Questions And Answers PDF Format: For More Information – Visit link below: https://www.certsgrade.com/ Version = Product CERTSGRADE High Grade and Valuable Preparation Stuff Finance CFA-Level-l CFA Institute: Chartered Financial Analyst® Visit us athttps://www.certsgrade.com/pdf/cfa-level-l/ Latest Version: 6.0 Question: 1 Which of the following is closest to the annualized return if an investment returns 16.6% over 16 months? A. 12.2% B. 12.5% C. 16.6% Answer: A Explanation: To get to the annualized return for a period longer than one year, we consider how much of that period one year represents, which in this case is 16 / 12 = 0.75. So, the annualized return is given as (1 + period return) ^ (12 / months in period) - 1 = (1.166) ^ (12 / 16) - 1 = (1.116) ^ (0.75) - 1 = 1.122 - 1 = 12.2% Question: 2 Robin was laid off from her job as a regional store manager of a large chain of fast food restaurants over a year ago. She tried to find another regional store manager position at another company but has only been able to find job openings for local store managers, and she has not been able to secure any of the positions for which she was interviewed. Frustrated, she gives up and decides to move to a lower-cost country and write a book, waiting out the recession. What kind of worker is Robin? A. Underemployed B. Discouraged worker C. Employed Answer: B Explanation: Had Robin gotten one of the local store manager positions, she would have been considered underemployed because she would be working but at a lower level than her experience as a regional store manager would indicate. By taking a break from looking for a job, she is considered a discouraged worker. She wanted to be regional store manager but stopped looking for work. Since Robin is not a writer by trade, one should not assume that she will actually write a book or be able to sell it, so she would not be considered employed. Question: 3 Visit us athttps://www.certsgrade.com/pdf/cfa-level-l/ Consider a trader that has purchased 100 shares of stock in XYZ Corp for $23.12 each on margin. They post equity of 35%, and the maintenance margin requirement is 25%. If the stock price falls, at which (closest) price will the trader receive a margin call? A. $13.33 B. $17.33 C. $15.00 Answer: B Explanation: The value of the shares at the time of purchase is 100 x $20 = $2,000. The trader post 35% equity: $2,000x 35% = $700. When the price of the stock falls, it directly decreases the value of the equity. The formula for this is given as equity per share / price per share = maintenance margin requirement: (equity + new share price - initial share price) / new share price = maintenance margin requirement: ($7 + P - $20) / P = 25%. (-$13 + P) = (P x 25%). -$13 = -.75P. P = $17.33. Question: 4 Which of the following benefits of derivatives is least likely to benefit the overall efficiency of markets? A. Providing information regarding future expectations B. Decreasing cost of exploiting arbitrage C. Allowing businesses to lock in input costs in advance Answer: C Explanation: Derivatives do allow businesses to hedge their exposure to future input price changes, but that is a benefit to the overall efficiency of the market. Lowering the costs of exploiting mispricing leads to more efficient pricing, and additional information increases market transparency, both of which help improve market efficiency. Question: 5 Mario works at a firm claiming GIPS compliance and is assessing the year-end performance of the firm's portfolios. He asks his manager, Maria, how she would like to do the performance calculations this year. She tells him that he must include all the firm's actual, fee-paying, discretionary portfolios in his calculations. She thinks the portfolios fall into 3 bucket composites but tells him to use his own judgement if he thinks there may be a more appropriate breakdown. Mario asks about the few portfolios that are much smaller than most that the firm manages and is told to include them in the appropriate composites per their investment objectives. He also asks about the non-discretionary portfolios and is told to ignore those. Where is the firm failing in relation to its claim of GIPS compliance? Visit us athttps://www.certsgrade.com/pdf/cfa-level-l/ A. The time of performance calculation is not the time to decide which portfolios go in which composites. B. The small portfolios should be separated. C. The non-discretionary portfolios should be included in the performance calculations. Answer: A Explanation: The fact that Mario is getting directions on how to allocate portfolios to various composites and given discretion over them as she is calculating year-end performance indicates that the composite structure determinations were not completed earlier. This criteria should be determined on an ex ante basis to avoid the potential for cherry picking. A composite should include all actual, fee-paying, discretionary portfolios that are managed according to the same investment mandate, objective, or strategy. The size should not preclude a portfolio from a composite. The GIPS Standards require discretionary portfolios to be included, not non-discretionary portfolios. Investors decide on trades in non-discretionary accounts, so it wouldn't be fair to judge managers' skill by accounts they do not control. Question: 6 Which of the following is not a consequence of cheating on the CFA exam, per the Candidate Pledge? A. Termination from the Program B. Suspension from the Program C. A 10 point reduction in the exam score Answer: C Explanation: The Candidate Pledge includes the statement "I will follow ALL rules of the CFA Program as stated on the CFA Institute website and the back cover of the exam book. My violation of any rules of the CFA Program will result in the CFA Institute voiding my exam results and may lead to suspension or termination of my candidacy in the CFA program." There is no mention of a score reduction. The results would simply be voided. Question: 7 If a clothing company has $1,200,500 in sales but typically has a 12% return rate, what is it most likely to report as Net Revenue? A. $1,056,440 B. $1,200,500 C. $144,060 Visit us athttps://www.certsgrade.com/pdf/cfa-level-l/ Answer: A Explanation: $1,200,500 would be the company's top revenue line amount, but often companies will account for estimated reductions such as those for returns. Since "Net Revenue" is noted in the example, we can assume this company accounts for those returns and would show Revenues of $1,200,500, Allowance of Returns of -$1,200,500 x 12% = -$144,060, and Net Revenue of $1,200,500 - $144,060 = $1,056,440. Question: 8 If a company has inventory of $346,578, cost of goods sold of $435,678, and a LIFO reserve of $45,667, what would its inventory have been if it had used the FIFO valuation method? A. $300,911 B. $392,245 C. $346,578 Answer: B Explanation: The LIFO reserve represents the difference between the reported LIFO inventory valuation and what a FIFO valuation would have been. LIFO inventory valuation + LIFO reserve = FIFO inventory valuation: $346,578 + $45,667 = $392,245. If the company is reporting a LIFO reserve, that means it is reporting on a LIFO basis. Question: 9 Which of the following scenarios is most likely to be in compliance with the Standards of Professional Conduct? A. XYZ bank has enacted codes of conduct that are slightly stricter than the CFA Standards of Professional Conduct. Since local regulations are more lenient than the CFA Standards of Professional Conduct, the CFA member employed by XYZ bank only needs to consider the CFA Standards of Professional Conduct. B. A member of the CFA Institute has been tasked by his employer with writing a report on the investment potential of a new company. As part of his due diligence, he accepts an offer of a tour of one of the company's facilities. The COO giving the tour offers him a ride on the company's private jet since their schedules align, and he accepted the offer to save his employee the cost of plane fare. C. After thorough due diligence, a CFA member issues an investment recommendation expressing her view that AcmeCo should have a "Buy" rating. Three days later, and to the analyst's surprise, news breaks that the Controller of AcmeCo has been embezzling from the company and its liquidity is actually much lower than previously reported, putting it in breach of its lender covenants and at risk of default. She issued a revised recommendation immediately, taking the new information into consideration and noting that she had not known about the embezzlement when writing the original recommendation, and then distributed it to all persons and firms on the original recommendation's distribution list. Visit us athttps://www.certsgrade.com/pdf/cfa-level-l/ Answer: C Explanation: Members must not knowingly make misrepresentations relating to analysis. Since this member is stated to have done thorough due diligence and not known about the embezzlement at the time of issuing the recommendations, she is not in breach of the Standards of Professional Compliance. Revising the recommendation and alerting those who may have relied on or intend to rely on her original recommendation is a good step in ensuring full transparency. CFA Charterholders are bound to follow the most strict guidelines they may be subject to. Since the member's employer has the strictest code of conduct, that is what the member should follow. This trip could reasonably be expected to influence the analyst's recommendation. The analyst's firm should have paid for his flight to avoid any potential for or the appearance of a conflict of interest. Question: 10 An investor seeking exposure to alternative assets for the first time, having minimal experience in this area, is most likely to start with which type of investing? A. Co-investing B. Direct investing C. Fund investing Answer: D Explanation: Fund investing is when an investor contributes capital to a fund, and the fund does the specific investing on the investor's behalf. These investors typically don't have the level of sophistication, experience, or resources to invest directly on their own. 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