Questions

(Paper1)
Mock4
she states,"As a CFA
Question 1 of90 applicationletter, she
states,
Question CFA, applies
[Link]
valuein
her
for a new trade execution."
Further,
years." Has "Ipassed
Brown violated the all
Ashley Brown, providethe best three consecutive
charterholder, I examinationsin
Program
three CFA
trade execution"
Standards?
value in
the best
charterholder, I providethe best valuein trade execution" and by
No
stating,"Asa CFA charterholder, I provide consecutive veare!
Yes, by examinations in three
"As a CFA
Yes, by stating. allthree CFA Program
stating, "Ipassed

Question 2 of90 includes a

manager. Cane's proxy voting policy not benefs
Question investment if they do
Michael Cane, CFA, is an may not be required in all instances request. Has Cane
proxies upon
provision that voting policy is disclosed to his clients only and care?
voting prudence
clients. The proxy relating to loyalty,
the Standard instances
most likely violated voting of proxies is reguired in all upon request
Yes, only because the
voting policy is disclosed to his clients onlybecause the proxv
Yes, only because the proxy
voting of proxies is required in all
instances and
Yes, both because the request
his clients only upon
voting policy is disclosed to

Question 3 of90
standard
Question
is a recommended procedure for compliance with the
Which of the following of wrongdoing
supervisors? Once a violation in the formfollowing?
relating to responsibilities of supervisor should do which of the
from an employee is discovered, a
concluded
wrongdoer untilthe investigation is
Avoid increasing supervision of the
wrongdoer pending the outcome of the
Place appropriate limitations on the
investigation extent of a violation of the law if the
Rely on an employee's statement about the
wWrongdoing will not reoccur
employee gives written assurance that the

Question 4 of 90
Question
Which of the following is a requirement for compliance with the GIPS standards?

The GIPS standards must be applied on a firm-wide basis

Afirm must represent partial compliance by stating it is "in compliance with the GIPS
standards except for..."
Afirm must refer to its performance calculation methodology as being "in
compliance" with the GIPS standards

Question 5 of90
Question
Jessica Jayson, CFA, lives in a country without requirements to keep client information
confidential. Her firm requires only keeping information regarding current clients
confidential. Jayson discusses charity donations with one of her friends and shares an
315
 address ofa former client who was involved in charity work. Has Jayson most likely violated

the Standards?
No
fair dealing
Yes, the Standard relating to knowledge of the law
Yes,the Standard relating to
Question 6 of 90
for
Question analyst. She archives her research notes
Mary Lawrence, CFA, 0sa research notes for cases in which
recommendation changes and discards her researchthird-party research reports used.
recommendations do not change. She also discards
likely violated the Standards:
support her analysis. Lawrence has most
only by discarding third-party research reports used to support her analysis.
which recommendations do not
only by discarding her research notes for cases in
change.
both by discarding third-party research reports used to support her analysis and by
discarding her research notes for cases in which recommendations do not change.

Question 7 of90
Question
Robert Dowling, CFA, 0s part of a research team. Dowling's team has recommended a "bue
rating on acompany, but Dowling does not agree with the recommendation. To comply with
the Standard relating to diligence and reasonable basis, Dowling:
must decline to be identified with the report.
must ensure that the report reflects his opinion.
may continue to be identified with the report as long as the recommnendation has a
reasonable basis.

Question 8 of90
Question
According to the Standard relating to preservation of confidentiality, if local laws require
investment personnel to maintain confidentiality, is a member permitted to share
confidential client information?

N
Yes, if the information concerns activities of a former client
Yes, if the information is provided in support of an investigation by the CFA Institute
Professional Conduct Program into the member's conduct

Question9 of 90
Question
Monique Gretta, CFA, is a research analyst at East West Investment
Gretta worked ata mutual fund management company and has a Bank. Previously,
relationship with the managers of the funds and their institutionallong-standing
investors.
client
Gretta
provides fund managers, who work for Gretta's former employer, with draft copies ofoften her
research before disseminating the information to allof the bank's clients. This
has helped Gretta avoid several errors in her reports, and she practice
the bank'sclients, even though they are not aware of believes it is beneficial to
research, Gretta least
this practice. Regarding her
likely violated the Standards because:
her report is a draft.
this practice benefits all clients.
the long-standing client relationships are not disclosed.

317
 Question 10of
90 Question
Which of the following actions violate the
Standardrelating to market manipulatoni
Action 1: Entering large buy and sell trades between multiple
Grm with the intent to increase proprietary accounts o
Action 2: Securing a dominant trading volume.
position in afinancial instrument with an intent o
influence the price of a related
derivative.
Action 3: Exploiting perceived market
strategies. inefficiencies through aggressive traus
Action 1 and Action 2 only
Action 1 and Action 3 only
Action 2 and Action 3 only

Question 11 of
90 Question
Alice Chan, CFA, a portfolio manager, does
First Automobile Company's (FAC) stock iscomprehensive research and concludes uhat
potential conflict, Chan buys FAC's stock forsuitable for all of her firm'sclients. To avola
other clients first and then for her sister s
fee-paying account in which she has no beneficial interest. She makes no
clients about her sister's account. The price of FAC's disclosure to
three months, causing substantial losses to all her stock declines significantly arter
relating to: [Link] has violated the Standara
disclosure of conflicts.
priority of transactions.
diligence and reasonable basis.

Question 12 of
90 Question
Regarding ethical standards in the investment industry, which of the following
is most accurate? CFA Institute:
requires charterholders to engage in their professional communities.
aims to build market integrity by calling for regulations that align the interests of firms
and clients.
promotes the highest standards of ethics, education,and professionalexcellence for the
ultimate benefit of shareholders.

Question 13 of
90 Question
Which of the following statements relating to the GIPS standards is accurate?

Statement 1: Verification improves theconsistency of a firm'sGIPS-compliant

presentations.
Statement 2:Verification provides assurance to clients that specific composite
presentations made by afirm are accurate.
Statement 1 only
Statement 2 only
Both Statement 1 and Statement 2

Question 14 of
90Question
Merchant Capital Partners, a regional investment bank, acts as a market maker for Vital
over-the-counter exchange E
Link Health Services and other small firms listed on an trades for its own book
those shares for whom Merchant acts as market maker, it
trading. Merchant allowS staff members to trade in k
as engaging in risk arbitrage Mercharnt recently obtained material
once clients and the company have traded. takeover of a publiclv listed
nonpublicinformation regarding Vital's planned reverse
318
 order to be in compliance with the CFAlnstitute Code and Standards, which type of
trading in Vitalshares should Merchant least likely
Personal suspend?
Risk arbitrage
Passive proprletary

Question 15 of
90Question
Sisse Brimberg, cFA, is responsible for performance presentations at her investment firm.
The presentation that Sisse uses states that when making performance presentatios
firm:
deducts allfees and taxes;
uses actual and simulated
bases the performance on aperformance results; and
representative individual account.
Based only on the this information, which of the following is the most appropriate
recommendation to help Brimberg meet the CEAInstitute Standards of Professional
Conduct in her performance presentations? She should present performance based on:
a gross of fee basis.
actual not simulated results.
a weighted composite for all similar discretionary
portfolios.

Question 16 of
90Question
According to the Standard relating to suitability, which of the following is correct?
An appropriate suitability determination will prevent some investments from losing value
Members must judge the suitability of investments in the context of the client'stotal
portfolio
The higher the expected investment return, the lower the need to determine the
investment's suitability

Question 17 of
90Question
According to the Standards, members who plan to engage in independent practice for
compensation must notify their employers and describe which of the following items
regarding the services they will render to prospective independent clients?
Item 1:The types of services
Item 2:The expected duration of the services
Item 3:The compensation for the services
Only Item 1
Only Item 1 and Item 2
Item 1, Item 2, and Item 3

Question 18 of
90 Question
David Jacobs, CFA, and Megan Amari, CFA, work for Global Investment Inc. and receive fees
service agreements with clients, Jacobs informs his
for client referrals. Prior to signing dollar value
clients about the referralfee arrangement without providing an estimated
estimated dollar value tobo
Amaridiscloses all details of the arrangement, including the violated the Standarde?
has
Clients only after the service agreements are signed. Who

Amari only
Jacobs only
Both Amari and Jacobs

320
 Question 19 of
90 Question
Jennifer Ducumon, CFA, 0s a portfolio manager for high-net-worth
Investment Bank. Northeast holds alarge number of shares in Babyskin individuals aat
manufacturer of baby care products. Northeast obtained the Babyskin
underwrote the company's recent IPO. Ducumon has been asked by the
department to recommend Babyskin to her clients, who currently do not
Care
Norheast
shares [Link], a
vestmanyent shthey
inhold
their portfolios. Although Ducumon has afavorable opinion of Babyskin,
consider the shares a buy at the IPO price nor at current price levels.
.A doesto shar
,she
ccording
banking,
not es in
Institute Code of Ethics and Standards of Professional Conduct the most the CFA
for Ducumon is to:
ignore the request.
appropriate acttion
recommend the shares after additional analysis.
follow the request as soon as the share price declines.

Question 20 of
90 Question
Yao Tsang, CFA, has alarge percentage of his net worth invested in the
Australian mining
company Outback Mines,which he has held for many years. Tsang is in the procees
moving to a new employer where he is responsible for initiating research on minine
companies. Shortly after his move, Tsang is asked to complete a research report on
Outback. In order to meet the CFA Institute Standards of Professional Conduct
his stock holding, which of the following actions is
most appropriate for Tsang to take?
Disclose his stock holding to his employer and to clients concerning
Sell his stock holdings to eliminate any potential
Refuse to write the report and ask his employer toconflict
assign
of interest
complete the analysis another analyst to

Question 21 of
90 Question
According to the Standard relating to
to: misrepresentation, a member is most likely required
disclose his intended use of an
always provide a benchmark forexternal manager.
provide attribution to amember investment strategies.
who is no longer with the firn
when issuing a report.
Question 22 of
90 Question
Manpreet Grewal, CFA, is a wealth manager and
a school on holiday weekends. The school paysalso teaches underprivileged children at
Grewal does not disclose
Standards? this arrangement to hisGrewal a nominal fee for his services.
employer. Has Grewal violated the
No
Yes,the Standard relating to
relating to disclosure conflicts
Yes, the Standard of
additional compensation
Question 23 of
arrangements
90Question
Which of the following can
claim compliance with the
Only asset owners GIPS standards?
Only assetowners and consultantS who
Asset owners, advise
consultants
who investment
advise investment funds, andfunds
software vendors

321
 Question 24 of
90 Question
Which of the
following is a key concept relating tothe GIPS standards? The GIPS standards:
address every aspect of performance
measurement.
require firms to adhere to certain calculation methodologies to allow for
comparability across firms.
require the inclusion of ll discretionary and non-discreti on arysegregated accounts in at
least one composite.

Question 25 of
90 Question
Which of the following is among the recommended procedures for compliance with the
Standard relating to misconduct?
Procedure 1:Disseminate to allemployees a list of past violations together Witn
disciplinary actions.
Procedure 2: Check references of potentialemployees to ensure that they are of good
character.
Procedure 1 only
Procedure 2 only
Both Procedure 1 and Procedure 2

Question 26 of
90 Question
Millicent Plain has just finished taking Level II of the CFA examination. Upon leaving the
examination site, she meets with four Level IIIcandidates who also just sat for their
exams. Curious about their examination experience, Plain asks the candidates how
difficult the Level Ilexam was and how they did on it. The candidates say the essay
portion of the examination was much harder than they had expected and they were not
able to complete all questions as a result. The candidates go on to tell Plain about broad
topic areas that were tested and complain about specific formulas they had memorized
the CFA
that did not appear on the exam. The Level III candidates least likely violated
Institute Standards of Professional Conduct by discussing:
specific formulas.
broad topic areas.
the examination essays.

Question 27 of
90 Question
firm. Leung does comprehensive
Mike Leung,CFA, is a research analyst at an investment Leung posts a recommended
analysis and identifies several stocks that are undervalued.
clients, stating that additional
all
stock list on social media which is accessible to violated the Standards?
information will be available upon request. Has Leung

No
recommended stock list
Yes, by posting only a communicate his recommendations to clients
Yes, by using social media to

Question 28 of
effective
90 Question agreements, are most likely to provide an
Private contracts, such as bank loan financial reporting quality because:
disciplinary mechanism to ensure high attention to the firm's financial renoe
pay close
lenders monitor managers and order to renew the
loan covenants require the firm to meet specimC hnanclal ratios in
their investment ie
loan.
covenants may allow the lender to recover allor part of
loan are triggered.
certain financial conditions
322
 Question 29 of
90Acorporate
Question takeover mechanism by which shareholders are persuaded to vote for agroup
a:
on acomnpany's board of directors best defines
position
seeking a controlling
tender offer.
proxy contest.
hostile takeover.

Question 30 of
valua .t
90 Question
under US GAAP has production facilities with a net book
Acompany reporting competitors have entered its market, Ithe
and
estimates
$28.4 that
million. Recently,
its several
production facilities will be able to generate cash flows company now
of only $3 million
10%.
the next seven years. The firm has a cost of capital of
per year for
production facilities, the company's financial
Based on these recent events related to its
statements willmost likely report a:
flows.
$13.8 million reduction in operating cash statement.
income
$13.8 million impairment loss on the
carrying amount.
$7.4 million reduction in the balance sheet

Question 31 of
90 Question leases on financial
Which of the followingstatements best describes the effect of finance
statements?
Balance sheet effects differ based on whether the lease is a direct financing lease or a
sales-type lease
The lessor reports aprofit on the' sale of the leased asset on the income statement in the
case of a sales-type lease
Alessee reports the interest portion of the lease payment as operating cash flow under
IFRS and financing cash flow under US GAAP

Question 32 of
90 Question
In which of the following business structures do owners share all risk and business
liability?
Corporations
Limited partnerships
General partnerships

Question 33 of
90Question
Assuming wages and prices are stable, which of the following policy combinations most
likely leads to an increase in the private sector's share of GDP?
Easy fiscal and easy monetary policy
Tight fiscal and easy monetary policy
Easy fiscal and tight monetary policy

Question 34 of
90 Question
Inventory values are recorded at the lower of cost or:
market.
net realizable value.
estimated selling price.

323
 Question 35 of
90 Question
A
crucial requirement for a central bank to be effective is to:
maintain reasonable inflation targets.
maintain independence from the government.
preserve the confidentiality of its economic views.
Question 36 of
90 Question
An analyst gathers the folowing information (in ¬millions) about acompany's land that is
valued under the revaluation model:
Purchase cost 20
Carrying amount after first revaluation at 31December Year 1 18
Carrying amount after second revaluation at 31 December Year 2 23

As aresult of thesecond revaluation, the revaluation surplus increases (in¬ millions) by:
2
3.
5.

Question 37 of
90 Question
The following table summarizes income statement data fora manufacturing company:
Year 2 Year 1
(in ¬Thousands) in e Thousands)
Net revenue 2,611 2,325
Cost of goods sold 1,700 1,550
Gross profit 930 775
Selling, general & administrative expense 295 260
Operating income 635 S15
Interest expense 55 55
Pre-tax income 580 460
Income tax 155 120
Net income 425 340
Compared with Year 1, the Year 2 common-size income statement most likely
a lower tax rate. indicates:
sale of a new, differentiated product.
cost cutting in selling general and administration.

Question 38 of
90 Question
If an economy has a long-term growth
potendal
inflation target is 3% per year,the neutral
or zYo per year and the central
rate of interest is most libols bank's
1%.
3%.
5%.
 Question 39 of
90 Question
An analyst is reviewing the property, plant, and equipment disclosure related to a
company's warehouse. Under the revaluation model, the analyst would least likelv be a.
to determine:
the original date of acquisition.
how the fair value was obtained.
the carrying amount under the cost model.

Question 40 of
90 Question
An investor observed the following hedge fund return data.
Beginning of Year Net Return
Yea Account Balance ofthe Fund
$30 million 10%
2 $40 million -S%
3 $30 million -5%
The money-weighted returnisclosest to:
-1.523%.
-0.749%.
-0.524%.

Question 41 of
90Question
Which of the following is most likely a leading indicator for an economy?
Change in unit labor costs
Average weekly hours, manufacturing
Employees on non-agricultural payrolls

Question 42 of
90 Question
Which of the following changes to compensation packages would
management becoming mnore risk averse in its corporate decisionmost likely result in
making?
Decreasing the length of management tenure
Eliminating stock grants and options from management
Tying management compensation to the size compensation
of the company's business
Question 43 of
90 Question
Unaudited financial statements are most likely
annualreport. presented in a(n):
quarterly report
proxy statement.

Question 44 of
90Question
Aproject has the
following annual cash flows:
Year 0 Year 1 Year2 Year3
$606,061 $2,151,515 -$2,542,424 $1,000,000
Which discount rate most likely
15% provides a positive NPV?
18%
21%

325
 Question 45 of
90 Question
The effectiveness of
be least constrained infrastructure
by the:
snending as a [Link] fiscal stimulant would
action lag.
impact lag
recognition lag.

Question 46 of
90 Question
Thedemand curve of a
perfectly competitive firm is:
vertical.
horizontal.
downward sloping.
Question 47 of
90Question
An exchange rate regime based on an explicit
omesthc legislative commitment to exchange
described currency
for a specified foreign currency at a fixed
as a: exchange rate is
best
monetary union.
fixed parity systenm.
currency board system.

Question 48 of
90 Question
An analyst gathersthe following
exchange rate information:
USD/EUR spot rate 1.0993
USDEUR 6-month forward points 11.7
USD/EUR is the amount of USD per 1 EUR.
The USD/EUR 6-month forward rate is closest to:
1.0981.
1.1005.
1.2279.

Question 49 of
90 Question
An analyst gathers the following information (in ¬ millions) about a company for a
year:
given
Net income 300

Depreciation expense 35
Increase in inventory 20
Decrease in accounts receivable 30
Increase in accounts payable 25
Cash flow from operating activities (in ¬ millions) for the year is:
300.
320.
370.

326
 the
If common result
today. to:
described closest
to differentiated
payment issues likely
to: be
closest population
best will
company most
first
isresult company is
theis
investment policy? liquidity? following
supplying
with the company: the
This of if unlevered
hypothesis. year, fiscal segments taxes, firms
of the
perthe of aabout
with
source of many
$10,000
of objective the which
value different I of primary company?
null information Proposition base describes 327
present value consumers,
false ofpayments an consumer
industry
elastic
likely among a
rejecta the likely the best
the
most target
wealth following
1.5 30%Miller's
debt,
most
contracts
to of pricecompetitive
6%, 0.6 revenue
prices fragmented structure
to ten rate
is stability
price
Maintaining billions) outstanding are
fails israte
makes following and billions) and is
followingsupplier
power.
exchange the
assets
products
its total
test discount income gathers Modigliani market
investment (S raises a a
of50 hypothesislittle
Question of51
Question of52
Question Question value($
of53
Marginal
tax
rate Regular
credit
lines
operating
of in in
Question
90 Ierror.
Typeerror.
II
Type Question
90 90 the an Distributing90
Question Question debt repay 54
Question
of the Question
55
of
Renegotiation company is has
company's
increase Question
56
of of
of analystCompany 90
Question 90
Question company
company 90Question
with annual S78.017.
$72.098.
$73,601 Which Achieving of on to $0.9
billion.
$1.3 S1.5
billion.
billion. of typeoligopoly
An
products?
An Value Based
stock Which of
A test An Sale a an TheThe Which
If in The
Perfect competition
Monopolistic competition

Question 57 of
90Question
An analyst gathers the following
information about a company:
Cash flow from operating activities ¬600,000
Preferred dividends declared and paid ¬30,000
Total dividends declared and paid
E120,000
Number of common shares outstanding 100,000
The company did not issue or repurchase common shares during the year. If the
company
reports total dividends paid as cash flows used in operating activities, cash flow per
is: share
¬5.70.
¬6.30.
¬6.90.

Question 58 of
90 Question
For an analyst estimating a company's target capital structure, which of the following
methods is most appropriate?
Apply the company's current capital structure at book value weights
Use the average capital structure of a diversified group of companies
Infer the target capital structure by analyzing management statements on capital
structure policy

Question 59 of
90 Question
Aconstruction company enters into a 2-year building contract. Payment of the
consideration will be at the end of the building contract when all performance obligations
are met. Costs incurred provide an appropriate measure of progress towards completing
the contract. The construction company has incurred 30% of the costs during the first
year. Assuming it is highly probable that revenue will not be subsequently reversed, at the
end of Year 1, the construction company should most likely recognize a:
receivable.
Contract asset.
contract liability.

Question 60 of
90 Question
Aform of economic integration that allows free movement of goods, services, and factors
of production among member countries and has a common trade policy against non
members best describes a:
free trade area.
customs union.
common market.

Question 61 of
90 Question
As a result of an inventory write-down, which of the following financial ratios most
likely decreases?
Quick ratio
Current ratio
Payables turnover ratio

328
ateralism.
bilateralism.
hegemony.
CooperationQuestion
is: TheQuestion
9067of debt
debtinternal $37,311.
$30,[Link] Standard
Sampling error
error 10.50
1.00. 0.50. 0.25. TheXProbability the ending
Question
According
Question of$39,176.
9066 Question
Question
An90 65 Standard
ofdeviation Question
andWhich
Question 9064 of Question
Question
Question
0.50 0discrete A9063 ofbeginning Question
90 62
of
archetype reduces
issuance investor variance average company's A
of the
financing the inventory
quantity the of
to random inventory
level
management
signals cash will
of
of Jensen's following purchases
receive Xis
country is flow it of less
preferable
confidence is closest variable inventory less
free at intended beginning
the represents ending
behavior opportunities $50,000 to: can
cash
end X be
to has for
about debt flow of at
to inventory.
inventory.
estimate the the the estimated
most Year the
hypothesis:
issuance. period.
a difference following
likely company's to end5
misuse is as as
closest of
characterized Year a cost
result probability
between of
prospects. cash. to: 10. sales
If of
the using plus:
the
by discount function:
observed
subsets
globalization
rate of
value
a
is population?
and 5%,
of
the a
statistic
present
 Question 68 of
90 Question
An investor earns the following annualreturns over a 4-year period:
YearAnnual Return
12.2%
2 -8.5%
3 6.7%
4 -3.3%
The geometric mean annual return is closest to:
1.45%.
1.78%.
5.93%.

Question 69 of
90 Question
In capital investment decisions, project sequencing is most likely a type of:
timing option.
flexibility option.
fundamental option.

Question 70 of
90 Question
The following information is available for a company that reports its cash flow using the
indirect method:

Year2(¬ Year 1(E)

Other operating expenses 80,050 76,230
Prepaid insurance expenses 8,400 10,600
Accrued utilities payable 23,020 21,500
Insurance and utilities are the only two components of other operating expenses. The cash
the company paid in other operating expenses in Year 2 is:
¬76,330.
¬79,370.
¬80,730.

Question 71 of
90 Question
Ifa company purchases, at a premium, bonds that it expects to hold until maturity. thev
are most likely measured on the balance sheet at:
fair value.
historical cost.
amortized cost

Question 72of
90 Question
Earthquakes most likely expose a country to:
event risk
thematic risk.
exogenous risk.

330
 yuestion 73 of
90Question information about a company's capital structure
An analyst gathers the following
capitaland marginal tax rate:
Market value of debt $1,000 million
Market value of equity $500 million
Book value of debt $900 million

Book value of equity $300 million

Pre-tax cost of debt 4%

Cost of equity 6%
Marginal tax rate 30%
WACC is closest to:
If interest is fully tax deductible, the
3.6%.
3.9%.
4.7%.

Question 74 of
90 Question
An analyst gathers the following information about two companies in the same industry.
Company 1 Company 2
ROE 12% 18%
Average total assets/Average shareholders' equity 2 3

Revenue/Average total assets 1 2

Basedonly on this information, Company 2:

isless efficient than Company 1.
has a higher ROA than Company 1.
has a lower net profit margin than Company 1.

Question 75 of
90Question
An analyst gathers the folowing information for a company's fiscal year beginning 1
January:
Net income ¬9,200,000
Interest expense on convertible debt ¬1,600,000
Common shares outstanding on 1 January 6,000,000
Common shares issued on 31 March 4,000,000
Common shares outstanding on 31 December 10,000,000
Income tax rate 35%
If the convertible debt was outstanding for the entire
year and is convertible into 2,000,000
commonshares, reported diluted EPSis closest to:
¬0.93.
¬0.98.
¬1.02.

Question 76 of
90 Question
Firms in monopolisticcompetition most likely have:
no pricing power.
some pricing power.
substantial pricing power.
331
 yuestion 73 of
company's capital sstructure, cost
90Question
following information about a of
An analyst gatherstherate:
capitaland marginal tax
$1,000 million
Market value of debt
$500 million
Market value of equity
$900 million
Book value of debt
$300 million
Book value of equity
Pre-tax cost of debt 4%
6%
Cost of equity
Marginal tax rate 30%
to:
deductible, the WACC is closest
If interest is fully tax
3.6%.
3.9%.
4.7%.

Question 74 of
90 Question industry:
information about two companies in the same
An analyst gathers the following
Company 1 Company 2
12% 18%
ROE
2 3
Average total assets/Average shareholders' equity
1 2
Revenue/Average total assets
Based only on this information, Company 2:

is less efficient than Company 1.

has a higher ROA than Company 1.
has a lower net profit margin than Company 1.

Question 75 of
90 Question
An analyst gathers the following information for acompany's fiscal year beginning 1
January:
Net income ¬9,200,000
Interest expense on convertible debt ¬1,600,000
Common shares outstanding on 1 January 6,000,000
Common shares issued on 31 March 4,000,000
Common shares outstanding on 31 December 10,000,000
Income tax rate 35%
If the convertible debt was outstanding for the entire year and is convertible into 2,000,000
common shares, reported diluted EPS is closest to:
¬0.93.
¬0.98.
¬1.02.

Question 76 of
90Question
Firms in monopolistic competition most likely have:
no pricing power.
some pricing power.
substantial pricing power.
331
 Question 77 of
90 Question withtax loss
Which of the following statements about the acquisition of atarget company
carryforwards is most accurate? If the acquirer is profitable:
its current tax rate willhave no impact on the acquisition price. a lower
more than another acquirer with
the acquirer would theoretically be willing to pay
tax rate.
acquirer witha higher
the acquirer wouldItheoretically
tax rate.
be wiling to pay more than another

Question 78 of
90 Question
linear
An analyst computes the following analvsis of variance (ANOVA) table for a simple
regression:
Source Sum of Squares Degrees of Freedom Mean Square
Regression 144 144
Error 48 4 12
Total 192 5
The standard error of the estimate for the regression is closest to:
3.5.
6.9.
12.0.

Question 79 of
90 Question
An analyst gathers the following sample: 0, 2, 3, 4,6. The value of the fourth quintile is:
4.0.
4.8.
5.6.

Question 80 of
90Question
Which of the following statements about machine learning is most accurate? Machine
learning:
does not have a broad application in Big Data analysis.
stillrequires human judgment in understanding the underlying data.
performs well even when insufficient data are available to train and validate the model.
Question81 of
90 Question
Aportfolio has a mean return of 2.2% andastandard deviation of returns of 2.5o 1fthe
specified minímum target return is 2.2%, the sample target semideviation is:
less than 2.5%.
equal to 2.5%.
greater than 2.5%.

Question 82 of
90 Question
Members of a company's board of directors are most likely required to:
report to the company's CEO.
display loyalty to the company.
work for the company or the industry in which the companyoperates

332
 Question 83 of statistic
F-distributed test
90 Question regression, the
resspect to a simple linear testing if:
With appropriate to use when
is most significantly different
from zero.
significantly positively correlated.
interceptis are independent
the
and dependent variables dependent and
the independent linear relationship between the
there is a significant
variables.

Question 84 of
90 Question in business-to-business markets whe
strategies is most common
Which of the following customers is relatively small and easily reached?
the universe of potential
Direct sales
Omnichannel
Traditional channel

Question 85 of
90Question
bootstrap resampling is most accurate?
Which of the following statements about
Multiple samples are taken from the population
Ineach resample, items are drawn without replacementpopulation
The randomly drawn sample is treated as if it were the

Question 86 of
90Question
An analyst collects the following information about a company and itscapital structure:

Proportion of debt 40%

Proportion of equity 50%
Proportion of preferredshares 10%
Before-tax cost of debt 8%
Cost of equity 16%
Cost of preferred shares 10%
Marginal tax rate 25%
If interest expense is tax
11.2%. deductible, the company's WACC is closest to:
11.4%.
12.2%.
Question 87 of
90Question
A
zero correlation between two variables implies the
a linear absence of:
relationship between the variables only.
a non-linear
both a linear relationship between the variables only.
relationship and a non-linear relationship
between the variables.
 Question 88 of
90 Question
An analyst gathers the following information (in ¬thousands) about an electronics
manufacturing company:
YcAr Year 1
Cost of sales 1,000 800
Costof ending inventory 150 120
Net realizable value of inventory 125 160
Changes to the allowance for inventory obsolescence have already been reflected in cost OT
sales. The daysof inventory on hand (based onaverage inventory and 365-day year) ror
Year 2 is closest to:
45.
49.
52.

Question 89 of
90Question
The amount of time that elapses from the point when a company invests inworking capital
until the point at which the company collects cash is:
net operating cycle.
defensive interval ratio.
number of days of sales outstanding.

Question 90of
90Question
Incompany analysis,which of the following is most likely a solvency ratio?
Quick ratio
Current ratio
Interest coverage ratio

334
 Mock 4(Paper 1) Answers
Answer 1of 90
Answer
Solution
Incorrect because according to Standard VIl (B), Reference to CFA Institute, the CFA
Designation,and the CFA Program, Brown violated the Standards by directly implying that
superior performance can be expected of someone with the CFA designation.
Correct because according to Standard Vil(B), Reference to CFA Institute, the CFA
Designation, and the CFA Program, Brown violated the Standards by directly implying that
superior performance in trade execution can be expected of someone with the CFA
designation. Statements referring to CFA Institute, the CFA designation, or the CFA Program
that overstate the competency of an individual or imply, either directly or indirectly, that
superior performance can be expected from someone with the CFA designation are not
allowed under the standard.
Incorrect because according to Standard VII (B), Reference to CFA Institute, the CFA
Designation, and the CFA Program, the second statement is allowed. member may state that
allprincipals passed the three examinationson the first try as long as this
but it must not be linked to performance or imply superior ability. statement is true,

Answer 2 of 90
Answer
Solution
Incorrect because according to Standard III (A), Loyalty, Prudence and
member is in violation as the proxy voting policies Care, the
only upon request, as described in the response should be disclosed to the clients not
rationale
Correct because according to Standard III (A), Loyalty, for the correct answer.
member'sor candidate's duty of loyalty includes voting Prudenceinand Care, part of a
responsible manner. Proxies have proxies an informed and
must ensure that they properly economic value to a client, and members and candidates
safeguard and maximize this value. An investment
who fails tovote, casts a vote without
with management on nonroutine considering the impact of the Answer, or votesmanager
blindly
governance issues (e.g., a change in company
capitalization) may violate this standard.
management of investments. A Voting of proxies is an integral part of the
not benefit the client, so cost-benefit analysis may show that voting all proxies may
voting proxies may not be necessary
candidates should in all instances.
disciose their proxydisclose Members and
toclients their proxy voting
policies.
voting policies to clients, not only upon Therefore members should
Incorrect because according to Standard III (A), request.
may not be necessary in all instances, as Loyalty, Prudence and Care, voting proxies
answer. described inthe response rationale for the
correct
Answer 3 of 90
Answer
Solution
Incorrect because according to Standard IV (C),
violation is discovered, asuperyisor Responsibilities of
limitations on the wrongdoer should increase
pending supervision orSupervisors,
place
once a
Correct because the outcome of the investigation. appropriate
Supervisor learnsaccording to Standard IV (C),
that an employee has Responsibilities of
Supervisors, once a
violated may have violated the law or
or
the Code

335
 and Standards, the supervisor must nromntly iniiate an assessment to determine ne
extent of the wrongdoing. Relying on an emplovee's statements about the extent of tne
violation or assurances that the wrongdoing will not reoccur is not enough. Reporting e
misconduct up the chain of command and warning the employee to cease tne a e n s
also not enough. Pending the outcome of the investigation, asupervisor should take steps
to ensure that the violation will not be repeated. such as placing limits on the employee S
activities or increasing the monitoring of the employee's activities.
Incorrect because according to Standard IV (C) Resnonsibilities of Supervisors, Relyins
on an employee's statements about the extent of the violation or assurances that the
wrongdoing will not reoccur is not enough

Answer 4 of 90
Answer
Solution
Correct because the GIPS standards requirements for the fundamentals of
compliance include that the GIPS standards must be applied on a FIRM-wide basis.
Compliance cannot be achieved on asingle product or composite.
Incorrect because the GIPS standards reauirements for the fundamentals of compliance
include that, if firms do not meet all the reauirementsof the GIPS standards, firms must
not represent or state that "it is in compliance with the GIPS standards except for" or
make any other statements that may indicate partial compliance with the GIPS
standards.
Incorrect because the GIPS standards prohibits statements referring to the
calculation methodology as being in accordance, in compliance, or consistent with the
Global Investment Performance Standards.

Answer5 of 90
Answer
Solution
Incorrect because Jayson violated Standard I (A), Knowledge of the Law, as in the
response rationale for the correct answer.
Incorrect because Standard III (B), Fair Dealing, requires that Members and Candidates
must deal fairly and objectively with all clients when providing investment analysis,
making investment recommendations, taking investment action, or engaging in other
professionalactivities. In this case, nothing was done to discriminate clients.
Correct because according to Standard I (A), Knowledge of the Law, When applicable
law and the Code and Standards require different conduct, members and candidates
must follow the more strict of the applicable law or the Code and Standards. According
to Standard III(E), Preservationof Confidentiality, Members and Candidates must keep
information about current, former, and prospective clients confidential. In this case, the
Code and Standards were stricter so Jayson must not have revealed her former client's
e-mail address.

Answer6 of 90
Answer
Solution
Incorrect as described in the response rationale of the correct answer.
Incorrect as described in the response rationale of the correct answer.
Correct because according to the Standard V(C), record retention, Members and
candidates must retain records that substantiate the scope of their research and reasons for
their actions or conclusions. The retention requirement applies to decisions to buy or sell a
security as well as reviews undertaken that do not lead to a change in position. An examnle
of supporting documentation that assists the member or candidate in meeting the
requirements for retention are outside research reports.

336
 Answer 7 of 90
Answer
Solution
Incorrect because according according to Standard V(A), Diligence and Reasonaable
Dowling does not need to decline to be identified with the report, as long as he belio Basis,
the research has a reasonable and adequate basis.
Incorrect because according according to Standard V(A), Diligence and Reasonable b,
Dowling may accept the group decision as long as he believes the research is Sound
there is no requirement that he make an effort to have the report reflect his opinion.
Correct because according to Standard V(A), Diligence and Reasonable Basis, if a memh
believes that the consensus opinion has a reasonable and adequate basis and is
independent and objective, the member or candidate need not decline to be identified u.s
the report. Ifthe member or candidate is confident in the process, the member or candid
does not need to dissociate from the report even if it does not reflect his or her opinion
Thus, Dowling may accept the group's decision and may be identified with the report a
long as it has a reasonable basis.

Answer8of90
Answer
Solution
Correct because according to Standard III(E), Preservation of
applicable law requires members to maintain confidentiality,even Confidentiality, if
concernsillegal activities on the part of the client, members and if the information
disclose such information. candidates should not
Incorrect because Standard III(E), Preservation of
confidentiality of client information even if the personConfidentiality, protects the
member or candidate. Therefore, or entity is no longera
members and candidates must continue to client of the
confidentiality of client records maintain the
member is not permitted to shareeven after the client relationship has ended. Therefore, a
information relating to former clients.
Incorrect because according to Standard
permissible under applicable law,members III(E), Preservation of
Confidentiality, when
extension of themselves when requested to and candidates shallconsider the PCPan
aPCP provide information about a client in
investigation into their own conduct. Therefore, support of
to the PCP only if
permissible under applicable law a member can provide information
Answer9 of 90
Answer
Solution
Incorrect because according to Standard
disseminated to III(B), Fair Dealing, research
does not exemptclients fairly,
it from being
not selectively. should be
Simply because the research
Incorrect because even thoughdisseminated fairly. is in draft form it
practice favors clients the research may
has not treated who receive the benefit from the additional
clients fairly as research before others and as a result, reviews, this
Correct required by the analyst
by havingbecause the analyst does not violateStandard
any of
III(B), Fair Dealing.
long-standing
relationships. However,
client relationships and
the
the
generallyStandards
is not
of
Professional Conduc
III(B), Fair Dealing, when analyst not treating all clients
is required to disclose
fairly as required by sucn
disseminating investment recommendations. Stanaaru
 Answer 10of9o
Answer
Solution
transaction-based
Correct because Standard I(B), Market Manipulation, precludes in hopes of
manipulation such as attempting to buy and sell the stock using the accounts Also, the
raisingthe trading volume and the price. So, Action 1 violates the Standard. a controlling,
Standard precludes other transaction-based manipulation such as securing price of a related
dominant position in afinancial instrument to exploit and manipulate the
derivative and/or the underlying asset. So, Action 2also violates thetransaction-based
Standard.
Incorrecttbecause Standard I(B), Market Manipulation, precludes hopes of
manipulation such as attempting to buy and sell the stock using the accounts in
raising the trading volume and the price. Action 1violates the Standard. However, the
Standard is not intended to preclude transactions undertaken on legitimate trading
strategies based on perceived market inefficiencies. So, Action 3 does not violate the
Standard.
Incorrect because Standard II(B), Market Manipulation, precludes other transaction- based
manipulation such as securing a controlling, dominant position in afinancial instrument to
asset. Action
exploitc and manipulate the price ofa related derivative and/or the underlying
2violates the Standard. However, the Standard is not intended to preclude transactions
undertaken on legitimate trading strategies based on perceived market inefficiencies. So,
Action 3 does not violate the Standard.

Answer 11 of90
Answer
Solution
Incorrect because according to Standard VICA), Disclosure of Conflicts, members and
Candidates must make full and fair disclosure of all matters that could reasonably be
expected to impair their independence and objectivity or interfere with respective duties to
their clients, prospective clients, and employer. Members and Candidates must ensure that
such disclosures are prominent, are delivered in plain language, and commnunicate the
relevant information effectively. Chan should treat her sister'sfee-paying account like any
other firm account and should not be disadvantaged. It does not have potential conflict.
Therefore, Lau has not violated Standard VI(A).
Correct because according to Standard VI(B), Priority of Transactions, family accounts that
are client accounts should be treated like any other firm account and should neither be
given special treatment nor be disadvantaged because of the family relationship. Chan
should treat her sister's fee-paying account like any other firm account and should not be
disadvantaged. Therefore, Lau has violated Standard VI(B).
Incorrect because according toStandard V(A), Diligence and Reasonable Basis, even
though an ínvestment recommendation may be well informed, downside risk remains for
any investment. Members and candidates can base their decisions only on the information
available at the time decisions are made. The steps taken in developing a diligent and
reasonable recommendation should minimize unexpected downside events. Chan does
comprehensive research and therefore she has not violated Standard vCA).

Answer 12 of 90
Answer
Solution
Incorrect because the CFA institute encourages, but does not require,charterholders to
engage in their professional communities. integit. Le.
Correct because the advocacy efforts of CFA Institute aim to build market
clients.
calling for regulations that align the interests of firms and
Incorrect because CFA Institute promotes for the ultimate benefit of [Link] mission
of CFA Institute is "to lead the investment profession globally, by promoting the highest
standards of ethics, education,and professional excellence for the ultimate beneftf
society."
338
 Answer 13 of 90
Answer
Solution
Correct because verification may also increasethe knowledge of the firm's performance
stands
measurement team and improve the consistency and quality of the firm's GIPS
Therefore, Statement 1 is accurate.
related performance [Link] with respect to an entire firm, not on
Incorrect because verification is does not ensure the accuracy of any
specific composites or pooled funds. Verification
Statement 2 is not accurate.
specific performance report. Therefore, respect to an entire firm, not on
Incorrect because verification is performed with
specific composites or pooled funds. Verification does not ensure the accuracy of any
2 is not accurate.
specific performance report. Therefore, Statement

Answer 14 of 90
Answer
Solution
Incorrect because when in possession of material nonpublic information, Standard II(A).
Material Nonpublic Information, requires personal trading to be suspended.
Incorrect becausewhen in possession of materialnonpublic information, according to
Standard II(A), Material Nonpublic Information, it is prudent to suspend arbitrage trading
to prevent profits from insider trading.
Correct because according to Standard II(A), Material Nonpublic Information,
Recommended Procedures for Compliance, if Merchant stopped market making. a form of
proprietary trading, due to being in possession of material nonpublic information, it could
tipoff investors that Vital is likely to be making a major announcement in the near future.
This would be counterproductive tothe goals of maintaining the confidentiality of
information and providing market liquidity. The Standard recommends that market makers
remain passive when in possession of material nonpublic information. The Standard also
requires personal trading to be suspended when in possession of material nonpublic
information, and it is prudent to suspend arbitrage trading to prevent profits from insider
trading

Answer 15 of 90
Answer
Solution
Incorrect because either gross or net of fee performance may be
Incorret because the use of simulated results is disclosed.
permitted
Correct because in order to meet their obligations under as long as it is disclosed.
Presentation, members should present the performance ofStandard
the
III(D), Performance
weighted
representative or all [Link]
similar portfolios rather than using a single of

Answer 16of 90
Answer
Solution
Incorrect because according to Standard III(C),
determination will not, however, prevent some Suitability, an appropriate suitability
losing value. investments or investment actions rom
Correct because according to Standard III(C),
suitability of investments in the context of the Suitability, members must judge the
Incorrect because according to Standard IIclient's total portfolio.
opportunity will be suitable for every portfolio, (C), Suitability, not every investmen
offered.
regardless of the potential return belns
Answer 17 of 90
Answer
Solution
Incorrect because according to Standard IV(A LOValty. all three actions are required.
Incorrect because according to Standard IV(A) Loyalty, all three actions are required.
Correct because according to Standard IV(A LOvalty. members and candidates who Plan o
engage in independent practice for compensation must notify their employer and deser
the types of services they will render to prospective independent clients, the expected
duration of the services, and the compensation for the services.
Answer 18 of 90
Answer
Solution
Incorrect as both Amariand Jacobs violated Standard Vi(C), Referral Fees.
Incorrect as both Amari and Jacobs violated Standard VI(C), Referral Fees.
Correct because according to Standards VI(C), Referral Fees, appropriate disclosure means
that members and candidates must advise the client or prospective client, before entry
into any formal agreement for services, of any benefit given or received for the
recommendation of any services provided by the member or candidate. In addition, the
member or candidate must disclose the nature of the consideration or benefit, together
with the estimated dollar value. Jacobs does not provide the estimated dollar value and and
Amari discloses after the agreement is signed. Therefore, they both violate Standard VI(C)

Answer 19 of 90
Answer
Solution
Correct because Ducumon should refuse to recommend the shares as her opinion of the
Babyskin shares must not be affected by internal pressure. If Ducumon followed the
request from the investment banking department at her company, she would be in
violation of Standard I(B), Independence and Objectivity. Ducumon must refuse to
recommend the Babyskin shares until they are an attractive purchase based on
fundamental analysis and market pricing.
Incorrect because Ducumon should refuse to recommend the shares, as she must issue
only recommendations that reflect her independent and objective opinion. Ducumon must
refuse torecommend the Babyskin shares until they are an attractive purchase based on
fundamental analysis and market pricing.
Incorrect because Ducumon should refuse to recommend the shares, as she must issue
only recommendations that reflect her independent and objective opinion. Ducumon must
refuse to recommend the Babyskin shares until they are an attractive purchase based on
fundamental analysis and market pricing.

Answer 20 of 90
Answer
Solution
Correct because disclosure should be made as required by Standard VI(A), Disclosure of
Conflicts. Thís standard does not preclude an analyst from owning shares in a covered
company but any ownership needs to be adequately disclosed. As the stock in question has
been held for many years it may not be practical to sell it due to issues such as tax
consequences. In addition, since the analyst has been hired to initiate coverage of mining
companies, the firm may not have other analystS tnat would be as competent in completing
a research report on miníng companies.
Incorrect because the stock in question has been neld 1or many years and it may not be
practical tosell it due to capital gainsaxes o uer issues. Full disclosure should be
oirad hy StandardVI(A), but selling any exsung holdings made
report is not a requirement of the standards. prior to writing research
a

340
 Incorrect because Tsang is able to write the report for his employer as long as hie
ownership is adequately disclosed.

Answer 21 of 90
Answer
Solution
Correct because according to Standard I (C), Misrepresentation, members and
candidates must disclose their intended use of external managers and must
not
those managers' investment practices as their own.
Incorrect because Standard I(C), Misrepresentation, does not require that a represent
benchmark always be provided in order to comply. Somne investment strategies mav not
lend themselves to displaying an appropriate benchmark because of the
diversity of the investments included. comnplexity or
Incorrect because according to Standard I(C), Misrepresentation, research and
developed while employed by afirm are the property of the firm. The firm retainsmodels
the
right tocontinue using the work completed after a member or
candidate has left the
[Link] firm may issue future reports without providing attribution to the prior
analysts.

Answer 22 of 90
Answer
Solution
Correct because Standard IV(B), Additional
members and candidates to obtain permission Compensation Arrangements, requires
from their employer before accepting
compensation or other benefits from third parties for the services
employer or for any services that might create a conflict with their rendered
to the
Since the activity in concern is teaching, there is no conflict with theemployer's interest.
employer and
approval is needed. Additionally, the teaching is done on holiday weekends and thehence no
nominal. According to Standard VI(A), Disclosure of pay is
must make full and fair disclosure of all matters that Conflicts, members and candidates
could reasonably be expected to
impair their independence and objectivity or interfere with
clients, prospective clients, and employer. Grewal teaches onrespective
holiday
duties to their
not pose any conflict of interest with his employer and hence no weekends which does
Neither Standard is violated. disclosure is necessary.
Incorrect because according to Standard VI(A), Disclosure of Conflicts,
candidates must make full and fair disclosure of all matters that could members and
expected to impair their independence and objectivity or interfere withreasonably
respective
be
their clients, prospective clients, and employer. Grewal teaches on duties to
does not pose any conflict of interest with his employer and hence holiday weekends which
no disclosure is
necessary. Standard VI(A) is notviolated.
Incorrect because Standard IV(B), Additional Compensation
membersand candidates to obtain permission from their employer Arrangements, requires
before accepting
compensation or other benefits from third parties for the services rendered
employer or for any services that might create a conflict with their employer'sto the
Since the activity in concern is teaching, there is no conflict with the interest.
employer and
approval is needed. Additionally, the teaching isdone on holiday weekends and thehence no
nominal. pay 1S

Answer 23 of 90
Answer
Solution
Correct because according to the GIPS standards, asset owners may comply with the GIPS
standards in the same way as firms if they compete for business. If they don't competefor
business but report their performance to an oversight body, asset owners may choose to
comply with the GIPS standards for asset owners.
 cannot make aclaim of
Incorrect because according to the GIPs standards, Consultants claimof
are making a
compliance unless they actually manage assets for which they
compliance. claim of
cannot make a
Incorrect because according to the GIPS standards, Consultants making a claim of
compliance unless they actually manage assets for which they are
compliance.

Answer 24 of90
Answer
Solution
performance
Incorrect becacause the GIPS standards do not address every aspect of
additional areas or
measurement and willcontinue to evolve over time toaddress
investment performance.
certain calculation
Correct because the GIPS standards reguire frms to adhere to
methodologies to allowfor comparability across firms.
Incorrect because the GIPS standards firms must include all actual, fee-paying
investment
discretionary segregated accounts in at least one composite defined by
mandate, objective, or strategy.

Answer 25 of90
Answer
Solution
with the
Incorrect because according to the recommended procedures for compliance
firms to disseminate to
encourage their
Standard relating to misconduct, members should sanctions. Therefore,
employees a list of potential violations and associated disciplinary
all
it is not a recommended procedure to disseminate a list of past violations.
with the
Correct because according to the recommended procedures for compliance firms to check
Standard relating to misconduct, members should encourage their
references of potential employees to ensure that they are of good character.
compliance with the
Incorrect because according to the recommended procedures for
Standard relating to misconduct, members should encourage their firms to disseminate to
disciplinary sanctions. Therefore,
all employees a list of potential violations and associated
it is not a recommended procedure to disseminate a list of past violations.

Answer 26 of 90
Answer

Solution
Incorrect because Standard VII(A),Conduct as Participants in CFA Institute
was violated by candidates revealing specific formulas.
Programs,
Incorrect because Standard VII(A), Conduct as Participants in CFA Institute Programs, was
violated by candidates revealing portions of the CBOK covered on the exam and portions
not covered.
Correct because discussing the level of difficulty of the essay portion of the examination
isnot a violation of Standard VII(A)-Conduct as Participants in CFA Institute Programs.

Answer 27 of90
Answer
Solution
Communication with Clients and
Correct because according to Standard V(QB),
Prospective Clients, if recommendations are contained in capsule form (such as a
recommended stock list),members and candidates should notify clients that additional
addtt
information and analyses are available from the producer of the report. In

342
 to Therefore, to Therefore, was
and
portions
examination
Programs.
oY ot thedisseminate the disseminate Programs, additional
claimof claim of the addition,
areas
of calculation
performance investment with with
claim aclaim withcheck
sanctions. sanctions.
aas
a fee-paying, and
make
a compliance compliance the theInstitute
exam
on (such
that
a make to to character.
compliance to Institute
Institute Clients In
making aremaking additional violations.
firms firms
violations.
firms of formclients
report.
cannot cannot certain by disciplinary disciplinary portion
of defined CFA with
are aspect actual, fortheir their their CFA
CFAformulas. capsule
for
good notify
the
Consultants
they Consultants addressto pastfor list
ofpast covered
CBOK
the in Communication
they procedures procedures in in essay
ParticipantsParticipants
encourage encourage
procedures encourage of
every adhereall composite of
of
are
Participants
in should
producer
which which include associated
list associated specific the
to firms. they
contained
address
time to a adisseminate
to of candidates
for standards,
standards. manage
for
assets firms shoulddisseminate
recommended should should
assets mustone
across thatrecommended
recommended revealing difficulty
as as
as the 342
over and and
not least ensure Conduct of
Conduct VII(A)-Conduct V(B),are from
requirefirms members membersmembers
GIPSmanage GIPS do evolve comparability violations violations portions
of
recommendatio
Standardandavailable
at candidates
standards standards in to to level
the tO
standards accounts the procedure the recommended
procedure VII(A),
VII(A), members
the employees
themisconduct,
misconduct, misconduct, revealing
to actuallyto actually continue strategy. to potential to potential the
to
because
according according according to according Standard are
for
GIPS performance.
GIPS
GIPS according by Standarddiscussing
Standard according analvses
list).
they they to segregated
methodologies
allow recommended violated
candidates
thewill the the or of potential of if stock
Clients,
unless
unlessbecause objective, to list to to list because of
90
and
because because Answer because
of90
25 relating
relating because because
relating because because
violation90 because and
[Link]. Solution
complicompliance
mpliance of
because
measurement discretionary
investment
a
employees of
a
employees of
90
Solution
was
not
covered.
of
Solution
Tecommended
ntormation
OSpective
24 Solution references 26 violated
by
Programs, 27
lacorrecttncorrect Answer
Answer enerrect CorrectIncorrectmandate,
Answer
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not
Incorrect
Standard
a Correct
Standard Standard
a
not Answer
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a Answer
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not
all itis is IS
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 these Therefore,
additins. Social
necessary high-quality
is
considered the unintended
take
are to shareholders
a
mechanism
on
to which rec
posts they managers to hostileto
cliente
because steps upon providing the V(B), managers position
SS
media, a should are of thepersuaded
reasonable
problems
[Link] as
information
thatLeung Clients
(such
andto if to Standard
and,access
sure
ways,
One board
shareholders
a of directors
information
to be Clients service
avoid candidates insure
be motivate involves ways.
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Answer 30 of 90
Answer
Solution
Incorrect because the impairment loss is a non-cash item and does not affect cash from
operations.
Correct. The company willreport an impairment loss of $13.8 million on its income
statement. Under US GAAP, the facilities fail the recoverability test: the net book value
cannot be recovered from undiscounted cash flows (7 years x $3 = $21 < $28.4). Therefore,
the asset is impaired and should be written down to its fair value.
Fair Value is the present value (PV) of future benefits: (N=7;i= 10; PMT = 3); PV = 14.6
Impairment Loss is Carrying value - Fair value =28.4 - 14.6 =13.8 to be reported on the
income statement.
Incorrect because it was determined with nodiscounting of future benefits,
resulting in an incorrect impairment charge: 28.4 - (3 x 7) = 7.4.

Answer 31 of90
Answer
Solution
Incorrect because the impact on a lessor's balance sheet is the same for both a direct
financing and a sales-type lease.
Correct because a lessor reports a profit on the sale of the asset on the income
statement when the present value of the lease payments exceeds the carrying amount of
the leased asset (sales-type lease).
Incorrect because the interest portion of the lease payment is either an operating or
financing cash outflow under IFRS,and is an operating cash outflow under US GAAP.

Answer 32 of 90
Answer
Solution
Incorrect because like a limited partnership, owners in a corporation (and US LLC) have
limited liability, and don't share all risk and business liability.
Incorrect because a limited partnership must have at least one general partner with
unlimited liability who is responsible for the management of the business. Remaining
partners, called limited partners, have limited liability, meaning they can lose only up to the
amount of their investment in the limited partnership.
Correct because general partnerships have a small number of partners who establish
the business by contributing equal amounts of capital. Akey feature of general
partnerships is that partners share all risk and business liability.

Answer33 of 90
Answer
Solution
Incorrect, because if both fiscal and monetary policy are easy, then the joint impact will be
highly expansionary leading to--lower interest rates (at least if the monetary impact is
larger), and growing private and public sectors, without the private sector's share of GDP
growing.
Correct because with tight fiscal policy/ easymonetary policy: Ifa fiscal contraction is
accompanied by expansionary monetary policy and low interest rates, then the private
Sector willbe stimulated and will rise as a share of GDP, while the public sector will shrink.
Incorrect, because under easy fiscal policy/tight monetary policy we have higher output
and higher interest rates, and government spending (not the private sector) will bea larger
proportion of overall national income.

344
 90
Answer 34of
market under US
lower of cost or realizable va GAAP.
Answer
Solution at the
inventories are
measured of cost or net
because measured at the lower
Incorrect inventories are realizable tuol
Correct because of cost or net
at the lower estimated coste
under IFRS.
inventories are measured selling price less the
Incorrect because estimated selling price
realizable value is the sale, not just the estimated
under [Link] necessary to make the
completion and costs

Answer 35 of90
Answer
Solution transparency are arguably the crucial
and Thus.
because independence, credibility,
whether they target inflation or not. crucial
Incorrect central bank, inflation) is not a
ingredients for an effective
inflation targets (or even targeting
maintaining reasonable bank to be considered effective. crucial
requirement foracentral credibility, and transparency are arguably the
independence, target inflation or not.
Correct because bank, whether they crucial
ingredients for an effective central
credibility, and transparency are arguably the Additionally.
independence, inflation or not.
Incorrect because bank, whether they targettransparent
ingredients for an effective central
bank to be in its decision
credibility is for acentral transparent in decision
one way of establishing views on the economy and by being and
making. By explaining inflation-targeting central banks seek to gain reputation easier
their
independent, hence ultimately
making, the influence inflation expectations and
credibility, making it easier to preserving the confidentiality of its economic views
target. Thus,
to meet the inflation
contradicts a crucial ingredient of transparency.

Answer 36 of 90
Answer
Solution
carrying amount of the asset class,
Incorrect because if a revaluation initially decreases thecarrying amount of the asset class
the decrease is recognised in profit or loss. Later, if the extent that it reverses a
increases, the increase is recognised in profit or loss to the
or loss. Any
revaluation decrease of the same asset class previously recognised in profit
income statement
increase in excess of the reversalamount will not be recognised in the
which
but will be recorded directly to equity in a revaluation surplus account. 2,000,000
represents the reversal of a revaluation recognized in profit or loss, is reported on the
income statement in Year 2.
Correct because if a revaluation initially decreases the carrying amount of the asset class,
the decrease is recognised in profit or loss. Later, if the carrying amount of the asset class
increases, the increase is recognised in profit or loss to the extent that it reverses a
revaluation decrease of the same asset class previously recognised in profit or loss. Any
increase in excess of the reversal amount will not be recognised in the income statement
but will be recorded directly to equity in a revaluation surplus account. In Year 1,a loss of
2,000,000 is recognized in profit and loss; In Year 2, the loss of 2,000,000 is reversed on the
income statement as a gain, and the excess of 3,000,000 (5,000,000- 2,000,000) bypasses
profit or loss and goes through 0CI to the revaluation surplus.
Incorrect because it calculates the change in revaluation surplus as being equal to the
entire increase in FMV from 18,000,000 to 23,000,000. If a revaluation initially decreases
the carrying amount of the asset class, the decrease is recognised in profit or loss. Later, l!
the carrying amount of the asset class increases, the increase is recognised in profit or loss
to the extent that it reverses are valuation decrease of the same asset class
previously
recognised in profit or loSs. Any increase in excess of the reversal amount will not be
recognised in the income statement but will be recorded directly to equity in a
Answer34 of90
or market under US GAAP
Answer
the lower of cost net realizable val..
Solution measured at or
inventories are at the lower of cost
measured realizable val.
Incorrect because
inventories are or net
because of cost estimated coste
Correct measured at the lowerprice less the prico
under IFRS. inventories are estimated selling the estimated selling
Incorrect because
realizable value is the just
the sale, not
under IFRS. Net costs necessary to make
completion and

90
Answer35 of
Answer crucial
Solution transparency are arguably the
independence, credibility,
and not. Thus,
because whether they target inflation or crucial
Incorrect central bank, inflation) is nota
ingredients for an effective even targeting
inflation targets (or
maintaining reasonable bank to be considered effective. are arguably the crucial
requirement for a central transparency
independence, credibility, and inflation or not.
Correct because effective central bank, whether they target are arguably the crucial
ingredients for anindependence, credibility, and transparency Additionally.
inflation or not.
Incorrect because effective central bank, whether they targettransparent in its decision
ingredients for an credibility is for acentral
bank to be decision
one way of establishing economy and by being transparent in
views on the reputation and
making. By explaining their inflation-targeting central banks seek to gain ultimately easier
making, the independent, to influence inflation expectations and hence
credibility, making it easier preserving the confidentiality of its economic views
Thus,
tomeet the inflation target. of transparency.
contradicts a crucial ingredient

Answer 36 of 90
Answer
Solution
carrying amount of the asset class,
Incorrect because if a revaluation initially decreases thecarrying amount of the asset class
if the
the decrease is recognised in profit or loss. Later,
increases, the increase is recognised in profit or loss to the extent that it reversesa
profit or loss. Any
revaluation decrease of the same asset class previously recognised in income statement
increase in excess of the reversal amount will not be recognised in the
which
but will be recorded directly to equity in a revaluation surplus account. 2,000,000
represents the reversal of a revaluation recognized in profit or loss, is reported on the
income statement in Year 2.
Correct because if a revaluation initially decreases the carrying amount of the asset class,
the decrease is recognised in profit or loss. Later, if the carrying amount of the asset class
increases,the increase is recognised in profit or loss to the extent that it reverses a
revaluation decrease of the same asset class previously recognised in profit or loss. Any
increase in excess of the reversal amount will not be recognised in the income statement
but will be recorded directly to equity in a revaluation surplus account. In Year 1, a loss of
2,000,000 is recognized in profit and loss; In Year 2, the loss of 2,000,000 is reversed on the
income statement as again, and the excess of 3,000,000 (5,000,000 - 2,000,000) bypasses
profit or loss and goes through 0CI to the revaluation surplus.
Incorrect because it calculates the change in revaluation surplus as being equal tothe
entire increase in FMV from 18,000,000 to 23,000,000. If a revaluation initially decreases
the carrying amount of the asset class, the decrease is recognised in profit or loss. Later,
the carrying amount of the asset class increases, the increase is recognised in
to the extent that it reverses are valuation decrease of the profit or loss
same asset class previously
recognised in profit or loss. Any increase in excess of the reversal
recognised in the income statement but will be recorded directlytoamount will not be
equity in a
 revaluation surplus account. 5,000,000 is the total amount reported on the income
statement (2,000,000) plus the revaluation surplus (3,000,000).

Answer37of90
Answer
Solution
Incorrect because the tax rate (whichis expressed as tax paid as a percentage of net
This is
income) increased year over year, from 26.1% (¬120/¬460) to 26.7% (¬155/¬580).
(¬120/¬2,325)
lso true of tax paid as a percentage of revenue, which increased from 5.2%
because of
to 5.9% (¬155/¬2,611) year over year. The company's profitability was reduced
the higher tax rate.
Correct because gross profit margin improved from 33.3% (¬775/¬2,325)to 35.6%
(e930/¬2,611). This may be reflective of selling a new, more highly differentiated product.
Year 1
incorrect because SG&A as a percentage of revenue slightly increased year over year:
-6260/E2,325 = 11.2% and Year 2= ¬295/¬2,611 = 11.3%.

Answer 38 of90
Answer
Solution
Incorrect because it is the difference between the inflation target of 3% and the long
term growth potential of 2%.3% - 2% = 1% such this
Incorrect because it is the inflation rate and ignores the growth potential. As
Inflation
interest. Neutral rate = Trend growth +
would be an expansionary rate of
target. 5%.
Correct because the Neutral rate = Trend growth + Inflation target = 2% + 3%=

Answer 39 of 90
Answer
Solution
the original date of acquisition.
Correct because IFRSdoes not require disclosure ofobtained must be disclosed by
Incorrect because the details of how fair value was
companies using the revaluation model. amount must be disclosed by
Incorrect because under the cost model, the carrying
companies using the revaluation model.

Answer 40 of 90
Answer
Solution
28.5 = +36.5; IRR = -0.7499%.
Incorrect It uses CF, = -30, CF,= -7, CF, +8+
balance at the beginning of year:
Incorrect It uses cash flows from the difference of new
= +10, CF, = +28.5; IRR =-1.523%.
CP, =-30, CF, = -40 + 30=-10,CF, = -30 +40investment amounts to determine the cash
Correct. Tabulate the annual returns and the
flows: 2
Year
0 33.00 38.00
Balance from previous year
New Investrment by Maria Delanie 30.00 7.00
0 -8.00
Withdrawal by Maria Delanie
30.00 40.00 30.00
Net balance at the beginning of the year
10% -5% -5%
Investment return for the year
3.00 -2.00 -1.50
Investment gain (loss) 33.00 38.00 28.50
Balance at the end of the year
CF, =-30, CF, =-7, CF, = +8, CF, = +28.5; IRR =-0.524%
346
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 subject
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r r)+
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rate any a a on
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-606.061 lag constraint for currency
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NPV. -1,825,929.30
-[Link] case before competitive
demanddemand with as with
1,778,111.60
-$606,061.00 related infrastructure
a the demand its legislative
(CBS)
at 564,473.90 not arrangement combined
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NPVs r=219% +$14.70 time the time required
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In before an any with lag the the exchange
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of is -2,542,424
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arrectYear Incorrect will effectively conclusion Solution
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Answer thereby Correct Incorrect
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Incorrect Incorrect on Pecined
there a
Answer market market market AnswerAnswer tender. CorrectDased Ssuing
1 2 3
that type
to to
 Answer48 of90
Answer
the forwards pointsto arrive at the
Solution adds
ratherthan 10,000) =1.0993 - (11.7 /10,000) = 1.0981
subtracts
Incorrect becauseitrate - (forward points/rate= spot rate + 1.1005. points / 10,000)
(forward
spot
forwardrate: the six month forward
is closest to
Correct because 10,000) = 1.10047, which by 1 plus the forward points divided
by 100
(11.7 / multiplied forward points /
= 1.0993+ isthe spot rate Spot rate x (1+ 100)
=
Incorrect because itexpressed as a percentage).
points
(i.e. forward 11.7/ 100) = 1.2279.
1.0993 x (1 +

Answer49 of90
Answer

Solution the eu.

capital is incorrectly subtracted from
in working ¬300 + ¬35- ¬35 =
¬300
Incorrect because the decrease CFO (in millions) =
depreciation expense: accounts payable; or CFO(in
millions)
net income and the increase in
Incorrect because it subtracts ¬25)= ¬320.
=¬300 + ¬35- (¬20 - ¬30 + capital
income + Depreciation expense - Increase in working -
Correct because CFO = Net in acCCOunts receivable
working capital = Increase in inventory+ Increase -¬35, i.e.
Increase in
accounts payable. Increase in working capital= ¬20 ¬30- ¬25 income and
Increase in of net
¬35 which is added tothe sum
actually decrease in working capitalof ¬300 + ¬35
millions) = - (-¬35) =
depreciation expense. Consequently, CFO (in
¬370.

Answer 50 of 90
Answer
Solution
Incorrect. Rejection of atrue null hypothesis isa Type I error.
Correct. Failure to reject a false null hypothesis is a Type II error.
Incorrect. The power of atest is the probability of correctly rejecting the null.

Answer 51 of90
Answer
Solution
Incorrect because it is the present value of an annuity due with 9 payments instead of 10.
Because the first payment occurs at t= 0, we can separate the annuity into two pieces: al
immediate $10,000 that is received today (t = 0) and an ordinary annuity of
$10,000per year for 8 years.
Using the formula for the present value of the ordinary annuity with 8
compute PV = A[1 - 1/(1 +r)]/r= 10,000 x [1 - 1/(1+ 0.06)"]/0.06 =payments, we
$62,097.94.
Adding thetwopieces, we obtain PV = $10,000+ $62,097.94 =$72,097.94
$72,098.
Alternatively,using a financial calculator in BGN mode:
N=9; I/Y =6; PMT = 10,000; FV =0; CPT PV
$72,097.94 $72,098.
Incorrect because this is the present value of a regular
whereas the investment in the example is an annuity due. annuity with 10 payments,
value of the ordinary annuity, we compute PV =A[1 - 1/(1+ sing the formula for the prese
0.06)]/0.06 =$73,600.87 x $73,601. r]/r= 10,000 x (1 - 1/(
Alternative solution usin
 e10: /N= 6;PMT = 10,000; FV = 0; CPT PV =
Correctt because the investment
represents an
$73,600.87 $73,601.
he Arst payment occurs at t=0, we can
annuity due with 10 payments. Because
nmediateyears. separate the annuity into two pieces: an
$10,000 that is received today (t 0)and an ordinary annuity
year for 9 of $10,000 per
tsingthe formula for the present value of the
ordinary annuity with 9
compute PV =A|1 - 1/(1 +d1/r=$10,000 x(1 - 1/1+ 0.06)-\/0.06 =payments, we
>$68, 106.92.
Adding the two pieces, we obtain PV - $10,000 +$68,106.92 =$78, 106.92
$78,107.
Alternatively, using a financial calculator with END mode:
Compute the present value ofthe ordinary annuity with N 9; /Y =6; PMT = 10,000; FV
-0; CPT PV =$68,016.92
Adding them, we obtain PV= $10,000 + $68,016.92 - $78,016.92 =$78,017.
Alternatively, using a financial calculator with BGN mode:
N= 10; l/Y = 6; PMT = 10,000; FV = 0; CPT PV= $78,016.92
$78,017.
Answer 52of90
Answer
Solution
Incorrect because maintaining price stability is an objective of monetary policy not fiscal
policy. There is one overarching objective of the central bank that most seem to
acknowledge explicitly,and that is the objective of maintaining price stability.
Incorrect because targeting the exchange rate is a monetary policy objective not a fiscal
policy objective. Many developing economies choose to operate monetary policy by
targeting their currency's exchange rate, rather than an explicit level of domestic inflation.
Such targeting involves setting a fixed level or band of values for the exchange rate against a
major currency, with the central bank supporting the target by buying and selling the
national currency in foreign exchange markets.
Correct because tools associated with fiscal policy involve the use of government
spending and changing tax revenue to affect a number of aspects of the economy:
Distribution of income and wealth among different segments of the population.

Answer 53 of90
Answer
Solution
Incorrect because the marginal tax rate is omitted when calculating the debt tax shield.
V*V+D, and therefore, V $1.5 billion - $0.6 billion = $0.9 billion.
Correct because the value of the levered company is greater than that of the all- equity
an amount equal to the tax rate multiplied by the value of the debt, also
termed thebydebt
company tax shield. V,= V,+ tD, where V= thevalue of the levered company, V, =the
is the debt tax shield.
Value of the unlevered company, t is the marginal tax rate and tDbillion
Therefore, $1.5 billion = , +0.30 x$0.6 billion and V= $1.32 s$1.3 billion.
Incorrect because candidates use Modiglianiand Miller's Proposition Istructurewithout taxes which
affected by the capital of the
States that the market value of a company is not $1.5 billion. (p. 41)
company. Therefore, V, = Vo and the value of the unlevered company is
 Answer 54 of 90
Answer

Solution
include items such
Correct because primary sources include short-term funds, which can
as trade credit, bank lines of credit, and short-term investment portfolios.
Incorrect because the main difference between primary and secondary sources of
liquidity is that using a primary source is not likely to affect the normal operations of the
company, whereas using asecondary source might result ina change in the company's
financial and operating positions. Secondary sources include liquidating assets.
Incorrect because the main difference between primary and secondary sources of
liquidity is that using a primary source is not likely to affect the normal operations of the
company. whereas using a secondary source might result in a change in the company's
financial and operating positions. Secondary sources include negotiating debt contracts,
relieving pressures from high interest payments or principal repayments, and negotiating
contracts with customers and suppliers

Answer 55 of 90
Answer
Solution
Incorrect because if products are price elastic, an increase in prices is associated with a
decrease involume. If demand isrelatively price inelastic, revenues willbenefit from
inflation. If demand is relatively price elastic (i.e., elasticity is greater than unit price
elasticity), revenue can decline even if unit prices are raised.
Incorrect because in the highly competitive consumer goods market, pricing is strongly
infuenced by movements in input prices, which can account for half of the coGs. In some
time periods, customers' price sensitivity has resulted in a strong inverse relationship
between volume and pricing. An increase in price reduces the volume, muting the effect on
a company's revenue.
Correct because in a fragmented consumer base, the consumers have less bargaining
power making it easier for companies to pass on higher costs to the consumers.

Answer 56 of 90
Answer
Solution
Incorrect because the oligopoly market structure is based on a relatively small
number of firms [not many firms] supplying the market.
Incorrect because another extreme is perfect competition which has many
supplying a similar product. firms
Correct because in the case of monopolistic competition, there are
providing products to the market and one firm's product is many firms
differentiated in some way.
Answer 57 of 90
Answer
Solution
Incorrect because it calculates Cash flow per share without
dividends. Accordingly, Cash flow per share = (CFO- Preferredadding back total
common shares outstanding = (600 - 30)/100= 5.7. dividends) / Number of
Incorrect because it added back preferred dividends
Accordingly, Cash flow per share = (CFO + Preferred instead of common dividends.
shares outstanding (600 + 30) / 100 = 6.3. dividends) / Number of common
Correct because Cash flow per share = (CF0-
common shares outstanding. Note that if the Preferred dividends) / Number of
total dividends paid as a use of cash in company reports under IFRS and includes
added back to CFO as reported and then the operating section, total
preferred dividends shoulddividends should be
be subtracted.
 Therefore, the ccalculation becomes =(CFO + Total I dividends - Preferred dividends) /
Number of commonshares outstanding = (600 + 120 - 30) / 100 = 6.9.
Answer 58 of90
Answer
Solution
Incorrect because book value is used instead of market value. Assume the company s
Current capitalstructure, at market value weights for the components, represents the
company'starget capital structure.
Incorrect because an analyst can use averages of comnparable companies' capital
structures [not a diversified group] as the target capital structure.
Correct because an analyst can examine trends in the company's capital structure or
statements by management regarding capital structure policy to infer the target capital
structure.

Answer 59 of 90
Answer
Solution
Incorrect because when revenue is recognized, acontract asset is presented on the balance
sheet. It is onlyat the point when all performance obligations have been met except for
payment that a receivable appears on the seller's balance sheet.
Correct because when revenue is recognized, acontract asset is presented on the balance
sheet. It is only at the point when all performance obligations have been met except for
payment that a receivable appears on the seller's balance sheet.
Incorrect because when revenue is recognized,a contract asset is presented on the balance
sheet. It is only at the point when all performance obligations have been met except for
payment that a receivable appears on the seller's balance sheet. If consideration is received
in advanceof transferring good (s) or service(s), the seller presents a contract liability.
Answer 60 of 90
Answer
Solution
Incorrect because free trade areas (FTA) are one of the most prevalent forms of regional
integration in which all barriers to the flow of goods and services among members have
been eliminated. However, each country maintains its own polices against non- members.
Incorrect because acustoms union does not allow free movement of factors of production.
Acustoms union extends the FTA by not only allowing free mnovement of goods and
services among members but also creating a common trade policy against non- members.
Correct because acommon market is the next level of economic integration that
and
incorporates all aspects of the customs union (free moverment of goods and services,
of
common trade policy against non-members) and extends it by allowing free movement
factorsof productionamong members.

Answer 61 of 90
Answer
Solution
and is therefore unaffected
Incorrect because the quick ratio does not include inventory
Dy changes in the inventory carrying amount. Quick ratio = (Cash +Short-term
liabilities.
marketable investments + Receivables) + Current of an inventory write down. The
result
Correct because the Current ratio decreases as a Inventory is classified as current
Current ratio = Current assets + Current liabilities. are cash and cash equivalents,trade
line items
aSsets,among the current assets' required
 assets (w the balance
S
ptoapul

receivables, inventories, and financial the carrying amount on realisable valu.

and other inventory declines below to ts netstatement. Thi
fncorr
value of be written down distrib
event that the carrying amount must income
sheet, the inventory recognised as an expense on theseparately. The numnerate.. distin
the loss (reduction
in value)
of costof sales or reported the denominator is
included as part write-down and meas
expense may be reduced by an inventory decrease. how
ratio is
the Currenttherefore would
either an increase or
unaffected, the current ratio would result in write-down expense was contr
inventory write-down
the
Incorrect because an turnover ratio, depending on where inventory declines bele..
data d
payables that the value of write data a
unchanged decrease. In the event inventory carrying amount must be expene
recognized,instead of a the as an estim
the carrying amount on the balance sheet, loss (reduction in value)
recognised
reported
the part of cost of sales or
and stand
realisable value included as
downto its netstatement. Thisexpense may be
on the income
separately. goods sold ie
goods sold and cost ofturnover Ansn
down is included in cost of =
When the inventory write payables turnover would increase. Payables inventory Ans
used as a proxy of purchases, payables are not ímpacted by an Sol
trade payables. While approximation. Note that
Purchases +Average increases when COGS is used as an
write-down,the numerator sometimes used as an
turnover, cost of goods sold is and Inco
when calculating payables
purchases. When the inventory write down is reported separately
turnover of 5
approxímation of there would be no impact on the
payables PL
does not from cost of goods sold,
ratio. Incco
disc
Answer62 of 90 beg
Answer P
Solution Cor
available, it can be pre
Correct because if the amount of purchases is not directly P
goods sold plus ending inventory less beginning inventory.
computed
Alternatively,costofof goods sold is sometimes used as an approximation of purchases.
ascost
Incorrect because if the amount of purchases is not directly available, it can be
computed as cost of goods soldplus ending inventory less beginning inventory. An
Alternatively,cost of goods sold is sometimes used as an approximation of purchases. An
Incorrect because if the amount of purchases is not directly available, it can be Sc
computed as cost of goods sold plus ending inventory less beginning inventory.
Alternatively,cost of goods sold is sometimes used as an approximation of purchases. In
hy
Answer 63 of 90
in
Answer
Solution di
Correct because the variance of arandom variable is the expected value (the probability ar
weightedaverage) of squared deviations from the random variable's expected value.
Var(X) = P(0)x(0- 0.5): +P(1)x(1 - 0.5)2= 0.5x0.5+0.5x0.52=0.25, where expected value
of Xis E(X) = 0x0.5 + 1x0.5 = 0.5.
Incorrect because it just takes the distance from the expected value of 0.5
outcomes of Xof 0 or 1. It is also the standard deviation to potential
of X, i.e. Var(X]0s = 0.25s = 0.50.
Incorrect because it is just a range of values that Xcan take = 1-0
probabilities from the probability function of X= 0.5 + 0.5 = 1.00. =1. It is also the sum of

Answer 64 of 90
Answer
Solution
Incorrect because this is not the definition of
error is the difference between standard error, but sampling error.
the observed value
intended estimate as a result of using
to of a statistic and the Sampins
quantity it is
measures how much inaccuracy of a subsets of the population while standard error
population parameter estimate comes from
sampins
353
 Alsn it we want to nd out how prcise the extinate of appulatton arameter thn
sampled data is relatie to its true value stantard error is the metrte te use
Qorrect bevuse samping eror is the diterenve between the obsevet value of a
statisti and the quantity it is intended tvestimate as a result of using suhsets of the
ppulathm
Inort berause although the standard error isthe standart deviation ef the sampling
istribution of theparaneter. 'standard deviatton' in general and 'standard error' are two
distinet onepts and the terms are not interchangeahle Simpty [Link] devtation
measures the dispersion of the data fhom the mean, wheras standard error measures
how much inavuray of apopulation parameterestimate comesfrom sampling The
ontrast beween standard deviation and standard error reflects the distinction between
data description and inferenoe If we want to draw conclusions about how spread out the
data are. standand deviation is the term to quote. fwe wantto find out how precise the
estimate of a population parameter fhom sampled data is relative to its true value.
standard eror is the metric to use

Answer65 of 90
Answer
Solution
Incorrect because this is the result if the cash lows are discounted for 10 years instead
of5PV=
years: the calculation uses(1.05) "as the discount factor instead of (1.05)
FV.(1 +r)n=$50,000(1.05) w= $30,696.
Incorrect because this is the result if the calculation for present value uses (1.05) "as the
discount factor instead of (1.05) That is, the cash flows are discounted back to the
beginning of Year 5, one more year than they should be.
PV= FV.(1+r)n= $S0,000(1.05)+= $37,311.
Correct because Year 10 is five years into the future from the end of Year 5, so the
present value at the end of Year 5 is calculated using the formula
PV= FV.(1 +r)n= $50,000(1.05)=$39,176.
Answer 66 of 90
Answer
Solution
Incorrect because this refers topecking order theory, not Jensen's treecash flow
hypothesis. The pecking order theory says that managers preferinternal financing, If
internal financing is insufficient, managers next prefer debt, then equity.
Correct because according to Michael Jensen's free cash flow hypothesis higher debt levels
discipline managers by forcing them to manage the company efficientlyso the company
can make its interest and principal payments and by reducing the company's free cash flow
and thus management's opportunities to misuse cash.
Incorrect because this refers to debt signaling, not Jensen's free cash low hypothesls.,
Managers can signal to the market their confidence in acompany's prospects through the
issuance of debt, whichcommits the company to future obligatlons (so-caled "debt
signaling").
Answer 67 of 90
Answer
Solution
Incorrect because hegemony is characterized by globalizatlon and non-cooperation.
Incorrect because bilateralism is characterized by nationalism/anti-globalizatlon and
cooperation.
Correct because multilateralism is characterized by globalization and cooperation,
 Answer68 of90
Answer
the me
Solution return is equalto the product of of
geometric mean annual number
Correct because the power, where n is the
product tothe 1/n»
setting the
returns and then
translates to: 1.45%
returns. This
1.067 x 0.967)0zs -1 0.0145 =(12.2% -8.5% + 6.7%
x
(1.122 x 0.915 arithmetic mnean annual return:
Incorrect. This is the 1 = 0.05o
3.3%)/4 1.78%. return: (1.122 x 0.915 x 1.067 x 0.967) -
period
Incorrect. This is the holding
=5.939%.

Answer 69 of90
Answer
Solution investment and
sequencing is a type of timing option. Delaying an a year
Correct because project
hopefully improved information that you might have in, say,
allow the
basing the decision on options
selected. Project sequencingoutcome of some
improve the NPV of the projects
could help investment until the
company to defer the decision to invest in a future
is known.
or all of a current investment not a type of flexibility
Incorrect because project sequencing is a type of timing option,
besides abandonment or
operational flexibilities
option. Once an investment is made, be able to exercise a price- setting option
expansion may be available. Management may excess demand]. There are also production
[which is a flexibility option to benefit from flexibility to alter production when demand
flexibility options which offer the operational
varies from what is forecast.
Incorrect because project sequencing is a type of timing option, not a type of
whole investment is
fundamental option.A fundamental option exists in cases where the underlying
essentially an option. The payoffs from the investment are contingent on an
asset, just like most financial options.

Answer 70 of 90
Answer
Solution
Correct because in Year 2 the company paid ¬76,330 in cash for other operating
expenses, calculated as follows:
Other
operatin
¬80,050
expense

Less: A deduction: Prepaid expense declined.

Decrease Cash-based other operating expenses lower than accrual basis
in prepaid
expenses
¬8,400 -
E10.600 =
¬2,200 -E2,200
Less: A deduction: Accrued utilities payable
Increase increased.
Cash-based other operating expenses lower
in accrued than accrual basis
utilities
payable
¬23,020
¬21,500=
¬1,520 -¬l,520

355
Cash paid for
other ¬76,330

356
 liabilitiesto
operating
adds the change in accrued ¬2,200 +
expenses response incorrectly direct method: ¬80,000
- ¬1,520 -
Incorrect because this tothe
when converting prepaid expenses to
operatingexpenses the change in
adds method: ¬80,000 + ¬2,200- ¬1,520=
¬79,370. response incorrectly
Incorrect because thiswhen convertingto the direct
operatingexpenses
¬80,730.

Answer 71 of 90
Answer
Solution amortized
assets are subsequently measured at solelvot
financial consist
Incorrect because under IFRS, cash flows occur on specified dates and maturity.
asset's
cost (not fair value) ifthe business model is tohold the asset to
amortized
principal and interest, and if thefinancialassets are subsequently measured at solelv of
Incorrect because under IFRS, cash flows occur on specified dates and consist
(not historical) cost if the asset's
the business model is to hold the
asset to maturity.
principal and interest, and if measured at
financial assets are subsequently
Correct because under IFRS, occur on specified dates and
consist solely of
amortized cost if the asset's cash flows model is to hold the asset to maturity
principal and interest, and if the business

Answer 72of 90
Answer
Solution
Incorrect because event risk evolves around set dates, such as elections, new legislation,
or other date-driven milestones, such as holidays or political anniversaries, known in
advance. Politicalevents often result in changes to investor expectations related to a
country'scooperative stance.
Incorrect because thematic risks are known risks that evolve and expand over a period of
time. Climate change,pattern migration, the rise of populist forces, and the ongoing threat
of terrorism fall into this category. Cyber threats are another example of thematic risk.
Cyber risksinclude any attempt to expose, alter, disable, destroy, steal, or gain information
through unauthorized access to or unauthorized use of computer systems.
Correct because exogenous risk is asudden or unanticipated risk that impacts either a
country's cooperativestance, the ability of non-state actors to globalize, or both.
Examples include sudden uprisings, invasions, or the aftermath of natural disasters.

Answer 73 of 90
Answer
Solution
Incorrect because this distractor incorrectly uses book values
calculate weights. WACC =wra(1 -t) +W,r, + W.r, (900/(900 instead
+
of market values to
300)) x 0.04 x (1 -0.30) *
(300/(900+300))x0.06 =0.036 =3.,6%.
Correct because WACC = War(1 - t) + W,r, t
W.r.
where

wais the proportion of debt,

rais the before-tax
w, is the proportionmarginal cost of debt,
of preferred stock,
r, is the marginal cost of
preferred stock,
357
 [Link] the proportion of equity, and
r. isthe marginal cost of equity.
Therefore WACC =
0.03867 3.9%. (1000/(1000 + 500)) x
(0.04)(1 -0.30) | + (500/(1000 +500)) x 0.06 =
Incorrect because this response does
not
interest, i.e. WACC = Wara(1 -t) + w,r, + take into account the tax deductibility of
(500/(1000+500) x 0.06 = 0.04667 w.r. (1000/ (1000+500)) x 0.04 +
4.7%.
Answer 74 of 90
Answer
Solution
Incorrect because a low asset turnover can be an
capital intensity of the business. Company's 2 assetindicator
turnover
of inefficiency or of relatuve
is 2 and larger than
Company 1, indicating higher efficiency.
Incorrect because ROE can be written as ROE = ROA x Leverage and thus ROA =
ROE/Leverage. Leverage =average total assets/average shareholders' equity. For Company
1. ROA = 12%/2 = 6%. For Company 2, ROA= 18%/3 = 6%.
They are equal.
Correct because ROE = Net profit margin x Total asset turnover x Leverage and thus Net
profit margin = ROE/(Total asset turnover x Leverage). For Comnpany 1, Net profit margin
=12%/(1 x 2) = 6%, which is higher than Company 2's Net profit margin = 18%/(2
x3)= 3%.

Answer 75 of 90
Answer
Solution
Correct because when a company has convertible debt outstanding, the diluted EPS
calculation also usesthe if- converted method. Diluted EPSis calculated as if the
convertible debt had been converted at the beginning of the period. If the convertible debt
had been converted, the debt securities would no longer be outstanding; instead, additional
shares of common stock would be outstanding. Also, if sucha conversion had taken place,
the company would not have paid interest on the convertible debt, so the net income
available to common shareholders would increase by the after- tax amount of interest
expense on the debt converted. Diluted EPS for a company that has convertible debt
outstanding is calculated according to the following formula: Diluted EPS= (Net income +
After-tax interest on convertible debt - Preferred dividends) + (Weighted average number
of shares outstanding + Additional common shares that would have been issued at
conversion). As disclosed in the stem of the Answer the input factors into this equation are
as follows:

Net income = ¬9,200,000

-0.35) =¬1,040,000
After-tax interest on convertible debt = ¬1,600,000x (1
= 6,000,000
Numbers of shares outstanding at the beginning of the year
Weighted average number of shares outstanding = 6,000,000 *3months + 12 months +
+ 7,500,000 =9,000,000
10,000,000 x 9 months + 12 months= 1,500,000
¬1.0222 ¬1.02
Basic EPS = ¬9,200,000 + 9,000,000 =
be issued at conversion = 2,000.000
Additionalcomnon shares that would have
(9,000,000 + 2,000,000) = ¬10,240.000 -+
Diluted EPS = (¬9,200,000 +¬1,040,000) +
11,000,000 = ¬0.9309 x ¬0.93.
debt is not ani
calculateddiluted EPS is lower than the basic EPS, the convertible
As the
reported diluted EPS is ¬0.93. convertible debt is
alutive. Therefore the tax effect on the interest on the
Ihcorrect because instead the calculation =
therefore the pre-tax interest expense is used in the
ueglected and
358
 ¬1,600,000. This leads to Basic EPS = ¬9,200,000 +9,000,000 = ¬1.02 and to
(¬9,200,000 + ¬1,600,000) + (9,000,000 +2,000,000) =¬10,800,000 + 11,000,000Diluted= EPS =
Incorrect because it calculates the average shares outstanding as (shares outstandine
beginning ofyear +shares outstanding at end ofyear) + 2= 8,000,[Link] leads to P
¬0.98.
EPS = ¬9,200,000+ 8,000,000 =¬1.15 and Diluted EPS = (¬9,200,000 +
¬1,040,000) + (8,000,000 + 2,000,000) =¬10,240,000 + 10,000,000 = ¬1.024
also the correct basic EPS. ¬1.02. It is
Answer 76 of 90
Answer
Solution
Incorret because only under perfect competition do firms have no pricing power. This is
due to an absence of non-price competition combined with a
standardized
monopolistic competition where firms have a differentiated product and canproduct,
engage unlike
in
non-price competition.
Correct because firms have some but not considerable pricing power
under monopolistic
competition. In this market structure, sellers are able to differentiate their
the same time can face a large number of products but at
competitors
isthat firms have more pricing power than they would and low barriers to [Link] result
have under
(where there is no product differentiation) but less pricing power perfect comnpetition
where entry barTiers are high and there are fewer sellers.
than in an oligopoly
Incorrect because firms only have considerable pricing power in
monopoly market structures. Under oligopolistic or
due to low entry barriers, hence firmsmonopolistic competition there are still many sellers
have some but not considerable pricing
power.
Answer 77 of90
Answer
Solution
Incorrect because an acquirer with a high current tax
to pay more than an rate would theoretically be
acquirer with a lower tax rate. willing
Correct because if an acquiring company is
carryforwards to offset its own tax profitable, it may be able to use MU's tax loss
liabilities.
present value of the carryforwards, based on the The value to an acquirer
would be
realization. The higher the acquiring company's tax acquirer's tax rate and expectedthetiming of
acquirer, the sooner it would be alble to rate, and the more
tax rate would benefit. Therefore, an profitable the
theoretically be willing to acquirer with a high current
Incorrect because an acquirer with a high pay more than an acquirer with a lower tax rate.
topay more than an
acquirer with a lowercurrent tax rate would
tax rate. theoretically be willing
Answer 78 of 90
Answer
Solution
Correct because from the ANOVAtable, we
estimate which is also known can also calculate the
as the
square error. The standarderror of the standard error of the regressionstandard error of the
Thus, standard error of the estimate is the sauare root of or the root mean
estimate = 120s =3.4641 3.5. the mean square errol:
Incorrect because it is a square root of
error. Thus, it calculates sum of squared
Incorrect because it issimply the mean =48es 6.9282errors,
standard error 6.9.
and not of the mean
square
square error. It
is also the squareerror, and not the square
square root of the mean root of the mea
square regression= 144"5 = 12.0.
 90
Answer79of
Answer
Solution
Incorrect hecause it is the 4th out of 5 observations in the sample. It is also simply 0.8
x5 4.0.
Incorrect becauseit is the position (not the value) of the 4n quintile: Lo = (5 + 1) x
(80/100) =6 x 0.8 =44.8. It is also 0.8 x (6 - 0) = 4.8.
Correct because the fourth quintile is equivalent to the 80th percentile. To find
rhe yth percentile (P.), we first must determine its location. The formula for the position
of a percentile in an array with n entries sorted in ascending order is L, = (n+ 1) x(
v/100). In this case, n = 5 and y= 80, so L = (5 + 1) x (80/100) = 6 x 0.8 = 4.8. When Ly S
not awhole number or integer, L, lies between the two closest integer numbers (one
above and one below), and we use linear interpolation between those two places to
determine P, Thus, the value of the 4n quintile is Pan 4+ 0.8 x (6 - 4) = 5.6.

Answer 80 of90
Answer
Solution
Incorrect because the ability to analyze Big Data using ML techniques, alongside more
traditional statistical methods, represents a significant development in investment
research, supported by the presence of greater data availability and advances in the
algorithms themselves. Improvements in computing power and software processing speeds
and falling storage costs have further supported this evolution. ML techniques are being
likelihood of
used for Big Data analysis to help predict trends or market events. such as the
a successful merger or an outcome to a political election. Image recognition algorithms can
now analyze data from satellite-imaging systems to provide intelligence on the number of
and manufacturing facilities, and
consumers in retailstore parking lots, shipping activity may provide
yields on agricultural crops, to name just a few examples. Such information
insights intoindividual firms or at national or global levels and may be used as inputs into
rather broad application of ML in Big Data
valuation or economic models. Thus, there is
analysis, which is expected to develop further. in
Correct because ML (machine learning) still requires human judgement techniques for data
understanding the underlying data and selecting the appropriate
clean and free of biases and spurious
analysis. Before they can be used, the data must be
data.
sufficiently large amounts
Incorrect because ML (machine learning) modelsalso require
be enough available data to train
may not
of data and may not perform well where there
and validate the model.

Answer 81 of 90
Answer
Solution the
deviation = (2(X - B)/(n - 1)]"s, where X, arenumber
Correct because the target downside n is the total
B is the target return, and
periodic returns below the target return, values below
standard deviation of 2.5%, it will have deviations
of [Link] the sample has a ignores the
the target downside deviation
and above its mean of 2.2%. Since the standard deviation.
than
dbove the mean, it willbe less deviation = 2(X- B)/(n- 1)]"s, where Xare the
Incorrect because the target downside is the total number
returnsbelow the target return, B is the target return, and nhave values below
Periodic it will
has a standard deviation of 2.5%, ignores the deviations
or periods. Since the sample deviation
Since the target downside
and above its mean of 2,2%. than the standard deviation.
less
ove the mean, it will be downside deviation = 2(X- B):/(n-1)]"s, where X,are
the
Incorrect because the target and n is the total number
below the target return, B is the target return, will have values below
PErlodic returns deviation of 2.5%, it
sample has a standard deviation ignores the deviations
Or periods. Since the Since the target downside
ana above its mean of 2.2%. than the standard deviation.
above the mean, it will be less
360
 Answer 82 of 90
Answer
Solution
the the board is also responsible for hiring the CE0. The CEO
Incorrect because CEO.
reports to the board, the boarddoes not report to thedisplay a high standard of
required under law to
Correct because directors are
prudence, care, and loyalty to the company. corporate governance standards require
that
Incorrect because most codes addressing competencies
of expertise, backgrounds, and
board members represent adiverse mixleast one third of the board be independent.
with best practice generally dictating at

Answer 83of90
Answer
variables.
Solution
different from zero, We
Incorrect because a t-statistic tests if the intercept is statistically value,Bo, by comparing
can test whether the intercept is different from the hypothesized then
and
the estimated intercept (^bo) with the hypothesized intercept
dividing the difference by the standard error of the intercept.
between the
Incorrect because a t-statistic tests if there is a positive correlation
dependent and independent variables, that is,whether the slope coefficient of the linear
significance of the
regression is greater than zero. We can use the F-statistic to test for the
slope coefficient (that is, whether it is significantly different from zero), but we also may
want to perform other hypothesis tests for the slope coefficient-for example, testing
whether the population slope is different from a specific value or whether the slope is
positive. We can use a t-distributed test statistic to test such hypotheses about a regression
coefficient.
Correct because in regression analysis, we can use an F-distributed test statistic to test
whether the slopes inaregression are equal to zero, with the slopes designated as b,
against the alternative hypothesis that at least one slope is not equal to zero:
Ho: b, = b, =b, =.. .= b, = 0.
H.: At least one b, is not equal to zero.

For simple linear regression, these hypotheses simplify to

H: b, = 0.
H.:b. 40." If we fail to reject the null hypothesis that the slope is 0, it implies that there is
a linear relationship between the dependent and independent variables.

Answer 84 of 90
Answer
Solution
Correct because direct sales is a common strategy in B2B markets where the
universe of potential customers is relatively smalland easily reached.
Incorrect because the common channel strategy in this case is direct sales. Direct sales is a
common strategy in B2B marketswhere the universe of potential customers is relatively
smalland easily reached. With an omnichannel strategy, both digital and physical channels
are used to complete a sale.
Incorrect because the common channel strategy in this case is direct sales. Direct sales is a
common strategyin B2B markets where the universe of potential customers is relatively
small and easily reached. The traditional channel strategy is typically reflected in the flow
of finished goods (e.g, from manufacturer to wholesaler, retailer, and end customer), each
with itsownphysical facilities and with the product sold and purchased at each stage.
 Answer 85 of 90
Answer
Solution
Incorrect because the idea behind bootstrap is to mimic the process of performinB
random sampling from a population. The difference lies in the fact that we nave
knowledge of what the population looks like,except for asample with size ndrawn from
the population. In other words, only one sample, not multiple samples, is taken from the
population.
directly fromThe
the subsequent
population. resamples are then taken from the original sample and not
Incorrect because in bootstrap, we repeatedly drawsamples from the original samPle,
each resample is of the same size as the original sample. Note that
replaced for the next draw (i.e.,the identical elementis nut back each
into theitem aso"thatt
group t
can be drawn more than once). Hence items are drawn with replacement, not without.
Correct because a random sample offers a good representation of the population,
therefore we can simulate samplingfrom the population by sampling from the observed
sample. In other words, the bootstrap mimics the process by treating the randomiy dra
sample as if it were the population.

Answer 86 of 90
Answer
Solution
Incorrect because the cost of preferred shares was mistakenly also adjusted with the tax
shield. WACC * war(1 -t)+W,r,(1 - ) +w.r, =0.4 x 0.08 (1 -0.25) +0.1 x 0.1 (1 - 0.25)
+0.5 x 0.16 = 0.1115 11.2%.
Correct because WACC = war.(1- t) +w,r, +W.r, =0.4 x 0.08 (1 - 0.25) +0.1 x 0.1 +
0.5 x 0.16 = 0.1140 = 11.4%.
Incorrect because tax deductibility of interest expense was ignored when calculating the
Cost of debt. WACC Wara + W,r, + W.r. = 0.4 x 0.08 + 0.1 x 0.1 + 0.5 x 0.16 = 0.1220 =
12.2%.

Answer 87 of 90
Answer
Solution
Correct because a correlation of 0 (uncorrelated variables) indicates an absence of any
linear (that is, straight-line) relationship between the variables.
Incorrect because acorrelation of 0 (uncorrelated variables)indicates an absence of any
linear (that is, straight-line) relationship between the variables. So, a zero correlation
between two variables does not rule out a non-línear relationship between the variables.
Incorrect because a correlation of 0 (uncorrelated variables) indicates an absence of anv
linear (that is, straight-line) relationship between the variables. So, a zero correlation
between two variables does not rule out a non-linear relationship between the variables.

Answer 88 of 90
Answer
Solution
Correct because IFRS state that inventories shall be measured (and carried on the balance
sheet) at the lower of cost andnet realizable value; Inventory turnover ratio = Cost of sales
= Number of days in period /
+Average inventory and Days of inventory on hand turnover ratio = 1,000 /[(125+120) /o1
Inventoryturnover ratio. Accordingly, Inventory
/ Inventorv turmos
8.163; and Days of inventoryon hand = Number of days in period
ratio =365/8.163 = 44.7 z 45. instead of the lowrer
Incorrect because inventories in both years were measured at COst
[(150 + 120) /
of cost and net realizable value. Hence, lnventory turnover ratio = 1,000 / 3 O
365/7.407 49
2] = 1,000/135 7.407; and Days of inventory on hand =

362
 Incorrect because inventories in both years were measured at net realizable value instead
value. Hence, Inventory turnover ratio = 1 0o
of the lower of cost andnet realizable Days of inventory on hand 365/
[(125 + 160) /2]= 1,000/ 142.5 7.018; and
7.018 =52.0 52.

Answer 89 of 90
Answer Solution
time that elapses from
Correct because the net operating cycle indicates the amount ofpointat which the
the point when a company invests in working capital untilthe
company collects cash.
Incorrect because the defensive interval ratio measures how long the company can
continue topay its expensesfrom its existing liquid assets without receiving any additional
cash inflow.
Incorrect because the number of DSO represents the elapsed time between a sale and cash
collection, reflecting how fast the company collects cash from customers to whom it offers
credit.

Answer 90 of90
Answer Solution
Incorrect because the quick ratio is a liquidity ratio. Liquidity ratios measure the
company's ability to meet its short-term obligations.
Incorrect because the current ratio is a liquidity ratio. Liquidity ratios measure the
company'sability to meet its short-term obligations.
Correct because the interest coverage ratio is a solvency ratio. Solvency ratios measure a
company's ability to meet long-term obligations. Subsets of these ratios are also known as
"leverage" and "long-term debt" ratios.