CFA CHARTERED FINANCIAL ANALYST
EXAM | CORRECT ANSWERS WITH
RATIONALES. A+ GUARANTEED
SUCCESS
Which of the following best describes the primary goal of
financial reporting?
A. Determine taxes owed
B. Provide information useful for investment and credit
decisions
C. Comply with management directives
D. Report cash flows only
Answer: B
Rationale: Financial reporting informs investors and
creditors about the company’s financial position and
performance.
The time value of money principle states that:
A. Cash received today is worth more than the same amount
received in the future
B. Inflation has no effect on cash flows
C. Future cash flows are discounted at zero interest
D. Investments have no opportunity cost
Answer: A
,Rationale: Money today can earn interest, making it more
valuable than future cash.
A stock with beta greater than 1 is:
A. Less volatile than the market
B. Equally volatile as the market
C. More volatile than the market
D. Risk-free
Answer: C
Rationale: Beta > 1 indicates higher sensitivity to market
movements.
Which financial ratio measures liquidity?
A. Current ratio
B. Debt-to-equity
C. Return on equity
D. Price-to-earnings
Answer: A
Rationale: Current ratio assesses a firm’s ability to meet
short-term obligations.
Which type of risk can be eliminated through
diversification?
A. Systematic risk
,B. Unsystematic risk
C. Market risk
D. Interest rate risk
Answer: B
Rationale: Unsystematic risk is company-specific and can
be reduced by holding a diversified portfolio.
The present value of a future cash flow is lower when:
A. Discount rate decreases
B. Discount rate increases
C. Time period decreases
D. Cash flow increases
Answer: B
Rationale: Higher discount rates reduce the present value of
future cash flows.
Which market is most liquid?
A. Real estate market
B. Treasury securities market
C. Private equity market
D. Collectibles market
Answer: B
Rationale: U.S. Treasury securities are highly liquid due to
market depth and low transaction costs.
, An investor expects a security to provide 8% return while
the risk-free rate is 2% and beta is 1.2. Using CAPM, the
required return is:
A. 6%
B. 8.4%
C. 9%
D. 10%
Answer: B
Rationale: CAPM: r = rf + beta*(rm - rf) = 2% + 1.2*(5%) =
8.4%.
Which of the following is a leading economic indicator?
A. CPI
B. Unemployment rate
C. Stock market returns
D. GDP
Answer: C
Rationale: Stock returns often predict future economic
activity.
A callable bond allows the issuer to:
A. Convert the bond to equity
B. Repurchase the bond before maturity
EXAM | CORRECT ANSWERS WITH
RATIONALES. A+ GUARANTEED
SUCCESS
Which of the following best describes the primary goal of
financial reporting?
A. Determine taxes owed
B. Provide information useful for investment and credit
decisions
C. Comply with management directives
D. Report cash flows only
Answer: B
Rationale: Financial reporting informs investors and
creditors about the company’s financial position and
performance.
The time value of money principle states that:
A. Cash received today is worth more than the same amount
received in the future
B. Inflation has no effect on cash flows
C. Future cash flows are discounted at zero interest
D. Investments have no opportunity cost
Answer: A
,Rationale: Money today can earn interest, making it more
valuable than future cash.
A stock with beta greater than 1 is:
A. Less volatile than the market
B. Equally volatile as the market
C. More volatile than the market
D. Risk-free
Answer: C
Rationale: Beta > 1 indicates higher sensitivity to market
movements.
Which financial ratio measures liquidity?
A. Current ratio
B. Debt-to-equity
C. Return on equity
D. Price-to-earnings
Answer: A
Rationale: Current ratio assesses a firm’s ability to meet
short-term obligations.
Which type of risk can be eliminated through
diversification?
A. Systematic risk
,B. Unsystematic risk
C. Market risk
D. Interest rate risk
Answer: B
Rationale: Unsystematic risk is company-specific and can
be reduced by holding a diversified portfolio.
The present value of a future cash flow is lower when:
A. Discount rate decreases
B. Discount rate increases
C. Time period decreases
D. Cash flow increases
Answer: B
Rationale: Higher discount rates reduce the present value of
future cash flows.
Which market is most liquid?
A. Real estate market
B. Treasury securities market
C. Private equity market
D. Collectibles market
Answer: B
Rationale: U.S. Treasury securities are highly liquid due to
market depth and low transaction costs.
, An investor expects a security to provide 8% return while
the risk-free rate is 2% and beta is 1.2. Using CAPM, the
required return is:
A. 6%
B. 8.4%
C. 9%
D. 10%
Answer: B
Rationale: CAPM: r = rf + beta*(rm - rf) = 2% + 1.2*(5%) =
8.4%.
Which of the following is a leading economic indicator?
A. CPI
B. Unemployment rate
C. Stock market returns
D. GDP
Answer: C
Rationale: Stock returns often predict future economic
activity.
A callable bond allows the issuer to:
A. Convert the bond to equity
B. Repurchase the bond before maturity
