@matt_analystprep
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Up6
The correct answer is B.
Expected return of the portfolio = (Weight of Asset A * Return of Asset A) + (Weight of Asset B * Return of Asset B) = (130% * 14%) + (-30% * 9%) = 15.5%
Up5The correct answer is B.
Both of these actions by the central bank increase the money supply. Lowering the reserve requirement will have the effect of banks being able to lend more which would increase money supply and stimulate economic growth. Increasing the net purchases of Treasury securities means more cash is left in circulation, which again increases the money supply.
Up5The correct answer is C.
Lognormal distributions are bounded by 0 because they cannot take negative values. Since normal distributions can take negative values, lognormal distributions are more suitable for describing distributions of asset prices.
Exam Tip: If you have negative values, your data isn’t lognormal.
Up5The correct answer is C.
Statement II is incorrect. A vertical common-size income statement presents all the line items as a percentage of REVENUE.
Statements I is correct. A vertical common-size balance sheet presents all the line items as a percentage of total assets.
Statement III is correct. A horizontal common-size income statement calculates all line items as a percentage of the base year’s income statement.
Up5The correct answer is A.
A synthetic
long position in a riskless bond is
created by combining a long position in a put, a long position in the
underlying, and a short position in a call.Put-call parity:
p0 + S0 = c0 + X/(1 + r)^T
X/(1+r)^T
= p0 + S0 – c0Up5The correct answer is C.
Verification tests the
soundness of a firm’s policies and procedures to calculate and present
performance in compliance with the GIPS standards.Option A is incorrect.
Verification cannot ensure the accuracy of any specific performance
presentation.Option B is incorrect.
Verification is voluntary. Firms are not required to seek verification.Up5The correct answer is C.
M-squared and Sharpe ratio measures of risk-adjust returns use standard deviation or total risk. Treynor and Jensen’s alpha use beta or systematic risk.
Up5The correct answer is A.
Under IFRS, the value of inventory is written down if the carrying value of inventory is greater than the net realizable value (NRV) (or the selling price minus the selling cost). Since the carrying value of inventory is less than the NRV, the inventory will not be written down and no loss will be recognized.
Up5The correct answer is C.
The p-value is the smallest level of significance for which the null hypothesis can be rejected. At 2.14% and any level above 2.14%, the null hypothesis can be rejected.
Up4The correct answer is A.
Under IFRS, an asset is impaired if its carrying value exceeds the recoverable value of the asset and the recoverable value of the asset is greater than the Value in use or Fair value minus Selling cost.
In our example, the carrying value of the asset is $400,000 (Book value) – $25,000 (Acc. Dep.) = $375,000.
Since the Carrying value ($375,000) is above the Recoverable value ($360,000), which is greater than the Value in use ($360,000) or Fair value minus Selling cost ($370,000 – $15,000 = $355,000), the impairment loss of $15,000 (Carrying value ($375,000) – Value in use ($360,000) ) is recognized in the Income statement and the asset is written down to $360,000.
Up4The tax credits will most likely result in a permanent difference between pre-tax income and taxable income as the tax credits are not expected to reverse in the future.
Warranty expenses and differences in depreciation methods result in temporary differences as they are expected to reverse in the future.
Up4The correct answer is A.
Atletico’s liquidity position is weakened by liquidity drags. Liquidity drags include factors such as delayed collection of accounts receivable, bad debts, tight credit terms, and obsolete inventory.
Up4mincemeat23 said:Shouldn’t it be ‘On behalf of the bank, LAWSON will be providing…’?You are right! We could also just delete “On behalf of the bank”. We try to change a few things here and there not to have the same material as in our question bank, but some mistakes might occur. Thank you for pointing out the issue and good luck with the exam!
Up4The correct answer
is A.Price Change = (-Duration * Yield
change) + (0.5 * Convexity * Yield change2))Price change = (-8 *
0.0025) + (0.5 * 20 * 0.00252) = -1.99%The bond’s value
will fall by approximately 1.990% * 200,000 = $3,988.Up4The correct answer is C.
Endowment funds have minimum spend requirements, typically 5% of assets, to prevent them from taking in contributions but not spending anything on the charitable or educational purpose.
In the case of such a requirement, the investment manager should invest this portion of the portfolio in assets quite liquid – easily convertible to cash. This would all be part of the liquidity constraint within the IPS.
Up4The correct answer is B.
A contrarian investor acts contrary to the market trend. When the prices of security reach the upper band of the Bollinger bands, a contrarian sells the security, and he buys the security when the price of the security reaches the lower band of the Bollinger bands.
Up4I will quote a passage from the CFA Program Curriculum:
“Recommended Procedures for Compliance:
Create a restricted list: If the firm is unwilling to permit dissemination of adverse opinions about a corporate client, members and candidates should encourage the firm to remove the controversial company from the research universe and put it on a restricted list so that the firm disseminates only factual information about the company.”
Now, we’ll use an example that could happen in real life. Let’s say you’re a big investment firm based in N.Y.C. and a long-time corporate client approaches you to raise money because they are having liquidity problems. The worst thing you can do is probably to warn all your clients and prospective clients about their liquidity problems. The best course of action would be put it on a restricted list and only disseminate factual information about the company. The information will be disseminated to all shareholders at the same time when the company releases a statement about their liquidity position. Only at this point in time will you be able to disseminate the information to your clients.I know this is a trick question, but you will probably have questions like this in you CFA level 1 exam. Let me know if you have any further questions or comments.
Up4The correct answer is C.
The graphic that demonstrates the efficient frontier has the standard deviation at its X-axis and the return on its Y-axis.
Option A is a correct statement. Markowitz’s theory relies on the claim that risk-neutral investors tend to seek out portfolios on the efficient frontier. A risk-averse investor will choose a portfolio below the efficient frontier.
Option B is a correct statement. Portfolios that deliver the greatest return on each level of standard deviation (or risk) make up the efficient frontier.
