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These questions will help you assess your progress in preparing
for the 1999 CFA exam.
All of the questions come from our TestBank Software for all
three CFA levels (We are shipping our software to candidates
NOW). If you have not purchased your 1999 software yet, you can
test drive our software (in 2 minutes) at:
allenresources.com
Here follow:
- 4 questions & answers for Level I
(approximately 6,510 Questions are in our Level I Software)
- 1 question & answer for Level II
(approximately 1,630 Questions are in our Level II Software)
- 1 question & answer for Level III
(approximately 1,600 Questions are in our Level III Software)
*** Level I
Question 1: Organizational decisions that would most likely
result in a violation of the Code and Standards frequently occur
at ________.
a) none of these answers
b) a senior level
c) analyst meetings
d) weekly staff meetings
e) an annual meeting
Question 2: When a market is in long-run equilibrium, then
a) the amount demanded and amount supplied will be equal and
producers will earn normal profit but not economic profit.
b) a market shortage will be present and producers will make zero
economic profit.
c) a surplus will be present and producers will make zero
economic profit.
d) the amount demanded and amount supplied will be equal and
producers will earn economic profit.
Question 3: The bid-ask spread on a stock
a) is a proxy for its liquidity. A lower bid-ask spread indicates
greater liquidity. Studies have shown that the greatest
determinant of the bid-ask spread is the trading turnover.
b) is a proxy for its liquidity. A lower bid-ask spread indicates
higher liquidity. But the most important determinant of stock
liquidity is the total market value of outstanding shares.
c) is a proxy for its liquidity. A higher bid-ask spread
indicates higher liquidity. But the most important determinant of
stock liquidity is the total dollar value of shares traded.
d) is a proxy for the effectiveness of the specialist handling
that stock. A smaller spread indicates a more effective
specialist who is better able to fulfill his broker function.
e) is a proxy for its liquidity. A lower bid-ask spread indicates
greater liquidity. Studies have shown that the greatest
determinant of the bid-ask spread is the dollar value of trading.
f) is a proxy for the performance of that stock. A larger spread
indicates greater demand, which correlates highly with stock
return performance.
Question 4: If the market interest rate is below the coupon rate,
the bond will sell at a
a) premium to par value.
b) discount to par value.
c) premium to book value.
d) discount to book value.
Answer 1: b
Rationale & Reference:
Organizational decisions that might result in placing individual
employees/members in a position of conflict with the Code and
Standards are likely to occur at a senior level. It is important,
therefore, that senior management and the legal and compliance
departments of organizations that employ AIMR members keep aware
of the Codes and Standards.
Standards Handbook, p. 34
Answer 2: a
Rationale & Reference:
In order for long run equilibrium to hold, the amount supplied
and the amount demanded in the market must be equal;
additionally, the opportunity cost of producing the product must
equal the market price. This implies a normal rate of return
(normal profit level).
Gwartney & Stroup, p. 65
Answer 3: e
Rationale & Reference:
The bid-ask spread is one proxy for a stock's liquidity. A lower
spread is associated with a tighter market for the stock, and
consequently with higher liquidity. Other proxies for liquidity
include total market value of outstanding shares, number of
shareholders, trading turnover, and (most importantly) the total
dollar value of shares traded. Although the bid-ask spread on a
stock may also reflect the success of its specialist, there are
more important factors, such as liquidity, that determine the
spread.
Reilly & Brown, pp. 408-409
Answer 4: a
Rationale & Reference:
The par value of a bond is the principle due on maturity. If the
coupon (interest) rate on the bond is higher than the market
interest rate, the present value of the bond will be higher than
its par value.
Reilly & Brown, p. 491
*** Level II
Question: Define one line along which venture capital portfolios
can be diversified.
Answer:
Industry sector - investors can diversify their investments into
such industries as medical/health care, computer hardware and
software, telephone and data communications and biotechnology.
Geographic region - to determine if a portfolio is
well-diversified or if the portfolio is heavily concentrated in
one particular region, the investor must examine the location or
primary business regions of the underlying portfolio companies
within the funds. If the investor feels that a particular region
is under- or overrepresented in the portfolio, the investor can
adjust accordingly.
Vintage year - a fund that is raised (capital is invested by
institutional investors) in 1996 is considered a fund of vintage
year 1996 even though the fund may undergo an investment process
for ten years after its initial formation. Therefore, the
investor should stagger new commitments to funds over time. A
well-constructed portfolio will include commitments to venture
funds every year, thereby adjusting for the effect of vintage
year returns.
Robin, pp. 13-14
*** Level III
Question: For all of a firm's composites, a performance
presentation must disclose:
Answer:
A performance presentation must disclose:
1. the availability of a complete list and description of the
firm's composites,
2. the number of portfolios and amount of assets in a composite
and the percentage of the firm's total assets the composite
represents,
3. the definition of "firm" used to determine the firm's total
assets and firmwide compliance,
4. whether balanced portfolio segments are included in
single-asset composites and an explanation of how cash has been
allocated among asset segments,
5. whether performance results are calculated gross or net of
investment management fees, what the firm's fee schedule is and
for net results, the average weighted management fee,
6. the existence of a minimum asset size below which portfolios
are excluded from a composite, a measure of the dispersion of
individual component portfolio returns around the aggregate
composite return,
7. whether settlement-date valuation is used rather than
trade-date valuation,
8. the inclusion of any non-fee-paying portfolios in composites
and included in the definition of total firm assets,
9. the use and extent of leverage, including a description of the
use, frequency and characteristics of any derivatives used,
10. a material change in personnel responsible for investment
management,
11. the effective date of firm compliance and for historical
performance records prior to the applicable effective date,
12. the performance that is not in compliance with the
requirements of AIMR-PPS standards, and
13. a description of how noncompliance periods are out of
compliance and the effects of noncompliance on returns.
Performance Presentation Standards Handbook, pp. 16-17
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