Devereaux Inc. uses a perpetual inventory system and had the following inventory inflows and outflows during the month

of November.

November Activity

1 Balance 200 units at $20 per unit

10 Purchases 160 units at $20 per unit

18 Sales 180 units

20 Purchases 140 units at $24 per unit

27 Sales 100 units

If Devereaux Inc. uses the first-in, first-out method, the value of its inventory at November 30 would be

If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:

The market demand for item X is a function of its price, household income and the price of item Y.

Own-price elasticity of demand for X -0.8

Income elasticity of demand for X 1.5

Cross-price elasticity of demand for X with respect to the price of Y 0.4

Given the above elasticity coefficients for the two items, which of the following statements is

most accurate?

At the start of the current year, Company A, which reports using U.S. GAAP, sold a piece of land

to Company B for $10 million. The land had a cost of $6 million. Company B made a $2 million

down payment with the remaining balance to be paid over the next 5 years. Over the course of

the year, it has been determined that there is significant doubt about the ability and commitment

of Company B to complete all payments. In the current year, Company A would most likely report

a profit related to the sale of the land of:

A company has purchased an asset with a 10-year useful life. It will use an accelerated depreciation

method for tax purposes.

For reporting purposes, it will use straight-line depreciation because this method believed to

reflect better the usage of the asset over its economic life.

During the 10-year life of the asset, the company will report as deferred tax an amount that

Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material components, is

being purchased for $36.45 per unit. It is expected that the component’s cost will increase by approximately 10%

next year and the price could range from $38.75 to $44.18 per unit depending on the quantity purchased. The

appropriate standard for XZ-26 for next year should be set at the

Capital provided for companies moving toward operation but before commercial manufacturing and sales have occurred best describes which stage in venture capital investing?

An investor examines the following rate quotes for the Brazilian real (BRL) and the Australian dollar (AUD) and shorts BRL500,000.

●●

Spot rate BRL/AUD: 2.1128

●●

BRL 1-year interest rate: 4.1%

●●

Forward rate BRL/AUD: 2.1388

●●

AUD 1-year interest rate: 3.1%

The risk-free arbitrage profit that is available is closest to:

A country implements policies that are expected to increase taxes by €100 million, increase government spending by €50 million, and reduce investments and private sector savings by €25 million each. As a result, the country’s current account balance is most likely to:

A 20-year $1,000 fixed rate non-callable bond with 8% annual coupons currently sells for $1,105.94.

Assuming a 30% marginal tax rate and an additional risk premium for equity relative to debt of 5%,

the cost of equity using the bond-yield-plus-risk-premium approach is closest to:

The Baker Company, a U.S. corporation headquartered in California, has a manufacturing affiliate in Mexico. Baker wants to expand the capability of this plant. The plant is very profitable and generates a substantial positive cash flow. Approximately $1,000,000 (U.S.) is available to be paid in dividends to the U.S. parent from the Mexican affiliate. In addition, another affiliate, located in Brazil, has $750,000 (U.S.) available to be paid in dividends.

Which one of the following would be the best way to finance a $500,000 investment in the Mexican facility?

A growth strategy where a company increases the range of products and services offered to current markets either through internal development or acquisition is called

A capital budgeting analyst makes the following two statements.

I. Internal rate of return (IRR) is the discount rate that causes the net present value to be $0.

II. When we use the IRR method for evaluating projects, we are assuming that all cash flows are reinvested at IRR%.

Which of the analyst’s statements is (are) true?

Sato Kashingaki, CFA, is a financial advisor who practices in multiple jurisdictions. In his resident country, Country A, he is not required by law to hold a financial advisor’s license but he is required to uphold a fiduciary duty to his clients. In Country B, authorities require him to hold a financial advisor’s license, but he is not expected to uphold a fiduciary duty to his clients. In Country C, authorities require both a financial advisor’s license and an asset management license in addition to upholding a fiduciary responsibility toward clients. In which of the three countries does Kashingaki have the duty to adhere to the CFA Code and Standards over local laws?

An electricity producer charges lower rates to its high-volume customers and higher rates to its low-volume customers. The degree of price discrimination is best described as:

Holding all else constant, a company that develops intangible assets internally rather than purchasing them is most likely to report:

The Gamma Company is a national chain of drug stores in the U.S., but has decided it needs more stores in the Northeast. It is considering buying a regional chain in the U.S. from Theta Corporation, a worldwide conglomerate. Gamma needs to determine the value of the regional chain, so they can make an offer to Theta.

Gamma has gathered the following data:

• The regional chain’s net income for the year which just ended is $3,500,000.

• The regional chain’s free cash flow for the year just ended is $4,500,000.

• The regional chain’s growth rate for the first 3 years under Gamma is 6%.

• The regional chain’s growth rate for years after year 3 is 3%.

• Gamma’s required rate of return is 9%.

Which one of the following is closest to the maximum amount Gamma should pay for the regional chain?

A standard costing system is often used by a firm in conjunction with

A manufacturing company required 800 direct labor hours to produce the first lot of four units of a

new motor.

Management believes that a 90% learning curve will be experienced over the next four lots of

production. How many direct labor hours will be required to manufacture the next 12 units?

According to the BCG Growth-Share Matrix, all of the following are included in product life-cycle

strategies except:

Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standard

specifications for one unit of Titactium include 6 pounds of materials at $0.30 per pound. Actual production in

November was 3,100 units of Titactium. The accountant computed a favorable materials purchase price variance of

$380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that

Which one of the following statements pertaining to the return on investment (ROI) as a performance

measurement is incorrect?

If a paired comparison test of mean differences supports rejecting the null hypothesis, then the:

Teresa Staal, CFA, is an investment officer in a bank trust department. She manages money for celebrities and public figures, including an influential local politician. She receives a request from the politician’s political party headquarters to disclose his stock holdings. The request indicates that local law requires the disclosure. What steps should Staal most likely take to ensure she does not violate any CFA Institute Standards of Professional Conduct?

The stated (quoted) annual interest rate on an automobile loan is 10%. The effective annual rate (EAR) of the loan is 10.47%. The frequency of compounding per year for the loan is closest to:

Which of the following is most likely to lead to a recessionary gap?

Kepler Optics makes lenses for telescopes.

Beca"use Kepler will only sell lenses of the highest

quality, the normal spoilage during a reporting period

is 1,000 units. At the beginning of the current

reporting period, Kepler had 2,200 units in inventory,

and during the period, production was started and

completed on 4,000 units. Units in inventory at the

end of the current reporting period were 1,500, and

the units transferred out were 3,000. During this

period, the abnormal spoilage for Kepler's lens

production was

When are credit spreads most likely to narrow? During:

Edith Carolina, president of the Deed Corporation, requires a minimum return on investment of 8% for any project

to be undertaken by her company.

The company is decentralized and leaves investment decisions up to the discretion of the division managers as long

as the 8% return is expected to be realized. Michael Sanders, manager of the Cosmetics Division, has had a return

on investment of 14% for his division for the past 3 years and expects the division to have the same return in the

coming year. Sanders has the opportunity to invest in a new line of cosmetics that is expected to have a return on

investment of 12%.

If the Deed Corporation evaluates managerial performance using return on investment, what will be the preference

for taking on the proposed cosmetics line by Edith Carolina and Michael Sanders?

Lee Manufacturing uses a standard cost system with overhead applied based on direct labor hours. The

manufacturing budget for the production of 5,000 units for the month of May included the following information.

Direct labor (10,000 hours at $15 per hour) $150,000

Variable overhead 30,000

Fixed overhead 80,000

During May, 6,000 units were produced and the direct labor efficiency variance was $1,500 unfavorable. Based on

this information, the actual number of direct labor hours used in May was

Tendulkar Inc. has a project that requires a $40,000,000 initial investment, and is expected to generate annual after-tax cash flows of $6,000,000 for 12 years. Tendulkar’s weighted average cost of capital is 14%. This project’s net present value (NPV) and the approximate internal rate of return (IRR) are

NPV IRR

Consider the following information for Richardson Company for the prior year.

• The company produced 1,000 units and sold 900 units, both as budgeted.

• There were no beginning or ending work-in-process inventories and no beginning finished goods inventory.

• Budgeted and actual fixed costs were equal; all variable manufacturing costs are affected by production volume only; and all variable selling costs are affected by sales volume only.

• Budgeted per unit revenues and costs were as follows.

The contribution margin earned by Richardson for the prior year was

The value of a long position in a forward contract at expiration is best defined as:

A swap that involves the exchange of a fixed payment for a floating payment is most likely equivalent to a series of:

Mega Inc., a large conglomerate with operating divisions in many industries, uses risk-adjusted discount rates in evaluating capital investment decisions. Consider the following statements concerning Mega’s use of risk-adjusted discount rates.

I. Mega may accept some projects with internal rates of return less than Mega’s overall average cost of capital.

II. Discount rates vary depending on the type of project.

III. Mega may reject some projects with internal rates of return greater than the cost of capital.

IV. Discount rates may vary depending on the division.

Which of the above statements are correct?

A fixed income security’s current price is 101.45. You estimate that the price will rise to 103.28

if interest rates decrease 0.25% and fall to 100.81 if interest rates increase 0.25%. The security’s

effective duration is closest to:

A perfectly hedged position consisting of a derivative and its underlying asset will most likely yield

a return that is:

Parker Company pays each member of its sales staff a salary as well as a commission on each unit sold. For the coming year, Parker plans to increase all salaries by 5% and to keep unchanged the commission paid on each unit sold. Because of increased demand, Parker expects the volume of sales to increase by 10%. How will the total cost of sales salaries and commissions change for the coming year?

A company producing a single product employs the following direct material cost standard for each unit of output:

3 pounds of material x $4 per pound = $12 per output unit

Data regarding the operations for the current month are as follows:

Planned production 26,000 units

Actual production 23,000 units

Actual purchases of direct materials (75,000 pounds) $297,000

Direct materials used in Production 70,000 pounds

What would be the amount of the direct materials purchase price variance and direct materials quantity variance that the

company would recognize for the month?

The management of a company computes net income using both the absorption and variable costing approaches

to product costing. This year, the net income under the variable costing approach was greater than the net income

under the absorption costing approach. This difference is most likely the result of

A company allocates overhead to jobs in process using direct labor costs, raw material costs, and machine hours. The overhead application

rates for the current year are:

- 100% of direct labor

- 20% of raw materials

- $117 per machine hour

A particular production run incurred the following costs:

Direct labor: $8,000

Raw materials: $2,000

A total of 140 machine hours were required for the production run.

What is the total cost that would be charged to the production run?

If the price of a commodity futures contract is below the spot price, it is most likely that the:

Keller Industries currently has a capital structure consisting of 40% debt and 60% equity, which it believes is the optimal structure. The common stock produced a 12% capital gain in the recent 12-month period and paid a 5% dividend. Keller’s effective income tax rate is 30%. Its debt is rated AA and the issues outstanding are as follows.

• $20 million of 7% coupon bonds with a yield to maturity of 10%

• $20 million of 12% coupon bonds with a yield to maturity of 11%

Keller’s investment banker informed the firm that long-term AA rated debt are currently being issued to yield 11%. The banker also estimates that equity investors currently require a 20% pre-tax yield.

Keller’s marginal cost of capital is approximately

Which of the following attributes is least likely to be a requirement for the existence of riskless arbitrage? The underlying security:

Which of the following is least likely a form of internal credit enhancement used in a securitization?

An internal evaluation of the trading behavior of three fund managers of a mutual fund company during the past year has revealed the following:

Manager X - Was slower than peers when reacting to changes in information

Manager Y - Rarely realized investment losses but realized most of the investment gains

Manager Z - Tended to overreact by disliking losses more than liking comparable gains

Which of the three managers most likely displayed the disposition effect bias?

In Elliott Wave Theory, Wave 2 commonly exhibits a pattern best described as a(n):

The following information is available:

New Zealand dollar (NZD) to British pound (GBP) spot exchange rate: 2.0979

Libor interest rates for the British pound: 1.6025%

Libor interest rates for the New Zealand dollar: 3.2875%

All Libor interest rates are quoted on a 360-day year basis

The 180-day forward points (scaled up by four decimal places) in NZD/GBP is closest to:

External capital requirements (i.e., AFN) are LOWER for entities with which one of the following characteristics?

Scenario: Ken must choose between driving and taking a train to destination A. Travelling by train will cost her

P 400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs

P 250. Her opportunity cost of time is P 15 per hour. What must Ken do?

Abra Company’s budgeted sales for the coming year are P 40,500,000 of which, 80% are expected to be credit

sales at terms of n/30. Abra estimates that a proposed relaxation of credit standards would increase credit

sales by 20% and increase in the average collection period from 30 days to 40 days. Cost of money is 15%.

Based on a 360-day year, how much opportunity cost is involved with the proposed relaxation of credit

standards?

Cebu Company has a P 2,000,000 line of credit. The line has an interest rate of 6% and a commitment fee of

2%. If Cebu is using P 400,000 of the line of credit, what is the effective rate on the line of credit?

A firm has a debt-equity ratio of 50 percent. Currently, it has interest expense of P 500,000 on P 5,000,000

of total debt outstanding. Its tax rate is 40 percent. If the firm’s RoA is 6 percent, by how many percentage

points is the firm’s RoE greater than its RoA?

Bob White is a new CFA charterholder and he is updating his resume and company biography (bio) to reflect this accomplishment. In his bio, he states that he successfully passed all three CFA exams in three consecutive years. On his resume he adds the following line: “CFA, 2013, CFA Society of Pittsburgh”. Are either his bio or his resume in violation of the Standards regarding referencing the CFA designation and program?

A New Zealand traveler returned from Singapore with SGD7,500 (Singapore dollars). A foreign exchange dealer provided the traveler with the following quotes:

A country having a current account deficit most likely will still be able to consume more output than it produces by:

In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This action implies that the central bank is most likely attempting to: