CFA Level 1 Diagnostic Test

An analyst compares the multiyear return history of Corvane Mining shares with that of a broad, diversified market index. Which conclusion is most accurate?

Priya Raman plans to model the monthly percentage changes in a copper price index. Her statistical tests will be most reliable if the series is stationary, which means that:

A multi-asset portfolio is worth €40 million, and its daily returns have a standard deviation of 1.2%. Using the parametric method and assuming a daily mean return of zero, the portfolio's daily 5% value at risk (VaR) is closest to:

An analyst regresses the monthly sales of 80 stores on each store's floor area. The figure below plots the regression residuals against floor area. The pattern most likely indicates that the regression's residual term:

Orders at Brightwater Castings, a maker of pump housings, have started to fall as the economy begins to contract. Management is not yet convinced the downturn will last and wants to keep its workforce and its productive capacity intact for now. Its first adjustment is most likely to be:

An analyst compares the goals listed in Article I of the International Monetary Fund's (IMF's) Articles of Agreement with the stated mission of the World Bank and the role of the World Trade Organization (WTO). Which of her conclusions is most accurate?

Tomas Riedl, an economist in Lorvania, tracks the real exchange rate of the Lorvanian crown against its main trading partner's currency, quoted as the number of crowns needed to buy one unit of the partner's currency (domestic/foreign). Holding all other factors constant, which of the following would cause this real exchange rate to fall?

Which of the following best describes the primary focus of the stakeholder theory of corporate governance?

Three companies describe how they handle their working capital. Whose practice fits a conservative approach best?

Harlan Steelworks has no preferred stock. An equity analyst wants a WACC figure that measures Harlan's current opportunity cost of capital, and she has collected these data:

Interest expense is tax-deductible. Harlan's WACC is closest to:

Three U.S. hardware retailers are identical except for their inventory cost-flow assumption: one uses FIFO, one uses LIFO and one uses weighted average cost. Over the past several years, both the unit costs they pay suppliers and the number of units they sell have climbed steadily. An analyst who ranks the three on reported gross profit margin, without adjusting for inventory accounting, would most likely find the lowest margin at the retailer using:

Amara Osei is valuing Kestrel Logistics, which reports under US GAAP (interest paid is included in operating activities). She collects the following data:

Kestrel's free cash flow to the firm (FCFF) is closest to:

Aerolinea Sur leases a regional jet from Skyward Capital under an arrangement classified as an operating lease. The jet itself is reported as a physical asset on the balance sheet of:

Carraway Outfitters reported sales of $200 million for 20X5 and expects sales to grow by 9.5% in 20X6. Cost of goods sold is expected to stay at 50% of sales, and management targets an average of 50 days of inventory on hand in 20X6. Using a 365-day year, Carraway's forecast average inventory for 20X6 is closest to:

The founders of Veridian Apps own 15% of its shares but control a majority of the votes, because each of their shares carries ten votes while every other share carries one. This arrangement is an example of a:

An analyst gathers the following market and financial data for Tamsin Ridge Appliances (amounts in millions except the share price).

Tamsin Ridge's EV/EBITDA multiple is closest to:

A venture capital fund targets an ROI multiple of 5x on a start-up investment that it expects to exit after six years. The annual required rate of return implied by this target is closest to:

Selin Arslan covers a company with revenue of $48 million and operating costs of $30 million, an operating profit margin of 37.5%. She forecasts revenue growth of 4% for next year and assumes the company will benefit from economies of scale. The operating profit margin Arslan forecasts for next year will most likely:

An analyst compares bond market indexes with stock market indexes. Which of the following statements is least accurate?

Carrow Logistics has a $5 million floating-rate note outstanding that pays an annual coupon equal to the market reference rate (MRR) plus a quoted margin of 110 basis points. Today is a reset date with exactly four years remaining to maturity. The MRR is 4.20%, and the discount margin the market currently requires on Carrow's credit is 70 basis points. Using the simplified approach that holds the MRR constant, the estimated value of the note is closest to:

A portfolio holds the three option-free bonds shown below (prices per 100 of par).

Using the weighted-average method, the portfolio's duration is closest to:

An investor buys ABS backed by a pool of consumer loans originated by Farrow Bank. Which of the following risks does the investor most likely bear?

Laszlo Bencze holds a long futures position. The initial margin on his account is $3,800 and the maintenance margin is $2,900. After today's mark-to-market, his account balance is $2,650. If Bencze wants to keep the position open, the deposit he must make is closest to:

Analyst Farah Idris observes that when the price of a commodity rises, short-term interest rates also tend to rise. For an investor seeking long exposure, which statement is most accurate about a long futures contract compared with an otherwise equivalent forward that has no mark-to-market?

Castellan Group is financed with common equity and a single issue of zero-coupon debt. When options theory is applied to this capital structure, the firm's credit risk can be modeled as a:

Two private equity funds each invested all of their investors' capital at inception and each made a single distribution. Fund Aldgate took in $60 million; at the end of Year 4 it distributed $84 million, and its remaining holdings were then valued at $24 million. Fund Brixton took in $50 million; at the end of Year 8 it distributed $70 million, and its remaining holdings were then valued at $20 million. Which statement is most accurate?

A pension fund buys a portfolio of commercial mortgage-backed securities. Within the basic four-quadrant classification of real estate investments, this holding is best classified as:

An analyst reviewing a hedge fund index database notes three practices. Each one illustrates a different hedge fund index bias: survivorship bias, backfill bias or selection bias. Which practice is the example of selection bias?

Priya Nair and Tomas Ekberg share the same capital market expectations. Ekberg's risk–return indifference curves are flatter than Nair's. Compared with Nair, Ekberg is most likely:

An analyst using a top-down approach is evaluating the outlook for chemical company stocks. Which of the following factors should the analyst examine first?

A client's IPS lists several investment objectives. Which one is a relative return objective?

Which statement about how an organization sets its risk tolerance is most accurate?

Sven Adler, a CFA candidate, is making flash cards. He marks each duty "Code" if it is one of the six components of the Code of Ethics and "Standard" if it appears only in the Standards of Professional Conduct. Which of the following duties should Adler mark "Standard"? Members and candidates must:

Adaeze Okafor, CFA, is a broker. The chief executive of Stellan Pharmaceuticals, a listed company, telephones her and asks her to buy Stellan shares for trust accounts he set up for his grandchildren, remarking that the purchase will look very smart "once the merger we're negotiating is announced." Okafor searches news services and finds no public mention of a merger. Okafor should:

Dominic Ashe, CFA, recently left a large bank's research department to open his own equity research boutique. All of the files supporting his earlier reports stayed with the bank. Relying on his detailed memory of those files, Ashe rewrites several of his former reports, publishes them under his new firm's name and signs up several clients as a result. Ashe has not reconstructed any supporting records. Ashe is most likely:

Tariq Haddad, a Level III candidate, takes part in an online forum where candidates discuss curriculum readings in depth during the study season. Four days after his testing window closes, frustrated by difficult questions, he posts several exam questions he remembers and asks other members how they answered them and why. Several other candidates respond by posting questions they remember. Haddad and the other candidates are most likely: