2015 behind every good decision pdf download

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Try Yumpu. Start using Yumpu now! Terms of service. A few days later, Hanning obtains additional data that causes him to revise the projections downward. Right before public distribution of this report, Hanning learns that Jannsen has substituted the earlier, more favorable earnings projections into the report without Hanning's knowledge. Hanning should most appropriately: A. Andrew Pollard, CFA, overhears two executives from a multinational oil company discussing an unexpectedly large earnings increase the company is preparing to announce the following morning.

When Pollard gets home that evening, he places an order to buy shares in this oil company. Which of the following best describes this situation? Pollard violated the Standards by acting on material nonpublic information. Pollard violated CFA Institute Standards by not contacting counsel ' for advice before placing the trade.

Page 36 0 2 0 14 Kaplan, Inc. The issue is oversubscribed. According to the firm's written trade allocation procedures, an oversubscribed issue must be distributed on a prorated basis among all interested clients.

One of these clients is hihitaker himself. This procedure for allocating an oversubscribed issue is: A. Morton Crane, CFA, is a portfolio manager. Crane has just been informed by his compliance officer that a new law wiil require additional disclosures of personal client information to regulators for two of Crane's fonner clients and one of his current clients.

Crane decides to comply with the new law arid provide the required client information. Yes, because he disclosed confidential information about a former client.

Yes, because he disclosed confidential information about a current client. Telling potential investors that a short-term U. Treasury fund contains "guaranteed" securities: A. A member provides a client with an investmeilt performance presentation that does not include detailed information, but reflects the member's reasonable efforts to present results that are fair, accurate, and complete. Has the member complied with the Standard related to performance presentation? Yes, the member has met the requirements of the Standard.

No, because the performance presentation must comply with Global Investment Performance Standards. NO, because "reasonable efforts" do not ensure that the presentation is fair, accurate, and complete.

Isaac Jones, CFA, is a portfolio manager for a major brokerage firm. Jones wishes to buy Maxima common stock for some of his client's accounts. Jones also wishes to purchase Maxima for his personal account.

Howell suspects that the company will soon announce merger plans with a Japanese oil company. To investigate, Howell attempts to call three executives at Glazer. Different secretaries inform Howell that the executives are "attending a conference overseas" or "traveling in Japan. Howell feels confident that the merger will go forward.

Page 38 Kaplan, Inc. To cornply with the Code and Standards, Johnson's most appropriate action is to: A. For the past five years, Rafael Garcia has szrved as a portfolio manager for Peak Investments.

Garcia accepts a position at a competing firm. Garcia is not subject to a non-compete agreement. After beginning his new job, Garcia discovers files on his home computer that contain information about Peak's clients. Garcia shares this information with his new employer with the hope of bringing some of these clients over to his new firm.

Garcia has: A. Randy Green, CFA, is a principal in an investment advisory firm. His firm has been retained by Bob Harris to manage a retirement fund of which Harris is a director. Green writes Harris a letter that states he will personally oversee the account and will always act in Harris's best interest.

If Green acts in accordance with this statement, he will: A. Fran Bitner, CFA, manages a portfolio for a retail client. The client calls Bitner and requests a trade that Bitner believes is unsuitable according to the client's IPS, but would not have a material impact on the client's overall portfolio.

According to the Code and Standards, Bitner's most appropriate action is to: A. A brokerage company surveys 1, people at random to determine a relationship between age and participation in the stock market: Stock Trades Last Year Aae No Yes Under 30 Over 30 90 Based on the data from the survey, the empirical probability that a randomly chosen investor under the age of 30 made no stock trades in the last year is closest to: A. An analyst has calculated the arithmetic, harmonic, and geometric mean using the last 10 years of returns on a stock.

Which of these means should the analyst most appropriately use to forecast next year's return on the stock? Harmonic mean. Geometric mean. Arithmetic mean. Page 40 Kaplan, Inc. The histogram of returns data for the Accel Equity Fund has a long left tail and is more peaked than a normal distribution. Easzd on the histogram, the distribution of returns for Accel has: A. McGrow states that the opportunity cost of holding cash rises when interest rates rise.

Modello states that the discounted value of a set of future cash flows rises when interest rates fall. Determine whether these statements are correct. Both of these statements are correct. Neither of these statements is correct. Only one of these statements is correct. Which of the following assumptions is least consistent with technical analysis?

Interaction of supply and demand causes trends in stock prices. Information flow causes the market to reach a new equilibrium quickly. Supply and demand is governed by both rational and irrational factors. Seven of the twelve money managers employed by Hibbert Asset Management are eligible for a bonus, but only four bonuses are available.

The bonuses vary in amounts, so the order in which they are awarded is important. The number of ways that Hibbert can award the bonuses is: A. Ann Karson is evaluating a new drug product of Lancer Pharmaceutical Company. To receive approval, the new drug must reduce symptoms in a larger percentage of patients, on average, than the current standard of treatment.

The most appropriate hypothesis test is a: A. Gallant sells the MM preferred stock at the end of year 1, after receiving the first dividend. Gallant's 1-year holding period return is closest to: A. According to Elliott wave theory, an impulse wave is composed of: A. Kapila Securities provides brokerage and research services to high net worth clients.

Kapila's research teams rank securities from one to five, with one representing "strong sell" and five representing "strong buy. According to the Central Limit Theorem: A. One of the major limitations of Monte Carlo simulation is that it: A. Page 42 Kaplan, Inc. Exam 1 Afternoon Session Questions 33 through 44 relate to Economics. For this to occur, the fin2 must have: A. An increase in oil prices reduces shol-t-run aggregate supply.

Real GDP decreases and the price level increases. The central bank responds by increasing the money supply to increase aggregate demand and restore full employment. Further increases in oil prices require repeated action by the central bank. This is an example of: A. The most likely effects on price and output are that: A. The velocity of transactions in an economy has been increasing rapidly for the past seven years. Over the same time period, the economy has experienced minimal growth in real output.

According to the equation of exchange, inflation over the last seven years has: A. Average total costs for Dunhill Corporation's turbine plant are minimized when production is , units per year. Justin Collins states that 1 average variable cost is minimized at this same level of production, and that 2 profit is maximized at this level of production. Are Collins' statements accurate?

Both statements are accurate. Neither statement is accurate. Only one of the statements is accurate. If the price of the good is 45, competitive forces will: A. When arbitrage trading is able to take place, the difference between the spot and forward exchange rates for a pair of currencies is most likely to reflect the difference between the two countries' domestic: A.

Which of the following arguments about the efficiency of monopolistic competition in allocating resources is most accurate? Since economic profits in the long run are positive for firms in monopolistic competition, there are efficiency losses. Product differentiation under monopolistic competition offers benefits that tend to offset inefficiency from the reduction in output compared to perfect competition. Advertising expenditures under monopolistic competition represent a deadweight loss to society.

Rossdale, Inc. The building includes two built-in machines that are expected to be replaced after four years and six years. A firm's balance sheet is most likely to reflect the value of a firm's: A. A company understates year-end depreciation. As compared to the properly stated year-end results, what effect will this understatement have on the company's asset turnover ratio? No impact. A manufacturing company reports research costs and a loss on the sale of a business segment on its income statement.

Which of these items should be included in operating expenses? Neither of these items. Only one of these items. Both of these items. In addition, Thunderbird had 5 million shares of convertible preferred and 10 million outstanding warrants during the year.

Thunderbird's diluted earnings per share for the year is closest to: A. An analyst would most likely suspect that the quality of a company's earnings is deteriorating if the company: A. GAAP, how is goodwill related to an acquisition measured and shown on the acquirer's financial statements following the acquisition?

Measured at excess of purchase cost over the fair value of the assets at acquisition date and recorded as an intangible asset. Measured at present value of future estimated excess cash flows from the acquisition and recorded as an intangible asset. Not recorded as an asset, but the present value of future estimated excess cash flows is disclosed in the financial statement notes. A company's investments in marketable securities include actively traded equity securities, long-term bonds available for sale, and long- term bonds held to maturity.

The role of financial statement analysis is best described as: A. Page 46 Kaplan, Inc. Ignoring taxes, the machinery sale will produce a: A. For the last few years, firms in an expanding industry have found it more difficult to keep up with consumer demand despite steadily increasing inventory levels. Given this situation, a firm in this industry that seeks to report higher net income would nzost likely prefer which inventory accounting method? Average cost. Flynn believes Garrett's reported sales are of poor quality because its managers recognize revenue too aggressively.

To show that her opinion has a reasonable basis, Flynn is least likely to: A. A lessee has an incentive to report a lease as an operating lease rather than a finance lease because in the initial period, reporting a lease as an operating lease, rather than as a finance lease, will result in: A.

Mustang Corporation acquired Cobra Company five years ago. GAAP, the goodwill is: A. POI Corp. The cause of this difference is most likely: A.

Use of the indirect method of presenting cash flows from operating activities: A. Page 48 Kaplan, Inc. Ekanll Aiiernoon Session The provisions of the facility require Shelby to repay the loan before any other debt can be retired.

In addition, if the company's debt-to-capital ratio is higher than 1. Shelby would most likely agree to these covenants because they reduce: A. Selected information on Reckner Company's income taxes appaxrs in the following table: - 20x1 - 20x3 Taxes payable Deferred tax assets Deferred tax liabilities Compared to 20x2, Recknerys20x3 income tax expense: A.

Under which accounting standards must a company recognize construction interest as an expense? IFRS, but not U. At the end of last year, Manhattan Corporation had a quick ratio of 1. An analyst gathers the following selected financial information on Quip Corp. Quip's adjusted gross profit margin is closest to: A. Questions 68 through 77 relate to Corporate Finance. A company's excess cash balances can most appropriately be invested in: A. Antolini's experience most likely qualifies her to serve the best interests of CoMedia's shareowners if she: A.

Page 50 Kaplan, Inc. A guarantee stating that a payment will be made up receipt of goods or services is best known as: A. Inverness Corporation is considering investing in one of two mutually exclusive capital projects. Which of the following is most likely correct?

Benson Inc. Which of Benson's policies is most likely to be considered as not in the shareholders' best interests? Benson requires two-thirds majority shareholder approval for ar,y takeover defense proposed by the firm's managers.

Benson's board of directors tabulates the results of all proxy votes, which are recorded and maintained by an independent third party. Benson has two classes of common shares. Each Class 2 share has one-tenth the ownership interest and one-tenth the voting power of a Class 1 share. While analyzing HMS Inc. This could be explained by a n : A. With regard to the internal rate of return IRR , which of the following statements is most accurate? The IRR is the discount rate that maximizes a project's net present value.

A proper decision rule is to accept the project if IRR is less than the required rate of return. IRR is the discount rate at which the present value of expected future after-tax cash flows is equal to the investment outlay. The share repurchase will: A. Questions 78 through 85 relate to Portfolio Management. In equilibrium, an inefficient portfolio will plot: A. A risk-averse investor prefers the lowest-risk investment: A. The execution step in the portfolio management process is most likely to include: A.

Which of the following portfolio constraints in the Investment Policy Statement of a local college's endowment most likely belongs in the "unique needs and preferences" category? The endowment is: A. Page 52 Kaplan, Inc. Adding the risk-free asset to a portfolio of risky assets will: A. Which of the following return measures for this investment will be greatest?

Real return. Nominal return. Leveraged return. The beta for Stock X is 1. Linn believes that: A. Stock X is overvalued and Stock Y is undervalued. Stock X is undervalued and Stock Y is overvalued. Both Stock X and Stock Y are overvalued. Bearing unsystematic risk should provide no additional expected return: A.

Jacques Fontenot wants to place an order to purchase 10, shares of BQ Inc. The shares are currently trading for e What type of order should Fontenot place? Market order. Stop loss order. Limit order. With respect to a well-functioning securities market, a market that exhibits operational efficiency will have: A.

An investor owns preference shares which stipulate that any dividend for the current period, as well as all past dividends, must be fully paid before a common stock dividend may be paid. This security is best described as: A. Compared to the Japanese investor, the U. Larry Rile is evaluating the investment merits of Bing Corp.

Rile calculates a beta of 1. The U. Using the multistage dividend discount model, Bing's intrinsic value is closest to: A. Ian Lance, CFA, is discussing short selling with a client and states, "The short seller must pay any dividend to the lender of the stock.

In addition, the short seller must provide collateral to the brokerage house. Both of these statements are accurate. Neither of these statements is accurate. Only one of these statements is accurate. Enterprise value is most accurately interpreted as the: A. Page 54 0 2 0 14 Kaplan, Inc. Ex 1 Afternoon Sessioa Which of the following is the least accurate description of a portfolio manager's role in an efficient market? Identifying and specifying a client's objectives and constraints.

Specifying an explicit investment strategy to meet the client's needs. Diversifying the client's portfolio across all asset classes to eliminate systematic risk.

Compared with publicly traded firms, private equity firms rnost likely tend to: A. A firm attempts to gain market share from its competitors by improving its manufacturing efficiency so that it can increase output and reduce the price of its product. This firm's cornpztitive strategy is most accurately described as a n : A.

A multi-market index is most likely to overweight countries that have recently experienced high equity market returns if it weights the securities in each country index by: A. An analyst is evaluating an annual-pay bond with a yield to maturity of 7. The yield of this bond on a semiannual-bond basis is: A. Which of the following bonds is most likely to have the greatest convexity at a yield to maturity of 3.

Effective duration is the most appropriate measure of interest rate risk when: A. Which of the following is most likely to have lozns as its underlying collateral? Collateralized debt obligation. Collateralized mortgage obligation. Commercial mortgage-backed security. When is a bond investor most likely to realize an annualized rate of return greater than the bond's yield to maturity on the date of purchase? After the investor buys the bond, market interest rates: A.

Page 56 14 Kaplan, Inc. Exam 1 Afternoon Session The bond pays interest semiannually. A year, 4. Using its most recent semiannual-bond basis yield to maturity of 4. Siegel, Inc. If interest rates decline over the next few years: A. Both bonds mature in ten years. Bond X would be more affected by a ratings downgrade, but Bond Y has higher default risk. Bond Y would be more affected by a ratings downgrade, but Bond X has higher default risk. Bond X has higher default risk, but both bonds would experience similar effects of a ratings downgrade.

Cash flows from a h l l y amortizing security include: A. The value of a European put option at expiration is most likely to be increased by: A. Two portfolio managers are discussing option strategies. Connie Solis, CFA, states that a covered call strategy preserves the upside potential from appreciation in the underlying stock, while reducing the downside risk.

Lou Millwood, CFA, states that a protective put strategy has unlimited upside potential, with potential losses limited to an amount equal to the stock price minus the put premium. Are these statements accurate? For an underlying asset with no holding costs or benefits, the no- arbitrage forward price equals: A. Which of the following portfolios has the same future cash flows as a protective put?

Long call option, long risk-free bond. Short call option, long risk-free bond. Long call option, long risk-free bond, short the underlying asset.

With respect to futures transactions, the purpose of margin is to: A. The value of an American call option is inversely related to: A. Page 58 14 Kaplan, Inc. For the valuation of real estate investment trusts REITs , the asset- based approach estimates value by: A.

A hedge fund that engages primarily in distressed debt investing a f d merger arbitrage is best described as using a n : A. The period of time during which a private equity fund will se! A long-only commodity index investment is most lilcely to: A.

Assume most hedge funds have a 2-and fee structure and most funds of funds have a 1-and fee structure. Over a long investment horizon, compared to net returns from investing directly in hedge funds, net returns from investing in funds of funds are nzost lilcely to be: A. End of Afternoon Sessiogl Kaplan, Inc. Ed Socho states that in a GIPS-compliant presentation, 1 total firm assets must include all accounts, including non-fee-paying accounts and accounts where the client makes the investment decisions, and 2 the firm must include the performance results of third-party advisors selected by the firm in its composite performance.

Are Socho's statements accurate? Upon completing investment reports on equity securities, Shannon Mason, CFA, routinely shreds all documents used in preparing the reports.

In a report on UltraTech Software, Mason provides detailed explanations of the upside and downside risks associated with UltraTech, but provides no information on a sharp decrease in insider buying over the last 12 months.

Mason has most likely violated: A. CFA Institute Standards by failing to maintain adequate records. CFA Institute Standards by neglecting to include the insider buying information in the investment report.

William Callallan, CFA, is an energy analyst. His supervisor, Nancy Deinicger, CF'A, has recently decided to let Callahan cover a few of the firms that Deininger had been covering previously. Deininger gives Callahan specific instructions not to change her prior recommendation on one of these firms, Mayfield Energy.

Callahan's least appropriate action is to: A. Wayne Sergeant, CFA, is an independent investment advisor who works with individuals. A longtime client asks Sergeant if he can recommend an attorney. Sergeant refers his client to Jim Chapman, a local attorney who is also a friend of Sergeant's. Previously, Chapman had agreed to perform some legal work for Sergeant in exchange for the referral of new clients. No, because the client is under no obligation and is still free to select another attorney.

Yes, because Sergeant is making a recommendation that is not independent and objective. Yes, because Sergeant did not disclose the nature of his arrangement with Chapman to his client. Schultz has been employed there for five years, and has never signed a "non-compete" clause. While at Wheaton, Schultz makes preparations to set up her own money management firm. She does not contact any existing clients before leaving Wheaton and does not take any firm records or files.

After her resignation becomes effective, Schultz replicates a list of former clients from memory and uses public sources to get their contact information. She then contacts these former clients and solicits their business for her new firm.

Schultz may not contact clients of her old firm. Schultz is permitted to notify clients that she has left her old firm, but she cannot encourage them to come with her to the new firm. Recommended procedures for compliance with the Standard concerning misconduct suggest that firms in the investment industry should: A.

Page 64 0 2 0 14 Kaplan, Inc. Exam 2 Morning Session Ann Dunbar, a portfolio manager, wishes to buy stock of Knight Enterprises for her personal account and for clients. Knight is a thinly traded stock. Dunbar believes her own purchase is too small to affect the price but the purchase for clients is likely to increase the price.

According to the Code and Standards, when may Dunbar buy the stock for her personal account? After the buy order for her clients is executed. At the same time she enters the buy order for her clients.

She may not buy the same stock that she buys for her clients. Based on her firm's research, Seros believes a recent decrease in its price may present a buying opportunity and that industry conditions suggest Arithmatics may be an attractive acquisition for a larger company.

Seros increases her clients' holdings in Arithmatics. Seros has: A. Johnson's firm makes a market in Orkle and she executes the trade through her own firm. According to the Code and Standards, Johnson should: A. Juan Perez, CFA, is an airline industry analyst.

Perez does not currently cover New Jet, a relatively new airline. New Jet believes its new service is unique and has offered first class tickets to research analysts in the hopes of receiving increased coverage.

Perez believes he can more fully understand the airline's new concept if he is a passenger, so he accepts a ticket and takes a weekend trip. Perez does not see any differentiation between New Jet and other airlines, and decides the company is too small to warrant analytical coverage. According to the Code and Standards, Perez is: A.

Jon Jamerson, CFA, is a portfolio manager. A broker allocates Jamerson a small number of shares in an oversubscribed IPO for his personal account. Accepting these shares does not violate the Code and Standards. Jamerson has violated the Standard concerning independence and objectivity. Which of the following statements is most accurate about the Standard concerning knowledge of the law?

Members and candidates are responsible for violations: A. Reynolds posts negative claims about company management, which are untrue, to several popular investment bulletin boards on the Internet. Judy Nicely, CFA, works for a large brokerage firm managing portfolios for individuals. Nicely states that the principal is guaranteed up to Federal Deposit Insurance Corporation limits.

Nicely has: A. Page GG 0 2 0 14 Kaplan, Inc. The Member or Candidate may provide limited assistance under tight controls. This would be allowed only if the Meinber or Candidate is making a permanent move to the investment banking side of the firin. Joe Howard, CFA, is responsible for reviewing an investment firi11's promotional materials before they are released to the public.

Howard finds these two statements: Statement 1: "As a CFA charterholder, Me1 Buckmaster is a highly qualified financial manager who will achieve superior investment returns. Both of these statements comply with the Code and Standards. Neither of these statements complies with the Code and Standards. Only one of these statements complies with the Code and Standards. Qnestions 19 tknrougi relate to Qeaantitative 31ethods.

The probability that quarterly earnings for Phone Buddies, Inc. The probability that Phone Buddies earnings will increase in any five of the next eight quarters is between: A. From this analysis, the odds that the company's earnings exceed expectations are: A.

An analyst has used stratified random sampling to select a sample from a population. She asserts that if the sample mean equals the population mean, there is no sampling error associated with this sample. The analyst's statement is: A.

An analyst believes that two variables, X and Y, are both normally distributed. Chi square test F-test B. Chi square test Chi square test C. F-test Chi square test Tracking error is most accurately described as the difference between: A. When estimating a population mean or constructing a confidence interval based on the central limit theorem: A.

Page 68 Kaplan, Inc. Exam 3 Morning Session Babson only. Axxon and Cerex only. Babson and Cerex only. Analyst Shelly King is using a returns and earnings database to examine the past performailce of stocks. King sorts stocks fronl high to low PIE ratio by dividing the beginning of the year stock price by the reported year-end earnings per share recorded in the database for the prior year.

Cheryl Smith, CFA, is comparing dividend changes for energy and non-energy companies. If Smith randomly selects one company from the universe of stocks and notices that the company declared a dividend increase, the probability that the company Smith selected is an energy company is closest to: A.

Jane Wilcott, CFA, is researching whether value stocks can be expected to outperform growth stocks in any given month. Examining 10 years of monthly returns on a value stock portfolio and a growth stock portfolio, Wilcott records a positive sign for any month the return on the value portfolio exceeded that of the growth portfolio, and a negative sign for any month the return on the value portfolio was less than that of the growth portfolio.

Wilcott tests the null hypothesis that the number of positive months is less than or equal to the number of negative months. Wilcott's research design is an example of a: A. The probability of a good economy is 0. Given a good economy, the probability that the earnings of HomeBuilder Inc.

Given a poor economy, the probability that earnings will increase is 0. The unconditional probability that earnings will increase is closest to: A. A sample of observations has the following properties: Mean 8. She is evaluating an investment project with the cash flows shown in the table below. Page 70 Kaplan, Inc. In the short run, a perfectly competitive firm's supply curve is: A.

Other things equal, aggregate demand is most likely to decrease as a result of a decrease in: A. Which of the following most likely describes a loss that consumers suffer under an unregulated monopoly compared to a competitive market? Monopolies produce less goods than a competitive market would.

Costs of production are higher with monopolies. Monopolists charge the maxiinurn price. Setting a minimum wage above the equilibrium wage: A. The PKR is trading at an annual premium of 2. The one-year risk-free PKR rate is 3. If no arbitrage opportunities are available, the current one-year risk-free VKN interest rate is closest to: A. Which of the following statements about models of international trade is least accurate? The Ricardian model of trade uses labor as the only factor of production.

The Heckscher-Ohlin model asserts that the source of competitive advantage is differences in the relative amounts of labor and capital a country possesses. Considering both labor and capital as factors of production, the price of the more available factor of production will decrease.

Pauker Company is producing at minimum short-run marginal cost. Pauker is most likely also producing: A. A firm under perfect competition finds that the market price of its product is below the firm's average total cost but above its average variable cost.

If these conditions persist, the firm should: A. The kinked demand curve oligopoly model is based on a belief that: A. If a market has a downward-sloping supply curve that intersects the demand curve from above, a price below equilibrium will lead to: A. An analyst who expects the economy to experience stagflation should most appropriately recommend investing in: A. If the inflation rate is higher than the central bank's target rate, an appropriate monetary policy response is to: A.

The choice of perpetual versus periodic inventory system is most likely to result in different values for gross profit when the inventory valuation method used is: A.

Page 72 Kaplan, Inc. Exam2 Morning Session Accrued revenue is shown 0x1 the balance sheet as: A. Sam Jones, CFA, is analyzing a company whose financial information provides reconciliation between net income reported under U. GAAP has no specific requirement. GAAP permit the use of extraordinary items. Is Jones correct with respect to these statements? Kimble Corporation does not record an estimate for the amount of revenues that may be uncollectible. What effect will this omission have on the company's financial statements?

Overstate assets. Overstate liabilities. Understate net income. In which step of the financial statement analysis framework should an analyst create adjusted financial statements? Collect data. Process data. Analyze and interpret data. Roome Corp. The number of shares used to calculate diluted EPS is: A.

Page Sydex is capitalizing interest costs on its long-lived assets. Carter adjusts Sydex's financials to treat the capitalized interest costs for the most recent period as an expense. After Carter's adjustments, Sydex's interest coverage ratio will be: A.

An investor has obtained the following information about Worldwide Industries, Inc. Net profit margin 8. GAAP allow deferred taxes to be: A. Which of the following most accurately describes cash flow classification under U. Dividends paid are a financing activity under U. Dividends received may be shown as an operating or investing activity under U. Interest expense is a financing activity under U. An accountant with Umble Company is preparing the statement of cash flows.

GAAP is: A. Fonnan's stated strategy is to differentiate its premium products relative to its competitors, while Swoft is a low-cost producer. Given the companies' stated strategies, Fosman most likely has: A. After acquiring a subsidiary, Lafleur Cornpany adds to its balance sheet a patent that expires in five years and a trademark that can be renewed every three years. Lafleur should most appropriately amortize: A. Inventory cost is nzosr likely to include: A.

For a firm that reports its long-tern debt at market value, a decrease in the rating on its long-term debt wiil: A. Jo Evans, CFA, analyzes the financial statements of Shubert Company and writes, "Shubert's earnings, while sustainable, provide an inadequate return to shareholders. Pickett's income tax expense for 20x9 is closest to: Harter has generated unexpectedly strong profits over the last several years.

Given a high cash balance, the company is coilsidering repurchasing the entire bond issue. If Harter repurchases the bonds, what is the immediate effect in Karter's income statement? A loss is recognized. A gain is recognized. No gain or loss is recognized. An analyst creates a common-size cash flow statement for Wheelan Company: wheelan C s. Cash Flow Statement Percent of revenues 20x8 20x9 Net income 6.

Varin, Inc. If the quick ratio is equal to 2. GAAP, the expected return on plan assets for a defined benefit pension plan is reported within: A. Yang Yu is a board member for Broadcast Radio Group. Yu should most likely be considered an independent board member if he: A. After its initial cash outflow, the project will generate several years of cash inflows, but will require a net cash outflow in the final year.

Wright should most likely conclude that Hegeman's investment policy is: A. Exam 2 Mor2l. A feasibility study completed one year ago indicates that the rock in the new quarry site is of sufficient quality. The project would require an increase in working capital and the use of an empty factory owned by the company.

Several existing customers would be expected to purchase materials from the new quarry due to its closer proximity. Reviewing the performance and independence of board members is a responsibility of the: A.

The equity risk premium is 4. Based on the information provided, Rival's weighted average cost of capital is closest to: A. James Waverly, CFA, is discussing the use of marginal cost of capital zs a discount rate for new projects and makes the following statements: Statement 1: Marginal cost of capital is an appropriate discount rate for average-risk projects, but it should be adjusted for projects that are more risky or less risky than the average of current projects.

Statement 2: Using the marginal cost of capital as a discount rate assumes that the capital structure will remain constant over the life of the project being evaluated. Are Waverly's statements accurate? The following data are reported for Moving Vans, Inc. Questions 77 through 85 relate to Portfolio Management. Which of the following statements about the capital market line CML is most accurate? Only risky portfolios plot on the CML.

Only efficient portfolios plot on the CML. In equilibrium, all portfolios plot on the CML. Which of the following investment portfolios is most likely to be passively managed? Exchange-traded fund. Closed-end mutual fund. Separately managed account. Two stocks, Shaw Inc. In equilibrium, according to capital market theory, Shaw has: A. If Investor 1 has steeper indifference curves for return as a function of risk than Investor 2, then Investor 1's optimal portfolio on the Markowitz efficient frontier will: A.

Page 80 KapIan, Inc. Exam2 Morning Session 8 1. The standard deviation for Hull's overall investment will be: A. Endowments and foundations typically have investment needs that are best described as: A.

When performing strategic asset allocation, properly defined and specified asset classes should: A. The standard deviation of returns for a portfolio of risky assets is: A. Compared to a normal distribution, historical returns on major asset classes in developed markets have exhibited: A.

One of the functions of secondary markets is that they: A. The difference in the two calculations of return is best explained by: A. An analyst develops the following information to value a common stock. The most appropriate method for Goode to value MegaGym's preferred stock is to: A.

A dark pool is best described as: A. Which of the following is most likely to increase a firm's return on equity? Issuing new equity to retire debt. Issuing new debt to retire common stock. A decrease in the market value of its common stock.

Page 82 Kaplan, Inc. Under which form s of the efficient market hypothesis EMH would Aros Funds have the potential to achieve positive risk-adjusted returns consistently using fundamental analysis? Weak form only. Sernistrong form and weak form. No form of the EMH is consistent with earning positive rislt- adjusted returns using fundamental analysis. Creating a bond market index is more difficult than constructing a stock market index due to: A.

Analysis of an industry is least likely to focus on the industry's: A. An investor in a sponsored depository receipt DR : A. Denver Savin, CFA, is an analyst for an investment boutique. Savin is considering investing in one of two companies, Delmar or Bell United.

Savin's evaluation is based on his estimation of price to cash flow. Delmar is more attractive. Bell United is more attractive. Delmar and Bell United are equally attractive. Exam 2 Morning Session James Martindale, CFA, manages a small mutual fund specializing in defensive stocks.

For this fund, Martindale will buy stocks with: A. Martina Profis runs a fixed-income portfolio for the pension fund of Whetherby Whittaker, Ltd. Profis is concerned that interest rates are likely to rise and has calculated an annual modified duration of 8. The money duration of the position in Dewey Treadmills is closest to: A. Three months after issuance, the yield on this bond has decreased by basis points. The price of this bond at issuance and three months later is: A.

An investment advisor states, "The return from investing in a bond consists of three parts: the coupon interest, the return of principal, and any capital gain or loss that the investor realizes on the bond. Based on the following rates: 1-year spot rate 2. Page 84 0 2 0 14 Kaplan, Inc. Wendy Jones, CFA, is reviewing a current bond holding. The bond's duration is 10 and its convexity is Jones believes that interest rates will decrease by basis points. If Jones's forecast is accurate, the bond's price will change by approximately: A.

Compared to bonds in the corporate bond index, the default rate for bonds in the municipal bond index is nzost likely to be: A. Holding other factors constant, increasing a bond's maturity: A.