)
C. 10.17%.
d)
None
e)
None
65.
Q. Under-diversified portfolios are not a potential implication of which of the following behavioral biases?
a)
A. Representativeness
b)
B. Illusion of control
c)
C. Confirmation
d)
None
e)
None
66.
Q. Brandon Wiene is a financial analyst covering the beverage industry. He is evaluating the impact of DEF Beverage’s new product line of flavored waters. DEF currently has a debt-to-equity ratio of 0.6. The new product line would be financed with $50 million of debt and $100 million of equity. In estimating the valuation impact of this new product line on DEF’s value, Wiene has estimated the equity beta and asset beta of comparable companies. In calculating the equity beta for the product line, Wiene is intending to use DEF's existing capital structure when converting the asset beta into a project beta. Which of the following statements is correct?
a)
A. Using DEF’s debt-to-equity ratio of 0.6 is appropriate in calculating the new product line’s equity beta.
b)
B. Using DEF’s debt-to-equity ratio of 0.6 is not appropriate; rather, the debt-to-equity ratio of the new product, 0.5, is appropriate to use in calculating the new product line’s equity beta.
c)
C. Wiene should use the new debt-to-equity ratio of DEF that would result from the additional $50 million debt and $100 million equity in calculating the new product line’s equity beta.
d)
None
e)
None
67.
Q. Jun Park, CFA, works at a hedge fund. Most of Park’s colleagues are also CFA charterholders. At an event with recent university graduates, Park comments, “Most CFA charterholders work at hedge funds.” Park’s remark exhibits which behavioral bias?
a)
A. Availability
b)
B. Conservatism
c)
C. Framing
d)
None
e)
None
68.
Q. With respect to capital market theory, correctly priced individual assets can be plotted on the:
a)
A. capital market line.
b)
B. security market line.
c)
C. capital allocation line.
d)
None
e)
None
69.
An investor with $10,000 decides to borrow an additional $5,000 at the risk-free rate and invest all the available funds in the market portfolio. This investor’s portfolio beta is closest to:
a)
A. 0.5.
b)
B. 1.0.
c)
C. 1.5.
d)
None
e)
None
70.
Q. Corporate governance:
a)
A. complies with a set of global standards.
b)
B. is independent of both shareholder theory and stakeholder theory.
c)
C. seeks to minimize and manage conflicting interests between insiders and external shareholders.
d)
None
e)
None
71.
None
a)
A. wd = 0.200; we = 0.800.
b)
B. wd = 0.185; we = 0.815.
c)
C. wd = 0.223; we = 0.777.
d)
None
e)
None
72.
Q. Analysts who have estimated returns of an asset to be greater than the expected returns generated by the capital asset pricing model should consider the asset to be:
a)
A. overvalued.
b)
B. undervalued.
c)
C. properly valued.
d)
None
e)
None
73.
Q. At the beginning of Year 1, a fund has $10 million under management; it earns a return of 14% for the year. The fund attracts another $100 million at the start of Year 2 and earns a return of 8% for that year. The money-weighted rate of return is most likely:
a)
A. less than the time-weighted rate of return.
b)
B. the same as the time-weighted rate of return.
c)
C. greater than the time-weighted rate of return.
d)
None
e)
None
74.
Q. Which of the following forms of pooled investments is subject to the least amount of regulation?
a)
A. Hedge funds.
b)
B. Exchange traded funds.
c)
C. Closed-end mutual funds.
d)
None
e)
None
75.
Security analysis is most likely a part of which step in the portfolio management process?
a)
A. The feedback step
b)
B. The execution step
c)
C. The planning step
d)
None
e)
None
76.
Q. Sandell is performing a sensitivity analysis of the effect of the new project on the company's cost of capital. If the Trutan project has the same asset risk as Kruspa, the estimated project beta for the Trutan project, if it is financed 80% with debt, is closest to:
a)
A. 1.300.
b)
B. 2.635.
c)
C. 3.686.
d)
None
e)
None
77.
Q. All of the following are reasons that an apparent deviation from the efficient market hypothesis might not be anomalous except:
a)
A. The abnormal returns represent compensation for exposure to risk.
b)
B. Changing the asset pricing model makes the deviation to disappear.
c)
C. The deviation is well known or documented.
d)
None
e)
None
78.
When dealing with mutually exclusive projects, the most reliable decision rule is:
a)
A. time-weighted rate of return.
b)
B. IRR.
c)
C. NPV.
d)
None
e)
None
79.
Q. Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)?
a)
A. Rebalancing Policy.
b)
B. Strategic Asset Allocation.
c)
C. Statement of Duties and Responsibilities.
d)
None
e)
None
80.
Q. Erin Chou is reviewing a profitable investment that has a conventional cash flow pattern. If the cash flows for the investment, initial outlay, and future after-tax cash flows all double, Chou would predict that the IRR would:
a)
A. increase and the NPV would increase.
b)
B. stay the same and the NPV would increase.
c)
C. stay the same and the NPV would stay the same.
d)
None
e)
None
81.
Q. With respect to return-generating models, which of the following statements is most accurate? Return-generating models are used to directly estimate the:
a)
A. expected return of a security.
b)
B. weights of securities in a portfolio.
c)
C. parameters of the capital market line.
d)
None
e)
None
82.
Q. Catherine Ndereba is an energy analyst tasked with evaluating a crude oil exploration and production company. The company previously announced that it plans to embark on a new project to drill for oil offshore. As a result of this announcement, the stock price ran up by 10%. After conducting her analysis, Ms. Ndereba concludes that the project does indeed have a positive NPV. Which statement is true?
a)
A. The stock price should remain where it is because Ms. Ndereba’s analysis confirms that the recent run-up was justified.
b)
B. The stock price should go even higher now that an independent source has confirmed that the NPV is positive.
c)
C. The stock price could remain steady, move higher, or move lower.
d)
None
e)
None
83.
A company that wants to determine its cost of equity gathers the following information: Rate of return on 3-month Treasury bills 3.0%/ Rate of return on 10-year Treasury bonds 3.5%/ Market risk premium 6.0%/ The company’s equity beta 1.6/ Dividend growth rate 8.0%/ Corporate tax rate 35%/ Using the capital asset pricing model (CAPM) approach, the cost of equity (%) for the company is closest to:
a)
A. 12.6%.
b)
B. 7.5%.
c)
C. 13.1%.
d)
None
e)
None
84.
Q. Investment managers incentivized or accountable for short-term performance by current and prospective clients is a potentially rational explanation for which of the following?
a)
A. Home bias
b)
B. Bubbles
c)
C. Value stocks outperforming growth stocks
d)
None
e)
None
85.
Q. A company increasing its credit terms for customers from 1/10, net 30, to 1/10, net 60, will most likely experience:
a)
A. an increase in cash on hand.
b)
B. a lower level of uncollectible accounts.
c)
C. an increase in the average collection period.
d)
None
e)
None
86.
Q. The current weighted average cost of capital (WACC) for Van der Welde is 10%. The company announced a debt offering that raises the WACC to 13%. The most likely conclusion is that for Van der Welde:
a)
A. the company’s prospects are improving.
b)
B. equity financing is cheaper than debt financing.
c)
C. the company’s debt/equity has moved beyond the optimal range.
d)
None
e)
None
87.
Q. With respect to trading costs, liquidity is least likely to impact the:
a)
A. stock price.
b)
B. bid–ask spreads.
c)
C. brokerage commissions.
d)
None
e)
None
88.
The post-audit performed as part of the capital budgeting process is least likely to include the:
a)
A. provision of future investment ideas.
b)
B. rescheduling and prioritizing of projects.
c)
C. indication of systematic errors.
d)
None
e)
None
89.
Q. A technical analyst following a bottom-up investing approach focusing on momentum and breakout strategies should favor long positions in stocks with:
a)
A. shorter consolidation periods.
b)
B. high Bollinger Band readings.
c)
C. low volatility prior to an upside breakout.
d)
None
e)
None
90.
None
a)
A. –C$6.34 million
b)
B. C$7.43 million
c)
C. C$31.03 million
d)
None
e)
None
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