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【单选】
Anthony Schmidt, CFA, makes the following statements while discussing issuance of new debt:
Statement 1:
A best-efforts offering, which is a form of a negotiated offering, occurs when an investment banker purchases an entire issue to resell.
Statement 2:
Registration with the SEC can be avoided with a private placement, but a higher yield will be required to compensate for the limited liquidity.
Are Schmidt’s statements accurate?
A. Only one of these statements is accurate.
B. Both of these statements are accurate.
C. Neither of these statements is accurate.
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【单选】
Bill Foley, CFA, manages an intermediate tax-exempt bond fund. Foley makes the following two comments about securities in his portfolio:
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Statement 1:
Revenue bonds usually pay a higher coupon rate than general obligation bonds.
Statement 2:
Double-barreled bonds are municipal securities that are exempt from both federal and state taxes.
Are Foley’s statements accurate?
A. Both of these statements are accurate.
B. Neither of these statements is accurate.
C. Only one of these statements is accurate.
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【单选】
Kira Sigard, CFA and an attorney with an investment banking firm, structures a client’s bond issue to include a “poison put.” This is a provision that requires the issuer to redeem the bond at par in the case of a corporate takeover, a merger, or anti-takeover measure that would dissipate significant corporate assets. An investor who purchases this bond is protected from what type of risk?
A. Liquidity Risk.
B. Call Risk.
C. Event Risk.
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【单选】
Tina Donaldson, CFA candidate, is studying yield volatility and the value of putable bonds. She has the following information: a putable bond with a put option value calculated at 0.75 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 99.0. Donaldson also wants to determine how the bond’s value will change if yield volatility decreases. Which of the following choices is closest to what Donaldson calculates as the value for the putable bond and correctly describes the bond’s price behavior as yield volatility decreases?
A. 99.75, price increases.
B. 99.75, price decreases.
C. 98.25, price decreases.
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【单选】
Simone Girard, CFA candidate, is studying yield volatility and the value of callable bonds. She has the following information: a callable bond with a call option value calculated at 1.25 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 98.5. Girard also wants to determine how the bond’s value will change if yield volatility increases. Which of the following choices is closest to what Girard calculates as the value for the callable bond and correctly describes the bond’s price behavior as yield volatility increases?
A. 97.25, price increases.
B. 99.75, price decreases.
C. 97.25, price decreases.
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【单选】
David Korotkin, CFA and a broker at an investment bank, has a client who is very concerned about maintaining purchasing power over the next year. The investor is conservative, and to date has been pleased with a consistent return of 8.00%. The bank’s research department has estimated next year’s inflation rate at 2.0%. The client specifically wants to invest in a fixed-coupon bond. Which of the following statements is most correct? If Korotkin purchases a bond with a 10.00% coupon, the client:
A. may lose purchasing power.
B. will not lose purchasing power.
C. will realize a real gain.
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【单选】
One year ago, Makato Omura purchased a 6.50% fixed coupon bond for 98.50. Recently, she sold the bond for 99.25 and calculated her return at 7.4%. Her friend, Takanino Takemiya, CFA, reminds Omura that this is the nominal return and that to calculate the real return, she needs to factor in the inflation rate over the holding period. If the price index for the current year is 118.5 and the price index one year ago was 115.9, Omura’s real return is closest to:
A. 9.6%.
B. 6.3%.
C. 5.2%.
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【单选】
While serving as visiting conductor at the University of Edinburgh, U.S. Citizen William Golson purchases a 9.0% annual coupon bond denominated in the local currency for 93.0. One year later, before his return to the U.S., he sells the bond for 99.5. Using a holding period return formula he remembers from his undergraduate studies, he calculates his return at 16.7%. On the flight home, he is seated next to Kristin Meyer, CFA. She is puzzled because she has heard that similar investments yielded negative returns over the same time period. After consulting her financial newspaper, she recalculates Golson’s return at a disappointing negative 5.2%.
Assuming Meyer is correct, which of the following statements is the most likely reason for the difference in the calculated returns? Golson:
A. forgot to include the impact of foreign currency appreciation in relation to the dollar.
B. forgot to include the impact of foreign currency depreciation in relation to the dollar.
C. omitted the impact of inflation.
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【单选】
Benjamin Zoeller and Tara McGonigal are preparing for the Level I CFA examination. Zoeller is studying credit spread risk. McGonigal is farther along in her studies, but has forgotten how to determine the default free rate if given the yield on a bond rated BBB+ of 9.50% and a risk premium of 3.00%. What does Zoeller tell her to use for the default free rate?
A. 9.50%.
B. 6.50%.
C. 12.50%.
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【单选】
Kyle Barnes, CFA, is meeting his friend, Lita Rombach, about possible bond investments. Rombach is concerned about reinvestment risk. Which of the following statements about Rombach is CORRECT? Rombach:
A. will prefer a noncallable bond to a callable bond.
B. will prefer a higher coupon bond to a lower coupon bond.
C. need only be concerned about reinvestment risk on coupon payments.
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【单选】
Jori England, CFA candidate, is studying the value of callable bonds. She has the following information: a callable bond with a call option value calculated at 1.75 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 98.0. Which of the following choices is closest to what England calculates as the value for the callable bond?
A. 96.25.
B. 99.75.
C. 98.75.
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【单选】
As part of his job at an investment banking firm, Damian O’Connor, CFA, needs to calculate the value of bonds that contain a call option. Today, he must value a 10-year, 7.5% annual coupon bond callable in five years priced at 96.5 (prices are stated as a percentage of par). A straight bond that is similar in all other aspects as the callable bond is priced at 99.0. Which of the following is closest to the value of the call option?
A. 4.2.
B. 3.5.
C. 2.5.
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【单选】
Gabrielle Daniels and Edin Roth, CFA candidates, are discussing the relationship between a bond’s coupon rate and the required market yield. Looking through the local newspaper, they see a new-issue, 10-year, $1,000 face value 8% semi-annual coupon bond priced at $950. Daniels makes the following statements. Which statement does Roth tell her is correct?
A. The bond is selling at a discount.
B. The bond is selling at a premium.
C. The current market required rate is less than the coupon rate.
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【单选】
Kirsten Thompson, CFA candidate, is studying the relationships between a bond’s coupon rate and the required market yield. One study question concerns a new-issue, 15-year, $1,000 face value 6.75% semi-annual coupon bond priced at $1,075. Which of the following choices describes the bond and the relationship of the bond’s market yield to the coupon?
A. Premium bond, required market yield is less than 6.75%.
B. Discount bond, required market yield is greater than 6.75%.
C. Premium bond, required market yield is greater than 6.75%.
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【单选】
Jonathon Silver, CFA, has a client, Alyce Grossberg, whose only current investment requirement is that she wants to buy a premium bond. The required market yield is currently 7.25% at all maturities. Which of the following $1,000 face value bonds should Silver select for Grossberg’s portfolio?
A. 15-year, zero-coupon bond priced to yield 9.00%.
B. 10-year, 8.00% semi-annual coupon bond.
C. 10-year, 7.00% semi-annual coupon bond.
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【单选】
Ken Miller, CFA, wants to compare the returns on government agency bonds to the returns on corporate bonds. Peg Egan, CFA, wants to compare the returns on high yield bonds in developed markets to the returns on investment grade bonds in emerging markets. Which of these analysts is most likely able to use bond indexes for their analysis?
A. Both of these analysts.
B. Neither of these analysts.
C. Only one of these analysts.
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【单选】
Brian Nebrik, CFA, meets with a new investment management client. They compose a statement that defines each of their responsibilities concerning this account and choose a benchmark index with which to evaluate the account’s performance. Which of these items should be included in the client’s Investment Policy Statement (IPS)?
A. Both of these items.
B. Neither of these items.
C. Only one of these items.
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【单选】
Consider the following graph of the Security Market Line (SML). The letters X, Y, and Z represent risky asset portfolios. The SML crosses the y-axis at the point 0.07. The expected market return equals 13.0%. Note: The graph is NOT drawn to scale.
Using the graph above and the information provided, which of the following statements is most accurate?
A. Portfolio Y is undervalued.
B. Portfolio X's required return is greater than the market expected return.
C. The expected return (or holding period return) for Portfolio Z equals 14.8%.
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【单选】
Level I CFA candidate Adeline Bass is a member of an investment club. At the next meeting, she is to recommend whether or not the club should purchase the stocks of CS Industries and MG Consolidated. The risk-free rate is at 6% and the expected return on the market is 15%. Prior to the meeting, Bass gathers the following information on the two stocks:
CS Industries
MG Consolidated
Current Market Value
$25
$50
Expected Market Value in One Year
$30
$55
Expected Dividend
$1
$1
Beta
1.2
0.80
Bass should recommend that the club:
A. purchase MG only.
B. purchase CS only.
C. purchase both stocks.
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【单选】
Mason Snow, CFA, is an analyst with Polari Investments. Snow's manager has instructed him to put only securities that are undervalued on the buy list. Today, Snow is to make a recommendation on the following two stocks: Bahre (with an expected return of 10% and a beta of 1.4) and Cubb (with an expected return of 15% and a beta of 2.0). The risk-free rate is at 7% and the market premium is 4%.
Snow places:
A. only Cubb on the list.
B. only Bahre on the list.
C. neither security on the list.
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【单选】
The graph below combines the efficient frontier with the indifference curves for two different investors, X and Y.
Which of the following statements about the above graph is least accurate?
A. The efficient frontier line represents the portfolios that provide the highest return at each risk level.
B. Investor X's expected return will always be less than that of Investor Y.
C. Investor X is less risk-averse than Investor Y.
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【单选】
Kendra Jackson, CFA, is given the following information on two stocks, Rockaway and Bridgeport.
Covariance between the two stocks = 0.0325
Standard Deviation of Rockaway’s returns = 0.25
Standard Deviation of Bridgeport’s returns = 0.13
Assuming that Jackson must construct a portfolio using only these two stocks, which of the following combinations will result in the minimum variance portfolio?
A. 100% in Bridgeport.
B. 50% in Bridgeport, 50% in Rockaway.
C. 80% in Bridgeport, 20% in Rockaway.
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【单选】
Gregg Goebel and Mason Erikson are studying for the Level I CFA examination. They have just started the section on Portfolio Management and Erikson is having difficulty with the equations for the covariance (cov1,2) and the correlation coefficient (r1,2) for two-stock portfolios. Goebel is confident with the material and creates the following quiz for Erikson. Using the information in the table below, he asks Erickson to fill in the question marks.
Portfolio J
Portfolio K
Portfolio L
Number of Stocks
2
2
2
Covariance
?
cov1,2 = 0.020
cov1,2 = 0.003
Correlation coefficient
r1,2 = 0.750
?
?
Risk measure Stock 1
Std. Deviation1 = 0.08
Std. Deviation1 = 0.20
Std. Deviation1 = 0.18
Risk measure Stock 2
Std. Deviation2 = 0.18
Std. Deviation2 = 0.12
Variance2 = 0.09
Which of the following choices correctly gives the covariance for Portfolio J and the correlation coefficients for Portfolios K and L?
Portfolio J
Portfolio K
Portfolio L
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【单选】
Justin Lopez, CFA, is the Chief Financial Officer of Waterbury Corporation. Lopez has just been informed that the U.S. Internal Revenue Code may be revised such that the maximum marginal corporate tax rate will be increased. Since Waterbury’s taxable income is routinely in the highest marginal tax bracket, Lopez is concerned about the potential impact of the proposed change. Assuming that Waterbury maintains its target capital structure, which of the following is least likely to be affected by the proposed tax change?
A. Waterbury’s return on equity (ROE).
B. Waterbury’s after-tax cost of corporate debt.
C. Waterbury’s after-tax cost of noncallable, nonconvertible preferred stock.
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【单选】
Carlos Rodriquez, CFA, and Regine Davis, CFA, were recently discussing the relationships between capital structure, capital budgets, and net present value (NPV) analysis. Which of the following comments made by these two individuals is least accurate?
A. “The optimal capital budget is determined by the intersection of a firm’s marginal cost of capital curve and its investment opportunity schedule.”
B. “A break point occurs at a level of capital expenditure where one of the component costs of capital increases.”
C. “For projects with more risk than the average firm project, NPV computations should be based on the marginal cost of capital instead of the weighted average cost of capital.”
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【单选】
Hans Klein, CFA, is responsible for capital projects at Vertex Corporation. Klein and his assistant, Karl Schwartz, were discussing various issues about capital budgeting and Schwartz made a comment that Klein believed to be incorrect. Which of the following is most likely the incorrect statement made by Schwartz?
A. “The weighted average cost of capital (WACC) should be based on market values for the firm’s outstanding securities.”
B. “Net present value (NPV) and internal rate of return (IRR) result in the same rankings of potential capital projects.”
C. “It is not always appropriate to use the firm’s marginal cost of capital when determining the net present value of a capital project.”
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【单选】
Jane Epworth, CFA, is preparing pro forma financial statements for Gavin Industries, a mature U.S. manufacturing firm with three distinct geographic divisions in the Midwest, South and West. Epworth prepares estimates of sales for each of Gavin’s divisions using economists’ estimates of next-period GDP growth and sums the three estimates to forecast Gavin’s sales. Epworth’s approach to estimating Gavin’s sales is:
A. inappropriate, because sales should be forecast on a firm-wide basis and are unlikely to be related to GDP growth.
B. appropriate.
C. inappropriate, because sales should be forecast on a firm-wide basis.
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【单选】Karl Decker, CFA, is analyzing Keystone Semiconductor to determine if the stock would be a good investment. He has determined the following:Management owns 15 percent of the outstanding shares.Internal growth targets are aggressive.In recent quarters, profit growth has been exceptionally high.The company’s debt covenants are quite lax.All of these characteristics are positives from the perspective of an investor looking for profit growth. But Decker is concerned about pressure on management to manipulate results. Which of the following should least concern Decker?
A. Debt covenants.
B. Recent operating results.
C. Management’s share holdings.
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【单选】
Katharine Walls, CFA, works as an auditor for Pindale Accounting. She is concerned about Smith Fabrics, a company she audits. During her last visit to Smith Fabrics, the accounting director, Bob Fox, rudely ushered her into a tiny conference room with no telephone or computer, and gave her no key to the main accounting office. She was given only three days to finish what is normally a five-day job. Before he left Walls, Fox gave her a 150-page manual of Smith’s accounting policies for its various overseas divisions. After she finished her audit, Walls prepared a report for Pindale’s executive director, recommending that the firm drop Smith Fabrics as a client because she saw evidence of attitudes that could lead to fraudulent accounting. Walls cited three of Fox’s actions in her report, most likely leaving out:
A. her rude welcome.
B. the policy manual.
C. her isolation from the accounting department.
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【单选】
Samantha Cameron, CFA, is part of a team reviewing the finances of Redd Networks, a computer-services company known for its complex accounting. Her task is to analyze the company’s operational results, including a recent decline in profits and cash flows. She must also determine how the company is responding to strict debt covenants. Lastly, Cameron is to investigate executives’ holdings of stock and options in the firm, which are believed to be quite high. Which portion of the fraud triangle is Cameron investigating?
A. Opportunity.
B. Incentives.
C. Policies.
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