CFA Exam Questions and Answers
(100% Pass)
if you were fired from a previous job and fail to tell your new emmployer is that a
violation and if so of what? - Answer-yes, misconduct. this information could potentially
harm your new employer and he needs to know man!
degress of price discrimination - Answer-1st degree-- know price that every consumer is
willing to pay. 2nd degree-- price varies according to quanity demanded. sellers aren't
able to distinguish classes or consumers. third degree-- charging different prices to
different consumer groups. charging kids and adults differently. peak and off peak rates
for electricity.
disposition bias - Answer-loss aversion
if you get offered a senior position with a new department at a bank that has bad
compliance procedures and/or bad marketing materials what should you do? - Answer-
not accept the position. possibly agree to be hired as an interim consultant until proper
procedures are taken.
why would a multinational financial services holding company be unlikely to be able to
claim GIPS compliance? - Answer-GIPS standards require that firms be defined as an
investment firm, subsidiary, or division held out to clients as a distinct business entity.
multinational finance firm unlikely to be operating solely as an investment firm.
to claim compliance with GIPS, who do you have to make a reasonable effort to provide
a compliant presentation to? - Answer-prospective investors only. it is reccomended to
do so also for existing investors, but you don't have too.
the primary monetary goal of most major central banks is... - Answer-maintaining price
stability. is it though??
a motor scooter rental shop charges $90 per day. owner is considering a Wed special of
75 per day. at current price, shop rents 40 scooters and expects rentals to increase to
60 at lower price. - Answer-$45. Change in TR/Change in quantity.
This is technically incorrect!!!!!
deadweight loss problems from price ceilings/floors - Answer-draw it out and think of
lost surplus to identify...
how is a building owned for the purpose of leasing out to tenants treated by under IFRS
- Answer-as an investment property, can be reported at either cost or fair value. only
,prior losses that are reversed are shown as profit in income statement. gains above
prior value are recorded in shareholders equity.
under IFRS, how are deferred tax liabilities and warranties classified as current or non-
current - Answer-DTL are non-current and warranties are current.
income tax expense equals... - Answer-income tax payable (income tax rate times by
taxable income) plus increase in deferred tax liabilities. look at 174.
redo #179. repeat #237 and 238!! - Answer-
Elliot Wave Theory - Answer-wave 1 is a large gain, wave 2 gives back much of gains
from Wave 1, but not all. the lost proportion is usually a percentage equal to a
fibonaccci ratio, and consists of three smaller waves.
three main sources of return for a commodities future contract... - Answer-1. collateral
yield, roll yield, and spot price return. i think the reason why convience yield isn't
factored in is that it probably doesn't change very much...
can early exercise of deep in the money american call be advantageous - Answer-
apparently not. remember early exercise of call's can be good if it has cashflows like
dividends etc.
if future prices and interest rates are negatively correlated.. - Answer-the forwards will
be more desirable than futures (for long positions)
the voting rights of an unsponsored depository receipt belong to the... - Answer-
depository bank.
be able to estimate value of stock using forward P/E!!!! - Answer-
a bond with the greatest reinvestment risk out of one selling at a premium/discount/par -
Answer-premium.... has the highest coupon rate and therefore highest risk of not being
able to reinvest at that rate...
CAPM assumes that investors plan for the same single holding period!! - Answer-
having a higher risk aversion coefficient means... - Answer-you have a lower risk
tolerance!
how do you solve for the macaulay duration of a non-callable perpetual bond with a
yield in perpetuity? - Answer-(1+r)/r
justified forward P/E ratio - Answer-dividend payout ratio/(r-g)
, why were the GIPS standards created? - Answer-to help prevent misleading practices
such as "representative accounts", where a firm picks a top performaing account to
represent overall investmment results
Teresa Avila, CFA, is a micro-cap investment analyst at a hedge fund. The fund
requires Avila to hold any securities she recommends for the fund in her own account
as well. Because Avila has such a small account, whenever she trades for her own
portfolio, she combines the transactions with those of the hedge fund so she is sure to
have her account aligned with the fund. Has Avila most likely violated any CFA Institute
Standards of Professional Conduct? - Answer-Standard VI(B)-Priority of Transactions
requires that investment transactions for clients and employers take priority over
transactions in which members have beneficial ownership. By executing her own
transactions with those of the hedge fund, the analyst has violated this standard
because micro-cap securities can be thinly traded and easily influenced by changes in
the volume of activity. So, the analyst may benefit when she combines her transactions
with the hedge funds, and she should let the fund execute its orders before she makes
investments for her account.
is an hour of research on a topic you don't know anything about enough to say that you
made enough effort at the dillegence and reasonable basis thing? - Answer-no sir
Gregor Pavlov, CFA, is a fund manager working for the general partner of a new private
equity fund. Pavlov includes in the fund marketing material his performance history from
his previous employer. He received permission from his former employer to take his
historical return figures and the supporting research reports he used to make the related
investment decisions. Did Pavlov most likely violate the CFA Institute Standards of
Professional Conduct? - Answer-Even though Pavlov had his former employer's
permission to take his performance record and supporting research reports with him, he
does not have the underlying performance data to support those historical return
calculations and is, therefore, most likely in violation of Standard V(C)-Record
Retention. Pavlov had the permission of his employer to take his historical performance
record and research reports with him when he left the firm, so he is not in violation of
Standard IV(A)-Loyalty
check the non fee paying accounts don't have to be included in GIPS composites.... -
Answer-i think according to CFA it might or maybe just a really poorly worded question..
if the forward rate for USD/EUR is 1.43 and the forward premium to the spot trade is
400 points what is the spot rate? - Answer-1.39
A power generation company is a monopoly that has very high barriers to entry. The
quantity demand (QD) for its product is QD = 800 - 0.25 × P (where P is price). The
slope of the marginal revenue curve is closest to: - Answer-Q = 800 - 0.25 P
P = 3200 - 4Q
TR = P × Q = 3200 Q - 4 Q2
and Marginal Revenue = ΔTR/ΔQ = 3200 - 8 Q
(100% Pass)
if you were fired from a previous job and fail to tell your new emmployer is that a
violation and if so of what? - Answer-yes, misconduct. this information could potentially
harm your new employer and he needs to know man!
degress of price discrimination - Answer-1st degree-- know price that every consumer is
willing to pay. 2nd degree-- price varies according to quanity demanded. sellers aren't
able to distinguish classes or consumers. third degree-- charging different prices to
different consumer groups. charging kids and adults differently. peak and off peak rates
for electricity.
disposition bias - Answer-loss aversion
if you get offered a senior position with a new department at a bank that has bad
compliance procedures and/or bad marketing materials what should you do? - Answer-
not accept the position. possibly agree to be hired as an interim consultant until proper
procedures are taken.
why would a multinational financial services holding company be unlikely to be able to
claim GIPS compliance? - Answer-GIPS standards require that firms be defined as an
investment firm, subsidiary, or division held out to clients as a distinct business entity.
multinational finance firm unlikely to be operating solely as an investment firm.
to claim compliance with GIPS, who do you have to make a reasonable effort to provide
a compliant presentation to? - Answer-prospective investors only. it is reccomended to
do so also for existing investors, but you don't have too.
the primary monetary goal of most major central banks is... - Answer-maintaining price
stability. is it though??
a motor scooter rental shop charges $90 per day. owner is considering a Wed special of
75 per day. at current price, shop rents 40 scooters and expects rentals to increase to
60 at lower price. - Answer-$45. Change in TR/Change in quantity.
This is technically incorrect!!!!!
deadweight loss problems from price ceilings/floors - Answer-draw it out and think of
lost surplus to identify...
how is a building owned for the purpose of leasing out to tenants treated by under IFRS
- Answer-as an investment property, can be reported at either cost or fair value. only
,prior losses that are reversed are shown as profit in income statement. gains above
prior value are recorded in shareholders equity.
under IFRS, how are deferred tax liabilities and warranties classified as current or non-
current - Answer-DTL are non-current and warranties are current.
income tax expense equals... - Answer-income tax payable (income tax rate times by
taxable income) plus increase in deferred tax liabilities. look at 174.
redo #179. repeat #237 and 238!! - Answer-
Elliot Wave Theory - Answer-wave 1 is a large gain, wave 2 gives back much of gains
from Wave 1, but not all. the lost proportion is usually a percentage equal to a
fibonaccci ratio, and consists of three smaller waves.
three main sources of return for a commodities future contract... - Answer-1. collateral
yield, roll yield, and spot price return. i think the reason why convience yield isn't
factored in is that it probably doesn't change very much...
can early exercise of deep in the money american call be advantageous - Answer-
apparently not. remember early exercise of call's can be good if it has cashflows like
dividends etc.
if future prices and interest rates are negatively correlated.. - Answer-the forwards will
be more desirable than futures (for long positions)
the voting rights of an unsponsored depository receipt belong to the... - Answer-
depository bank.
be able to estimate value of stock using forward P/E!!!! - Answer-
a bond with the greatest reinvestment risk out of one selling at a premium/discount/par -
Answer-premium.... has the highest coupon rate and therefore highest risk of not being
able to reinvest at that rate...
CAPM assumes that investors plan for the same single holding period!! - Answer-
having a higher risk aversion coefficient means... - Answer-you have a lower risk
tolerance!
how do you solve for the macaulay duration of a non-callable perpetual bond with a
yield in perpetuity? - Answer-(1+r)/r
justified forward P/E ratio - Answer-dividend payout ratio/(r-g)
, why were the GIPS standards created? - Answer-to help prevent misleading practices
such as "representative accounts", where a firm picks a top performaing account to
represent overall investmment results
Teresa Avila, CFA, is a micro-cap investment analyst at a hedge fund. The fund
requires Avila to hold any securities she recommends for the fund in her own account
as well. Because Avila has such a small account, whenever she trades for her own
portfolio, she combines the transactions with those of the hedge fund so she is sure to
have her account aligned with the fund. Has Avila most likely violated any CFA Institute
Standards of Professional Conduct? - Answer-Standard VI(B)-Priority of Transactions
requires that investment transactions for clients and employers take priority over
transactions in which members have beneficial ownership. By executing her own
transactions with those of the hedge fund, the analyst has violated this standard
because micro-cap securities can be thinly traded and easily influenced by changes in
the volume of activity. So, the analyst may benefit when she combines her transactions
with the hedge funds, and she should let the fund execute its orders before she makes
investments for her account.
is an hour of research on a topic you don't know anything about enough to say that you
made enough effort at the dillegence and reasonable basis thing? - Answer-no sir
Gregor Pavlov, CFA, is a fund manager working for the general partner of a new private
equity fund. Pavlov includes in the fund marketing material his performance history from
his previous employer. He received permission from his former employer to take his
historical return figures and the supporting research reports he used to make the related
investment decisions. Did Pavlov most likely violate the CFA Institute Standards of
Professional Conduct? - Answer-Even though Pavlov had his former employer's
permission to take his performance record and supporting research reports with him, he
does not have the underlying performance data to support those historical return
calculations and is, therefore, most likely in violation of Standard V(C)-Record
Retention. Pavlov had the permission of his employer to take his historical performance
record and research reports with him when he left the firm, so he is not in violation of
Standard IV(A)-Loyalty
check the non fee paying accounts don't have to be included in GIPS composites.... -
Answer-i think according to CFA it might or maybe just a really poorly worded question..
if the forward rate for USD/EUR is 1.43 and the forward premium to the spot trade is
400 points what is the spot rate? - Answer-1.39
A power generation company is a monopoly that has very high barriers to entry. The
quantity demand (QD) for its product is QD = 800 - 0.25 × P (where P is price). The
slope of the marginal revenue curve is closest to: - Answer-Q = 800 - 0.25 P
P = 3200 - 4Q
TR = P × Q = 3200 Q - 4 Q2
and Marginal Revenue = ΔTR/ΔQ = 3200 - 8 Q
