Fundamentals of Finance and Economics, Exams of Economics

Download Fundamentals of Finance and Economics and more Exams Economics in PDF only on Docsity! CFA, Mock Exam A || With Complete Questions & Answers (100% Correct) A two-tailed test of the null hypothesis that the mean of a distribution is equal to 4.00 has a p-value of 0.0567. Using a 5% level of significance (i.e., α = 0.05), the best conclusion is to: - ANSWER - fail to reject the null hypothesis A portfolio manager would like to calculate the compound rate of return on an investment. Which of the following mean returns will he most likely use? - ANSWER - Geometric A portfolio manager estimates the probabilities of the following events for a mutual fund: Event A: the fund will earn a return of 5%. Event B: the fund will earn a return below 5%. The least appropriate description of the events is that they are: - ANSWER - =exhaustive (they are dependent and mutually exclusive(can not occur at the same time) The effective annual yield (EAY) for an investment is 8.0%. Its bond equivalent yield is closest to: - ANSWER - EAY = (1 + YTM)365/t − 1 Semiannual yield to maturity, YTM = (1 + 0.08)0.5 − 1 = 0.03923 = 3.923% Bond equivalent yield = 2 × YTM = 2 × 3.923% = 7.85% Bayes' formula - ANSWER - P(Event | Information) = [P(Information|Event)/ *P(event) P(Information)] cross sectional data - ANSWER - data on some characteristics of companies at a single point in time are cross-sectional data geometric mean - ANSWER - RG = [∏Tt=1(1+Rt)]^1/T −1 An analyst knows the mean and variance for each of the four stocks. In order to estimate the portfolio mean and variance, the analyst will require the stocks': - ANSWER - pairwise correlations For a given economy and a given period of time, GDP measures the: - ANSWER - aggregate income earned by all households, all companies, and the government unemployment rate = - ANSWER - unemployed/labor force Which of the following is least likely to affect the growth of the economy? - ANSWER - An increase in the labor force that is offset by a decrease in the average hours worked per worker, making the total hours worked unchanged The most likely initial (short-run) effect of demand-pull inflation is an increase in: - ANSWER - commodity prices 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 - ANSWER - contract the economy by reducing bank reserves. Which of the following factors is most likely to lead to economies of scale? - ANSWER - specialization a liquidity trap is most closely associated with? - ANSWER - deflation Given stable inflation, a tight fiscal policy accompanied by easy monetary policy will most likely: - ANSWER - increase the private sector share of GDP ( An unchanged composition of aggregate demand, with the GDP shares attributable to the private and public sectors remaining stable, typically occurs in the context of parallel policy actions. That occurs with mutually reinforcing macroeconomic policies, either tight fiscal/tight monetary or easy fiscal/easy monetary.) (IASB) two fundamental qualitative characteristics that make financial information useful are best described as: - ANSWER - relevance and faithful representation At the end of the year, a company reported an impairment loss on its manufacturing plant, reducing its carrying amount by 10%. The impairment loss is least likely to cause the company's: - ANSWER - Cash flow from ops (impairment loss is non-cash charge) Obligations arising from past events that are expected to result in an outflow of economic benefits from an entity are most likely known as: - ANSWER - Liabilities What are the the nine major provisions of the Global Investment Performance Standards (GIPS)? - ANSWER - 1)Calculation Methodology 2)Composite Construction 3)Disclosure 4)Fundamentals of Compliance 5)Input Data 6)Presentation and Reporting 7)Private Equity 8)Real Estate 9)Wrap Fee/ (SMA) Separately Managed Account Portfolios. If a company that leases assets for its own use classifies its leases as finance leases instead of as operating leases, its financial statements in the first year would most likely report: - ANSWER - higher debt - Classifying leases as finance leases rather than operating leases for a lessee would increase the amount of total debt reported because the present value of the total lease payments is recognized as a liability. financial leverage ratio - ANSWER - (avg. total assets)/(avg. SE) In accrual accounting, if an adjusting entry results in the reduction of an asset and the recording of an expense, the originating entry recorded was most likely a(n): - ANSWER - prepaid expense Which of the following is least likely to be a type of embedded option in a bond issue granted to bondholders? The right to - ANSWER - call the issue right to call an issue is a type of embedded option granted to issuers, not bondholders in a securitization structure, credit tranching allows investors to choose between: - ANSWER - subordinated bonds and senior bonds portfolio duration - ANSWER - a weighted average of the duration of the individual holdings = (market value/12)(Duration) +.... Macaulay duration of a non-callable perpetual bond is - ANSWER - (1+r)/r Interest coverage - ANSWER - EBITDA/Interest bond price - ANSWER - (coupon payments rates)/(1+spot rate)^time to maturity Which of the following factors will most likely drive the repo margin lower? - ANSWER - shorter supply(or high demand) of the collateral Repo margin is the difference between the market value of the security used as collateral and the value of the loan. G-Spread - ANSWER - the yield difference between the Steel Co. Bond and the Treasury Bond AMK Corp. purchased US government bonds through the Bloomberg fixed-income electronic trading platform. This transaction is most likely known as: - ANSWER - over-the-counter During the lockout period for a non-amortizing asset-backed security, the principal payment of €100 million on a €1 billion face value issue will result in the security having a total face value of - ANSWER - 1B During the lockout period any principal received is reinvested to acquire additional loans with a principal equal to the total principal received from the cash flow keeping the face value of the issue at €1 billion A swap in which the investor receives a variable payment in line with market conditions and makes a fixed payment can best be replicated by purchasing a: - ANSWER - floating rate bond financed using a fixed-rate bond. During its life, the value of a forward contract is most likely equal to the price of the underlying minus the price of the - ANSWER - forward, discounted over the remaining term of the contract. Which of the following statements best describes a feature of an American option? Early exercise of an American: - ANSWER - put option that is deep in the money may be optimal in a currency swap, the underlying principal amount is exchanged: - ANSWER - both at the start and at the end of the swap All, else held equal, the value of a European call option is best characterized as having a: - ANSWER - positive relationship with the time to expiration The real estate index most likely to suffer from sample selection bias is a(n): - ANSWER - repeat sales index The most likely impact of adding commodities to a portfolio of equities and bonds is to: - ANSWER - reduce exposure to inflation Which of the following is most likely a private real estate investment vehicle? - ANSWER - Real estate limited partnership Inherent risks in an investment are most appropriately evaluated in which step of the financial statement analysis framework? - ANSWER - Develop and communicate conclusions/recommendations -risks are evaluated and presented after data are collected and processed A company purchased equipment for $50,000 on 1 January 2011. It is depreciating the equipment over a period of 10 years on a straight-line basis for accounting purposes, but for tax purposes it is using the declining balance method at a rate of 20%. Given a tax rate of 30%, the deferred tax liability at the end of 2013 is closest to:` - ANSWER - accounting (equipment price - equipment/usefule life), for 3 periods tax purposes - declining balance method at 20% equipment (.8)(.8)(.8) Difference X tax rate = 2820 During a period of rising inventory costs, a company decides to change its inventory method from FIFO to the weighted average cost method. Under the weighted average method, which of the following financial metrics will most likely be higher than under FIFO? - ANSWER - Debt-to-equity ratio in a period of rising costs the EI will be lower under the weighted average cost method and the COGS will be higher (compared to FIFO) == lower NI and RE, debt stays the same so (total debt/total SE) will be higher because of the decrease in RE Which of the following is most likely to signal manipulation of financial reporting for a large, diversified company? - ANSWER - History of large expense items classified as unusual Under the indirect method, a US GAAP-compliant company reported total revenue of $359 million, net income of $35 million, a decrease in income tax payable of $16 million, and an increase in interest expense payable of $22 million. Based on this information, converting to the direct method would result in cash paid for operating expenses of: - ANSWER - $318M Step 1: Total operating expenses = Total revenue − Net income = ($359 million − $35 million) = $324 million. Step 2: There are no non-cash expenses or revenues, therefore Total expenses = $324 million, and Total cash revenues = $359 million. Step 3: Total cash operating expenses = Total operating expenses plus the decrease in income tax payable minus the increase in interest expense payable = $324 million + $16 million − $22 million = $318 million. Under general principles of expense recognition, a company should: - ANSWER - Recognize expense in the period that it consumes the associated economic benefits Which action is most likely considered a secondary source of liquidity? - ANSWER - Renegotiating current debt contracts to lower interest payments which of the following is most likely considered an example of matrix pricing when determining the cost of debt? - ANSWER - debt-rating approach only (DOL) Degree of Operating Leverage - ANSWER - (Revenues-Variable Operating costs)/(revenues - variable op costs - fixed op costs) Other factors held constant, the reduction of a company's average accounts payable because of suppliers offering less trade credit will most likely: - ANSWER - not affect the operating cycle WACC Calculation