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【单选】
Steve Kiteman, CFA, manages a domestic bond portfolio and is evaluating two bonds. Bond A has a yield of 6.42% and a modified duration of 11.45. Bond B has a yield of 8.25% and a modified duration of 9.50. Kiteman has an expected holding period of three months. The breakeven change in the spread due to a change in the yield on bond B is:
A. 4.81579 bp due to an increase in the yield for Bond B.
B. 4.12783 bp due to a decrease in the yield for Bond B.
C. 3.99563 bp due to an increase in the yield for Bond B.
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【单选】
Jack Hopper, CFA, manages a domestic bond portfolio and is evaluating two bonds. Bond A has a yield of 5.60% and a modified duration of 8.15. Bond B has a yield of 6.45% and a modified duration of 4.50. Hopper can realize a yield gain of 85 basis points with Bond B if there are no offsetting changes in the relative prices of the two bonds. Hopper has an expected holding period of six months. The breakeven change in the basis point (bp) spread due to a change in the yield on bond A is:
A. 10.42945 bp due to a decline in the yield.
B. 5.21472 bp, due to a decline in the yield.
C. 5.21472 bp due to an increase in the yield.
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【单选】
Bruce Turner, CFA, is composing a fund to track a benchmark bond index. He decides to use enhanced indexing by matching primary risk factors. This method aligns the risk exposures of the portfolio by investing in:
A. all the bonds in the index in the same proportion as the index and using leverage to enhance returns.
B. all the bonds in the index in the same proportion as the index and using derivatives to enhance the returns.
C. a sample of bonds to match the primary index risk factors with the goal of minimizing construction and maintenance costs.
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【单选】Frederick Jackson, a recent college graduate and CFA candidate, asked Truxell if she felt that return enhancements could be realized through sector exposure. Truxell accurately replied,”Yes, as a matter of fact, it is possible to increase the yield of the portfolio without a proportionate increase in risk by:
A. overweighting 1-5 year Treasuries and underweighting 1-5 year corporates.”
B. underweighting long-term Treasuries and overweighting long-term corporates.”
C. underweighting 1-5 year Treasuries and overweighting 1-5 year corporates.”
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【单选】
A firm does not disclose the valuation hierarchy that they are employing to value an asset, but the firm is properly following GIPS valuation principles. If the valuation of the asset cannot be determined through objective and observable pricing for similar investments in active markets, which of the following should be the "next source" of a valuation estimate, in accordance with CFA Institute GIPS recommendations?
A. Market-based input other than quoted pricing that is observable for the asset.
B. Subjective, unobservable inputs.
C. Quoted pricing for similar and/or identical assets in markets that are not active.
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【单选】
Robert Meznar is currently employed as a senior software architect in a large established software company. He is 38 years old, and his current salary is $80,000 after tax. Meznar recently sold his stock (acquired through stock options) in an Internet start up company. The entire proceeds of $2 million is held in treasury securities.
Meznar is currently married with 3 children. He is concerned with the potential educational expenses of his children and wants to set aside $500,000 for his favorite charitable organization. The family needs $150,000 to maintain its current lifestyle. The expected inflation rate is 6% and Meznar pays a 20% tax rate on his investment income. Meznar does some investment research on his own, is confident, careful and methodical, and tries to avoid extreme volatility. However, he has a strong preference for good, brand name companies.
John Snow, CFA, of Capital Associates has been forwarded the file of Meznar to suggest an appropriate portfolio. Snow relies heavily on the following forecasts, furnished by the firm, for long term returns for different asset classes. He has already developed three possible portfolios for Meznar.
Asset Class
Return
Standard Deviation
X
Y
Z
U.S. Stock
12.0%
16%
40%
30%
25%
Non U.S. Stocks
14.0
24%
0
15
25%
U.S. Corporate bonds
7.0
10%
60
15
0
Municipal Bonds
5.0
8%
0
20
25
REIT
14
14%
0
20
25
Assume the expected standard deviation of X, Y, and Z are 10.74%, 19%, and 22% respectively. If the risk free rate is 5%, what are the Sharpe ratio measures of portfolio X, Y and Z?
X
Y
Z
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【单选】Lee Hill, CFA, is evaluating three portfolio managers that he is considering adding to his consulting firm’s select list. The risk-free rate is 5%.
Portfolio Manager
Return
Beta
Standard Deviation
A
0.13
0.75
0.06
B
0.17
0.85
0.11
C
0.08
1.20
0.01
If Hill uses the Sharpe measure as his chosen performance measure, which portfolio would he add?
A. Manager C.
B. Manager A.
C. Manager B.
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【单选】
June Spraker, CFA, manages a portfolio for a private family. In the recent update of the investment policy statement (IPS), the family has asked Spraker to increase the sophistication of her portfolio performance evaluation to give an exhaustive assessment of the risks to which the portfolio is exposed. The family insists on including the details of the evaluation process in the IPS. Their request is:
A. not justified because portfolio performance evaluation should not be addressed in the IPS.
B. justified because this is what the law requires, but the usefulness of the request is not clear.
C. justified because there are a wide variety of ways investment returns can be earned with many types of risk exposures, and the details of the process should be in the IPS.
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【单选】
Annabelle Sellier, CFA, manages the fixed-income portfolio of a large research endowment fund. Sellier’s 2002 allocation among fixed-income assets, the returns she realized from these investments, and benchmark returns for each of the asset classes are presented in the table below.
Fixed-income allocation and returns
Asset Class
Allocation
Realized Returns (%)
Benchmark Returns (%)
U.S. Treasury
0.35
10.28
9.78
U.S. Corporate
0.40
9.57
8.37
U.S. Agency
0.25
10.05
10.20
What is Sellier’s alpha for 2002?
A. 9.3210%.
B. 0.6175%.
C. 9.9385%.
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【单选】
Jennifer Engle, CFA, Chairman of Engle Capital Management wants to implement a defined rebalancing process for all of the portfolios managed by her firm. Engle is aware that calendar rebalancing or percentage-of-portfolio rebalancing are the two primary methods of rebalancing a portfolio. Engle asks Michael Buening, an analyst, to prepare a report on the best rebalancing method for specific criteria. Specifically, Engle wants to know which method would be best under three different criteria: (1) time spent on the rebalancing process, (2) expense of trading, and (3) consistency of portfolio asset allocation. Which of the following correctly lists the best rebalancing method for each of Engle’s criteria?
Time Spent on Process
Expense of Trading
Consistency of Allocation
A.
| Calendar rebalancing |
Percentage-of-portfolio |
Calendar rebalancing |
B.
| Unknown |
Calendar rebalancing |
Percentage-of-portfolio |
C.
| Calendar rebalancing |
Unknown |
Percentage-of-portfolio |
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【单选】
Which of the following is least accurate regarding best execution, the CFA Institute’s Trade Management Guidelines, and ethics in trading?
A. The buy-side trader’s relationship with clients must come before their relationship with sell-side traders.
B. Record keeping is a key component of the CFA Institute’s Trade Management Guidelines.
C. Best execution should be measured over short, relevant time periods.
-
【单选】
Which of the following is NOT one of the three components of the CFA Institute’s Trade Management Guidelines?
A. Measurement tools.
B. Disclosures.
C. Processes.
-
【单选】
Which of the following is least accurate regarding the CFA Institute’s Trade Management Guidelines? They state that investment management firms:
A. must not disclose documentation concerning policies and procedures to outside parties.
B. must disclose their conflicts of interest related to trading.
C. should strive for best execution.
-
【单选】
Which of the following is least accurate regarding the CFA Institute’s Trade Management Guidelines? They state that investment management firms should:
A. provide general information on their trading techniques, markets, and brokers.
B. hire independent outside consultants to ensure best execution.
C. have policies and procedures that assist in best execution.
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【单选】
Taylor Robinson, age 60, recently retired from her position as director of public giving for United Electric Power, a large public utility company. Robinson has accumulated $2,000,000 in her 401(k) portfolio for retirement. Robinson estimates that she will need $50,000 after-tax in today’s dollars to live comfortably. Inflation is expected to be 2.5% annually. With her background in public giving, Robinson has two favorite charities and would like to make non-tax deductible gifts of $10,000 to each of them annually, indexed for inflation. In her will, Robinson has specified that at her death, a gift fund will be established for each charity. Given this objective, one of Robinson’s primary goals is to maintain the principal in her retirement fund in order to have a $1,000,000 gift account for each charity. Robinson recently met with her financial advisor, Brian Mitchell, CFA. During their meeting Robinson stated, “If I wanted to gamble with my investments, I would play blackjack. At least then I would have fun losing money.” Mitchell presented Robinson with three different model portfolios.
Asset Class
Portfolio A
Portfolio B
Portfolio C
Large cap U.S. stocks
5%
15%
25%
Small cap U.S. stocks
5%
15%
International – Developedmarket equities
10%
5%
10%
International – Emerging market equities
15%
5%
U.S. Corporate bonds
10%
50%
30%
U.S. Treasury bonds
5%
20%
Hedge fund of funds
10%
5%
Venture capital
15%
Cash
25%
10%
10%
Total expected after-tax return
5.8%
5.5%
6.0%
Current yield
1.4%
1.6%
1.8%
Which of the portfolios would be most appropriate for Robinson?
A. Portfolio A.
B. Portfolio B.
C. Portfolio C.
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【单选】
Given the relationship, , which of the following statements is most accurate?
A. The market is under-valued.
B. The market is over-valued.
C. The market is fairly valued.
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【单选】
Which of the following statements regarding the Human Capital equation below is least accurate?
A. The expectancy of receiving a bonus is incorporated into the numerator.
B. Volatility is included in the denominator.
C. The amount of human capital is based on an investor’s current annual inflows.
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【单选】
In the following graph which of the following statements is most accurate regarding what the vertical axis represents besides dollars?
A. The point in time when the individual finishes their educational training and starts working.
B. The point in time when the individual is born and their potential human capital is the greatest while their financial capital is the smallest.
C. The combined amount of human and financial capital called total wealth.
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【单选】
Greg Groden started his business Groden Corporation 30 years ago. Groden rarely allowed stock splits of his company’s stock, so the price of the stock is now several hundreds of dollars per share. He passed away recently and bequeathed all his shares of Groden Corp. to his 20-year old son. Yasmine Evans, CFA, is the family’s financial advisor, and she sees that Groden Corp. stock makes up over half of the son‘s wealth. Evans is planning to approach the son about selling some of the stock and diversifying. A psychological consideration that Evans should be prepared to address in approaching the son is the:
A. age of the son.
B. high per share price of the stock.
C. fact that the family’s name is on the stock.
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【单选】
Chris Manning, CFA is advising a client concerning harvesting tax losses. The client expects that her tax situation will not change over the next few years. She asks about incurring a given loss in the current year or waiting a few years to incur the loss. She asks how the decision will affect the total taxes she pays over her life. Manning should advise her that:
A. she should not incur the loss this year because the HIFO principle means her total taxes will be higher if she incurs the loss this year.
B. the total tax bill over her life will not change if her tax status does not change.
C. she should incur the loss this year because the HIFO principle means her total taxes will be lower if she does.
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【单选】
Gil Tabor, CFA, and Jan Sills, CFA, are discussing how the choice of account type affects investment risk and the amount of that risk borne by the government via taxes. Tabor says that the government bears some of the tax risk in a tax-exempt account. Sills says the government bears some of the risk in a tax-deferred account before withdrawals occur. With respect to these assertions:
A. both Tabor and Sills are correct.
B. Tabor is correct and Sills is incorrect.
C. both Tabor and Sills are incorrect.
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【单选】
Larry Smith, CFA, is the new equity portfolio manager for a socially responsible mutual fund. The investment policy statement stipulates which stocks do not meet the fund’s definition of socially responsible. Because Smith was new to the fund, he did not personally agree to the stocks that were forbidden. Subsequently, he included a stock into the portfolio that was on the restricted list. Which of the following statements is least accurate?
A. Smith was responsible for reading and understanding the investment policy statement prior to stock selection.
B. Smith is to be held responsible for the investment policy statement even though it was written before he was employed at the fund.
C. Smith did not violate the investment policy statement.
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【单选】
Heather Jones graduated from a prestigious Ivy League college in May, recently passed Level I of the CFA exam, and just landed her first professional job as a junior portfolio manager working with CFA charterholders for the Fortress mutual fund company. She works in a group setting comprised of a lead portfolio manager and one or more co- or junior portfolio managers who together make the investment management decisions for a single mutual fund. Jones has observed the following behavior during the committee meetings where the portfolio managers discuss which investments should be a part of the portfolio: analyst A always sides with and follows the lead of analyst B, analyst C tends to have a different opinion from the group view but fears being ostracized therefore he rarely voices his opinion, manager D is very aggressive and shoots down the opinions of others if they contradict his own and also likes to argue with people. Jones is starting to wonder whether or not she made the right decision by taking the job and has had several thoughts about the behavior at the meetings. Which of the following of her thoughts is least reflective of how financial decisions are typically made in a group setting?
A. “These people are displaying irrational behavior which is typical of group settings!”
B. “Decisions made at this level are made by professionals with similar backgrounds, the committee should be functioning in a more efficient and effective manner with little discord among the members!”
C. “Their individual behavioral biases have become exacerbated in the group setting!”
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【单选】
Jean Stall, CFA, has just completed the yearly review for one of her clients Jeff Schaller. During the review she went over the original questionnaire he filled out to make sure the current portfolio has not drifted too far from the original asset allocation as determined by the questionnaire. The questionnaire was well designed to quantitatively determine Schaller’s level of risk aversion. One of Schaller’s statements in the questionnaire was that he was comfortable investing in stocks but did not want to lose any money in the stock market. As a result Stall took a portion of his non-retirement money and put it in an indexed annuity which is a long term investment guaranteed not to lose any money but will participate in any market gains. Which of the following is NOT an error that Stall committed?
A. Stall met with Schaller on a yearly basis.
B. There is no mention that behavioral traits were addressed in the questionnaire.
C. Stall took Schaller’s comment too literally and may have placed him in a potentially inappropriate product with the indexed annuity.
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【单选】
Basing trading decisions on available public information, Carla Maplewood, CFA, is consistently able to identify and profit on mispriced securities. Based on her successful trading strategy, we would most likely conclude that the market is at best:
A. semi-strong form efficient.
B. strong-form efficient.
C. weak-form efficient.
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【单选】
Martina Blackwood has not been doing well with her investments. She consults Ben Haifen, CFA, for some advice. Which of Haifen's following statements indicates that Blackwood is using heuristics?
A. Blackwood tends to hold onto her losers too long.
B. Blackwood doesn't like fixed-income investments because she doesn't understand them.
C. Blackwood's most valuable lessons were learned through her own mistakes.
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【单选】In response to Book’s suggestions concerning the hiring of a third party to review information disseminated to clients and for the plan for dealing with a natural disaster, according to the CFAI Asset Manager Code of Professional Conduct, Litman should:
A. ignore them both.
B. adopt them both.
C. adopt the plan for dealing with a natural disaster only.
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【单选】
Klaus Gerber, CFA, is a regular contributor to the Internet site WizeGuy. This past week Gerber has been incorrectly quoted as recommending that investors buy shares in Gresham, Inc. He is unaware that this message has been placed on the site as the quote was placed as a prank by an unknown source. This is the third time this has happened over the past month.
Fritz Fox, CFA, maintains and updates the WizeGuy site and has learned how to determine if the quotes being attributed to Gerber are actually valid. Several days later, he observes an investment recommendation, posted on the site, to buy Gresham, Inc. The investment recommendation is purported to be from Gerber but Fox actually knows it to be bogus. He immediately sells 1,000 Gresham short and e-mails Gerber to inform him of the bogus recommendation. Gerber immediately issues a rebuttal, and Gresham falls by 14%.
Gerhard Rau, CFA, is Fox's supervisor at WizeGuy and has reviewed Fox's trade in Gresham. Gerhard should:
A. initiate an investigation and place limits, as deemed necessary, on Fox's behavior.
B. begin monitoring Fox's activities surreptitiously over the upcoming months to see if the activity recurs.
C. confront Fox, warn him to cease, and require him to sign a statement that such activities will not happen again.
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【单选】
Marc Feldman, CFA, is manager of corporate investor relations for a high-tech startup, zippy.com, in Boise, Idaho. Feldman learns that Larry Smith, controller, is altering the accounting records. He decides that any ramifications from such activity is Smith's problem and does not report this fact. According to the CFA Institute Code and Standards he should or is required to do all of the following EXCEPT:
A. determine legality, consulting counsel if necessary.
B. urge Smith to cease altering the accounting records.
C. report the activity to the FASB or other relevant regulatory body.
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【单选】
Xenica Jones, CFA, is a portfolio manager and also follows the office equipment industry for Hynes-Gold and Co. In her June 30 discussions with the management of Zprint, she learns that an internal audit has detected irregularities in the firm's Italian operations. This fact is disclosed on July 1 in both The Wall Street Journal and The Financial Times. On July 10 Zprint's management announces that an investigation of the matter would not be completed until an external audit of all European operations was complete. This stock dropped 6 percent on the news release on the 10th. Jones places a series of sell transactions in Zprint stock on the 3rd. When she places the trades, she trades first for her clients and finishes with a trade selling short for her own account. These actions are:
A. in violation of the Standard concerning fair dealing.
B. not in violation of the Code and Standards.
C. in violation of the Standard concerning fiduciary duties since she is not allowed to sell short under the Standard.
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