CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 1771:

  Which of the following statements is least likely to be a unique risk associated with a hedge fund?

  A. Cash needs arising from marking positions to market.

  B. Unexpected absence of normal liquidity under extreme market conditions.

  C. Higher volatility of returns as compared to traditional equity funds.

  Correct Answer: C

• Question 1772:

  A commodity market is in contango if:

  A. the spot price is higher than the futures price.

  B. the spot price is equal to the futures price.

  C. the spot price is lower than the futures price.

  Correct Answer: C

• Question 1773:

  Jacques Fontenot wants to place an order to purchase 10,000 shares of BQ Inc. at a price of 75.00 or below. The shares are currently trading for 82.1 bid and .82.2 ask. What type of order should Fontenot place?

  A. Market order.

  B. Stop loss order.

  C. Limit order.

  Correct Answer: C

• Question 1774:

  Ned Jones, CFA, manages an endowment fund. The fund's asset allocation includes domestic stocks and bonds, international stocks and bonds, as well as real estate investments. Jones wants to establish an accurate benchmark to compare the fund's performance against. Which of Jones' following statements concerning indexes to be used for benchmarking is least likely correct?

  A. The creation of an investment bond index is difficult because of bond pricing issues, and because the universe of bonds is constantly changing.

  B. Correlations between bond index returns for different countries have tended to be lower than correlations between different bond indexes within a single country.

  C. Sovereign bond indexes outside the United States represent after tax returns.

  Correct Answer: C

• Question 1775:

  Two stocks have identical risk, but one of them offers a higher expected return than the other. This apparent inefficiency in the market:

  A. indicates that arbitrageurs must be unaware of the mispricing.

  B. may persist and even grow larger before any correction occurs.

  C. can only arise when arbitrageurs lack the capital to exploit the situation.

  Correct Answer: B

• Question 1776:

  Three equity analysts at Schiler and Company are debating their supervisor's claim that significant excess return can be generated by exploiting inefficiencies in the capital markets. Analyst A states, "... the large number of profit maximizing investors researching investment opportunities creates an efficient market." Analyst B rebuts by stating, "Over the past three years, my technical analysis strategy has outperformed all the major benchmarks, which proves the markets are not efficient." Analyst C states, "High transactions costs improve the information efficiency of capital markets." The statement that is most likely to be correct was made by:

  A. Analyst A.

  B. Analyst B

  C. Analyst C

  Correct Answer: A

• Question 1777:

  Kathy Hurst, CFA, is valuing a 4-year zero coupon security. She is provided the following information:

  6.0%

  7.3% ? 8.9%

  The 4-year spot rate is 7.5%.

  Calculate the one-year forward rate two years from now ().

  A. 7.3%.

  B. 7.8%.

  C. 8.0%.

  Correct Answer: B

  E

• Question 1778:

  ABC Corporation has just issued $200 million of 6.5% $1,000 par value bonds at face value. Which of the following requirements in the indenture for these bonds would most likely be considered a negative covenant? ABC must:

  A. maintain its manufacturing equipment in good condition.

  B. make timely semiannual payments of interest and principal when due.

  C. have paid all bond coupon payments due before it can pay cash dividends.

  Correct Answer: C

• Question 1779:

  Ron Travis, CFA, manages a portfolio of long-term and short-term bonds. The portfolio is equally weighted between 1-year, 2-year, 10-year, and 20-year maturities and currently has a portfolio duration equal to 7.0. Travis is concerned that 1- and 2-year interest rates are going to increase by 100 basis points while 10and 20-year rates decrease by 100 basis points. If his prediction is correct, Travis' measure of duration will be ineffective at predicting interest rate risk since portfolio duration is only accurate when the:

  A. yield curve does not shift.

  B. shift in the yield curve is parallel.

  C. yield curve steepens.

  Correct Answer: B

• Question 1780:

  Which of the following best describes an option that gives the owner the right to sell 100 shares of stock only on the expiration date three months from now at a strike price of $35, when the current stock price is $25? This option is an:

  A. out-of-the-money American put option.

  B. in-the-money European put option.

  C. out-of-the-raoney European put option.

  Correct Answer: B