MCQ Quiz

• Yes, because discussing the report with select clients gives them an unfair advantage.
• No, because the recommendation was already disseminated to all clients before the calls.
• Yes, because all clients must receive the exact same level of service regardless of fees.

• The Bankers' Acceptance
• The CD
• They offer the same yield

• $96.53
• $100.00
• $103.55

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1, 2, and 3 only
• 1, 2, 3, and 4
• 2, 3, and 4 only

• Decrease Bond A and increase Bond B.
• Increase Bond A and decrease Bond B.
• Maintain current weights; the forecast implies offsetting effects.

• 1.8
• 5.4
• 7.2

• 0.67
• 1.00
• 1.50

• SEK 56,190 million
• SEK 49,212 million
• SEK 52,701 million

• USD 1,060.80
• USD 1,019.20
• USD 1,018.42

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• A global small-cap index that matches the manager’s universe.
• A broad global equity index representing large- and mid-cap stocks.
• An index reflecting the manager’s stated style constraints and region exposure.

• A has lower probability of default and lower loss given default than B.
• A has lower probability of default, but similar loss given default to B.
• A has similar probability of default, but lower loss given default than B.

• Debt/EBITDA, because it links total debt to a broad measure of operating performance before non-cash charges.
• Retained cash flow (RCF)/net debt, because it compares post-dividend operating cash to debt net of cash and marketable securities.
• EBIT/interest expense, because it measures how many times operating profit covers interest payments.

• Holding-company unsecured bonds, because they sit at the top of the corporate structure.
• Operating-subsidiary unsecured bonds, because they are serviced directly from operating assets before upstreaming cash.
• Both have identical recovery, because they share the same senior unsecured label in legal documentation.

• 6.38%
• 7.98%
• 8.12%

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Yes; equity weight deviates by more than the 5 percentage point band
• No; equity weight is still within the 5 percentage point band
• No; because bonds have not moved beyond their own 5 percentage point band

• 2.00%
• 3.98%
• 4.04%

• Lower than the original YTM
• Equal to the original YTM
• Higher than the original YTM

• 3.5
• 5.0
• 10.0

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 97.28
• 98.48
• 98.88

• 0.5694
• 0.5833
• 0.5972

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 97.32
• 97.34
• 97.68

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 113.60
• 113.90
• 115.00

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 1, 2, and 3 only
• 1, 2, and 4 only
• 2, 3, and 4 only

• The investment bank guarantees the sale of the entire issue in a best effort offering, but not in an underwritten offering.
• The investment bank acts as an agent and guarantees the sale in an underwritten offering, but only acts as a broker in a best effort offering.
• The investment bank guarantees the sale of the issue as a principal in an underwritten offering, but only acts as a broker for the issuer in a best effort offering.

• Set a high price to maximize proceeds for the issuer, but a low price to reduce their underwriting fee.
• Set a high price to minimize the cost of price support, but a low price to benefit their preferred clients.
• Set a high price as agents for the issuer, but a low price as underwriters to avoid buying overvalued shares and to allocate valuable shares to clients.

• Good-till-Cancelled (GTC)
• All-or-Nothing (AON)
• Hidden (Iceberg)

• -20%
• -10%
• -25%

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Immediate-or-Cancel (IOC)
• All-or-Nothing (AON)
• Fill-or-Kill (FOK)

• $0.20
• $0.10
• $0.15

• They are allocated to the clients who submitted the highest price bids, or on a first-come, first-served basis.
• They are allocated to preferred clients, or on a pro-rata basis among all clients who have comparable relationships with their broker-dealers.
• They are allocated exclusively on a pro-rata basis, as required by CFA Standard of Professional Conduct III.B (Fair Dealing).

• Seasoned offerings have a lower placement cost, allowing the issuer to set a higher initial price.
• The conflict of interest for underwriters is less important in a seasoned offering, as secondary market trading helps identify the proper price.
• IPOs are always undersubscribed, whereas seasoned offerings are generally oversubscribed, leading to a natural price rise for IPOs.

• Underwriting syndication.
• Book building.
• Accelerated book build.

• A loss of value through dilution that can be offset by selling the rights, but not by exercising them.
• A loss of value through dilution, which can be offset by either exercising or selling the rights.
• A gain in the value of their existing shares, as the exercise price is set below the current market price.

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Takes liquidity and executes immediately
• Improves the market spread and joins the queue
• Is behind the market's current best quote

• A deferred financing cost, recognized on the balance sheet and amortized over the security's life.
• A placement cost of the offering, typically around 7 percent for various services.
• The cost of the price support provided by the underwriter in the secondary market.

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1 and 2 only
• 2 only
• 2 and 3 only

• Their total wealth remains unchanged because the cash paid effectively offsets the value gained from the discounted shares.
• Their total wealth increases because they purchased shares below the market price.
• Their total wealth decreases due to the dilution of the ownership percentage.

• The increase in domestic production floods the world market, driving down the world price of its exports.
• Domestic consumers demand higher wages to compensate for the higher domestic price of the good.
• Trading partners automatically retaliate with countervailing duties.

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• A net loss equal to the production distortion loss plus the consumption distortion loss.
• A net gain equal to the tariff revenue minus the loss in consumer surplus.
• A net loss equal to the loss in consumer surplus minus the gain in producer surplus.

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• It creates the largest deadweight loss by prohibiting all imports above a certain threshold.
• It results in the loss of tariff revenue and the transfer of quota rents to the exporting country.
• It triggers an automatic retaliation from the World Trade Organization.

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 8.61%
• 9.20%
• 9.65%

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• 250
• 340
• 370

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• $322.5 million
• $330.0 million
• $320.0 million

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 780
• 820
• 900

• 10.0x
• 11.0x
• 13.0x

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 0.00
• 1.00
• Infinity

• Total assets.
• Total equity.
• Net revenue for the period.

• FCFF = CFO capital expenditures + interest expense (1 tax rate).
• FCFF = CFO + capital expenditures dividends paid.
• FCFF = CFO net borrowing capital expenditures.

• Net cash received from customers (a proxy for net revenue).
• Total cash inflows plus total cash outflows.
• Average total assets during the period.

• 120 40 + 10 (1 0.30) = 87.
• 120 40 10 (1 0.30) = 83.
• 120 40 + 10 = 90.

• 0.23
• 0.43
• 2.35

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 2, 3, and 4 only
• 1, 2, and 4 only
• 1, 3, and 4 only

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Assess compliance with accounting standards
• Form expectations about future profitability and value
• Verify the accuracy of audited financial statements

• 0.50
• 0.69
• 0.88

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 2
• 4
• 8

• Yes; equity weight deviates by more than the 5 percentage point band
• No; equity weight is still within the 5 percentage point band
• No; because bonds have not moved beyond their own 5 percentage point band

• 0.23
• 0.43
• 2.35

• 7.5%
• 7.6%
• 8.0%

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Active return 1.7%; tracking error 4.0%
• Active return 1.7%; tracking error 1.7%
• Active return 4.0%; tracking error 1.7%

• Yes; the portfolio exceeds the required return by 1.0 percentage point
• No; the portfolio falls short of the required return by 0.4 percentage point
• Yes; the portfolio exceeds the required return by 0.4 percentage point

• 10.00%
• 11.14%
• 12.40%

• 8.61%
• 9.20%
• 9.65%

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• 1 and 2 only
• 2 and 3 only
• 1 and 3 only

• 1, 2 and 4 only
• 1 and 4 only
• 2, 3 and 4 only

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1 and 2 only
• 1 and 3 only
• 2 and 3 only

• 1, 2, and 3 only
• 1, 2, and 4 only
• 2, 3, and 4 only
• 1, 2, 3, and 4

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1, 2, and 3 only
• 1, 2, and 4 only
• 2, 3, and 4 only
• 1, 2, 3, and 4

• 1, 2, and 3 only
• 1, 2, and 4 only
• 2, 3, and 4 only
• 1, 2, 3, and 4

• A supplier reducing credit terms and demanding faster payment
• Inventory becoming obsolete and requiring write-downs
• A company issuing long-term debt at favorable rates

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

• 1, 2 and 4 only
• 1 and 3 only
• 2, 3 and 4 only
• 1, 2, 3 and 4

• Both A and R are true and R is the correct explanation of A
• Both A and R are true but R is not the correct explanation of A
• A is true but R is false
• A is false but R is true

An investor expects a parallel 150 bp rise in yields. She can buy either a 2‑year 7% coupon bond or a 15‑year 3% coupon bond, both at the same YTM today. Ignoring credit and liquidity, which bond better fits a defensive rising‑rate strategy and why?

• 2‑year bond, because its duration and convexity are lower
• 15‑year bond, because its price will fall less due to higher convexity
• 15‑year bond, because its lower coupon reduces reinvestment risk

Two bonds have the same maturity and YTM. Bond P trades at a premium; Bond D trades at a discount. Which has the higher Macaulay duration and why?

• D, because lower coupons push more weight to the final payment
• P, because higher price implies more interest rate risk
• They have the same duration because maturity and YTM match

Three investors buy the same 30‑year bond with Macaulay duration 15 years. Their horizons are 5, 15, and 30 years. Immediately after purchase, yields fall by 50 bps and remain lower. Rank their horizon yields from highest to lowest:

• 5‑year > 15‑year ≈ 30‑year
• 15‑year ≈ 30‑year > 5‑year
• 30‑year > 15‑year > 5‑year

Under which pair of conditions will an investor’s horizon yield on a fixed‑rate bond exactly equal the bond’s YTM at purchase, according to Reading 56?

• Coupons reinvested at YTM and sale at constant‑yield price path
• Coupons reinvested at any market rate and sale at par only
• Holding to maturity and ignoring reinvestment rates

A buy-and-hold investor purchases a bond at par. If interest rates immediately rise and remain elevated, the investor's horizon yield will most likely be:

• Lower than the original YTM
• Equal to the original YTM
• Higher than the original YTM

Positive convexity is most beneficial to bond investors when:

• Yields are stable
• Yields are volatile
• Credit spreads widen

An investor buys a 5-year bond at par (100) with 6% annual coupons. If the bond is sold after 2 years at 102, and coupons are reinvested at 6%, the investor's horizon yield is closest to:

• 6%
• 7%
• 8%

A 5-year, annual-pay bond with a 7% coupon is trading at 102.078. What is the bond's yield to maturity?

• 5.50%
• 6.50%
• 7.50%

Calculating the realized return of a bond to match its calculated YTM requires that all coupons are reinvested at:

• The Yield to Maturity (YTM).
• The spot rate corresponding to each coupon date.
• The risk-free rate.

For a forward rate denoted as '3y2y', the loan period ends:

• 5 years from today.
• 3 years from today.
• 2 years from today.

If the 1-year spot rate is 25%, the 1-year discount factor is:

• 0.80
• 1.25
• 0.75

A zero-coupon bond pays $121 in two years. If the 2-year spot rate is 10%, the current price of the bond is:

• $110.00
• $100.00
• $105.00

In an upward-sloping yield curve environment, the par rate will most likely be:

• Lower than the corresponding spot rate at the same maturity
• Equal to the corresponding spot rate at the same maturity
• Higher than the corresponding spot rate at the same maturity

If all spot rates equal 5% regardless of maturity, all implied forward rates will be:

• Less than 5%
• Equal to 5%
• Greater than 5%

If the spot curve is upward sloping, implied forward rates will most likely be:

• Lower than corresponding spot rates
• Equal to corresponding spot rates
• Higher than corresponding spot rates

Given 1-year and 2-year spot rates of 2% and 4% respectively, the 2-year par rate is closest to:

• 3.00%
• 3.96%
• 4.00%

Given a 2-year spot rate of 4%, the price of a 2-year zero-coupon bond with face value of 100 is closest to:

• 92.46
• 96.00
• 98.00

An analyst estimates intrinsic value at $32, while the market price is $28. The stock appears:

• Overvalued.
• Fairly valued.
• Undervalued.

Analysts often prefer the EV/EBITDA multiple over the P/E ratio when comparing companies with:

• Different capital structures (debt levels).
• Stable and similar depreciation policies.
• Negative Operating Income.

An analyst is using an asset-based valuation model. The company has total assets with a fair market value of $1,200 million and total liabilities with a fair market value of $750 million. There are 20 million shares outstanding. The estimated value per share is:

• $22.50
• $37.50
• $60.00

A company has a market capitalization of $500 million, total debt with a market value of $200 million, and cash and short-term investments of $50 million. Its Enterprise Value (EV) is closest to:

• $650 million
• $700 million
• $750 million

A stock just paid an annual dividend of $2.00. Dividends are expected to grow indefinitely at a constant rate of 4%. If the required rate of return is 9%, the estimated value of the stock is closest to:

• $40.00
• $41.60
• $52.00

A firm has a capital structure of 40% debt and 60% equity. Its pre-tax cost of debt is 5%, cost of equity is 10%, and corporate tax rate is 20%. What is the firm's WACC?

• 7.2%
• 7.6%
• 8.0%

A firm financed with 75 in debt and 25 in equity has revenue of 100, operating expenses of 70, and interest expense of 15. What is the firm's return on assets (operating income / total assets)?

• 15%
• 20%
• 30%

A company changes its credit policy to extend credit to customers with lower creditworthiness. What is the most likely effect on the company's liquidity?

• Liquidity will improve due to increased sales revenue
• Liquidity will deteriorate due to increased payment delinquencies and uncollectible accounts
• Liquidity will remain unchanged because sales volume is independent of credit policy

A company uses a matched approach to working capital management. How would it most likely finance its permanent and variable current asset needs?

• Fund all needs with short-term debt to minimize interest costs
• Fund permanent needs with long-term debt and variable needs with short-term financing
• Fund all needs with long-term debt and equity to maximize financial flexibility

Which of the following events represents a pull on liquidity?

• Customers delaying payments beyond the agreed terms
• A bank reducing the company's credit line due to concerns about financial health
• Inventory becoming slow-moving and taking longer to sell

A company changes its credit terms from 2/10, net 30 to 2/10, net 40 to customers. How would this change most likely affect the cash conversion cycle?

• Decrease the cash conversion cycle
• Increase the cash conversion cycle
• Have no effect on the cash conversion cycle

If a company has days of inventory on hand of 30 days and days sales outstanding of 40 days, what is its operating cycle?

• 10 days
• 40 days
• 70 days

A company has cost of goods sold of $400,000 and average accounts payable of $50,000. What is the company's days payable outstanding (DPO)?

• 45 days
• 46 days
• 50 days

A company has cost of goods sold (COGS) of $600,000 and average inventory of $120,000. What is the company's days of inventory on hand (DOH)?

• 60 days
• 65 days
• 73 days

A shareholder rights plan (poison pill) is designed to protect shareholders by:

• Enabling shareholders to vote for higher dividends if acquisition bids are made.
• Increasing takeover costs to potential acquirers through dilution, making hostile takeovers less attractive.
• Guaranteeing minority shareholders control of the board if a takeover is attempted.

According to best practices, an audit committee should be composed of:

• A mix of inside and outside directors, with majority independent members and one accounting expert.
• Solely independent directors, including at least one with accounting or financial management expertise.
• All outside directors with accounting credentials, excluding any board veterans.

Which statement best characterizes the difference between dispersed and concentrated corporate ownership?

• Dispersed ownership involves many shareholders with equal voting power; concentrated ownership involves one controlling shareholder with majority votes.
• Dispersed ownership means no shareholder can exercise control; concentrated ownership means an individual or group controls the corporation.
• Dispersed ownership eliminates agency costs; concentrated ownership creates agency problems.

Which of the following best exemplifies a direct agency cost in a public corporation?

• Foregone profits from a missed acquisition opportunity due to management risk aversion.
• Fees paid to independent external auditors to mitigate the risk of materially misstated financial reports.
• Increased stock price volatility resulting from excessive risk-taking by managers.

A 20-year, $1,000 par value, 6% semiannual-pay bond trades at $802.07. What is the current yield?

• 6.00%
• 7.48%
• 7.66%

A 5-year, annual-pay bond with a 7% coupon is trading at 102.078. What is the bond's yield to maturity?

• 5.50%
• 6.50%
• 7.50%

A technology company reports a highly negative cash conversion cycle driven by a substantial increase in days payable outstanding, while simultaneously reporting zero ending inventory. Based on the National Datacomputer case study, this scenario most likely indicates:

• Operational efficiency allowing for just-in-time manufacturing.
• Financial distress and an inability to secure credit for inventory.
• Aggressive reinvestment of excess cash into short-term securities.

Why do analysts convert a companys income statement into a common-size format based on net revenue?

• To remove the effects of firm size and focus on the relative weight of each income and expense item.
• To restate income and expense items at current market prices instead of historical cost.
• To comply with the requirement that all international standards use percentage presentations.

Why do analysts convert a companys income statement into a common-size format based on net revenue?

• To remove the effects of firm size and focus on the relative weight of each income and expense item.
• To restate income and expense items at current market prices instead of historical cost.
• To comply with the requirement that all international standards use percentage presentations.