Q1.

Which of the following best describes an investment principle used in formulating

a client's strategic asset allocation?

A. Assets with greater nonsystematic risk should be given less weight in a

portfolio
B. The more efficient an asset class, the more skillful an asset manager has to be
to add value
C. Returns on asset classes are a function of systematic factors relevant to those
asset classes

Q2. In a positive interest rate environment, the modified duration of an option-free

bond is most likely:

A. less than the Macaulay duration.

B. the same as the Macaulay duration.
C. greater than the Macaulay duration.

Q3. In a rising interest rate environment, the difference in effective duration between a
callable bond and a non-callable bond would most likely:

A. decrease.
B. remain unchanged.
C. increase.

Q4. Which of the following statements about direct ownership of real estate is most
accurate?

A. Investors have no control over the tenant mix

B. Extensive time is required to manage the property
C. Non-cash property depreciation expenses cannot be used to reduce taxable
income

Q5. Empirical duration:

A. assumes that government bond yields and spreads are uncorrelated.

B. is a more accurate risk measure than analytical duration for government bonds.
C. is estimated using historical data in statistical models incorporating various
factors.

Q6. Which of the following statements about Porter's Five Forces is most accurate?

A. Porter's Five Forces framework cannot be applied to new industries for which
historical data is not available
 B. Assessing the barriers to exiting an industry should be considered when
assessing the threat of new entrants
C. Porter's Five Forces is a framework for assessing industry structure that
determines an industry's long-run profitability

Q7. Consider a $100 par value bond with a 7% coupon paid annually and five years to
maturity. At a discount rate of 6.5%, the value of the bond today is $102.08. One day
later, the discount rate increases to 7.5%. Assuming the discount rate remains at 7.5%
over the remaining life of the bond, what is most likely to occur to the price of the
bond between today and maturity? The price:

A. decreases then increases.

B. increases then decreases.
C. decreases then remains unchanged.

Q8. In contrast to a contingent claim, a forward commitment creates counterparty risk

for:

A. the long position only.

B. the short position only.
C. both the long and the short positions.

Q9. How much will the value of a three-year $100 par value coupon bond with annual
payments, a coupon rate of 9%, and a discount rate of 7% most likely change if
market interest rates immediately increase by 1%?
A. -3.47
B. -2.68
C. -2.40

Q10. Using the Gordon growth model, the intrinsic value per share is closest to:
A. $36.96.
B. $46.15.
C. $49.49.
Q11. After issuance, the coupon rate of a floating-rate bond is most likely influenced
by changes in:

A. the reference rate only.

B. the issuer's credit quality only.
C. both the reference rate and the issuer's credit quality.

Q12. A call option is in the money if the exercise price minus the price of the
underlying at expiration is:

A. less than zero.

B. equal to zero.
C. greater than zero.

Q13. Q. The market portfolio has an expected return of 10% and a standard deviation
of 11%. If the risk-free rate is 2%, the
slope of capital market line is:
A. 0.73
B. 0.91
C. 1.38

Q14. The index's total return over three years is closest to:
A. 18%.
B. 20%.
C. 21%.

Q15. The balance (in $ billions) of the company's cash and short-term investments is:
 A. 5
B. 10
C. 15

Q16. The portfolio's duration is closest to:

A. 4.75.
B. 5.20.
C. 5.33.

Q17. A market index consists of 100 assets. Investment 1 consists of one asset that is
randomly chosen from the index.
Every month the asset is replaced by a new randomly chosen asset. Investment 2
equally weights all assets in the index. Over a period of 100 months, the annualized
standard deviation of Investment 1 is most likely:

A. less than the annualized standard deviation of Investment 2.

B. equal to the annualized standard deviation of Investment 2.
C. greater than the annualized standard deviation of Investment 2.

Q18. Which of the following is a characteristic of both a forward contract and a

contingent claim?

A. The derivative contract has a positive value at contract initiation

B. The payoff of the derivative contract is dependent on the payoff of an
underlying asset
C. Each party of the derivative contract is required to engage in a transaction at a
later point in time

Q19. Alternative investments are most likely characterized by:

A. less transparency than traditional investments.

B. a less complex fee structure than traditional investments.
C. fewer restrictions on redemptions than traditional investments.
Q20. An equity fund manager is considering a market index as the benchmark for his
portfolio, and has the following preferences:

○ the index should have a contrarian effect;

○ shares held by controlling shareholders should be included;
○ dividends should be included in the weighting of constituent securities; and
○ the weights of constituent securities should not be arbitrarily determined by the
index provider.

Which of the following weightings of indexes best meets the fund manager's
preferences?

A. Equal
B. Fundamental
C. Float-adjusted market capitalization

Q21. Which of the following statements about digital assets is most accurate?

A. Most have an inherent value based on the expected cash flow

B. They can be purchased through indirect investment vehicles such as hedge
funds
C. They are generally recorded in private ledgers maintained by central
intermediaries

Q22. The value of the company's preferred stock is closest to:

A. $52.17.
B. $54.78.
C. $96.92.

Q23. Consider two 10-year bonds, one that contains no embedded options and the
other that gives its owner the right to convert the bond to a fixed number of shares of
the issuer's common stock. The convertibility option in the second bond cannot be
exercised for five years. The bonds are otherwise identical. Compared with the yield
on the convertible bond, the yield on the option-free bond is most likely:
 A. lower.
B. the same.
C. higher.

Q24. A waterfall structure in asset-backed securities is most likely associated with:

A. credit tranching.
B. overcollateralization.
C. monoline insurance guarantees.

Q25. All else being equal, non-cumulative preference shares are more risky for
investors than:

A. cumulative preference shares.

B. dividend-paying common shares.
C. non-dividend-paying common shares.

Q26. If the incentive fee is calculated net of management fees, total fees earned by the
manager are:

A. $6.00 million.
B. $8.08 million.
C. $8.60 million.
Q27. A buy order placed at which of the following prices would most likely make a
new market?
A. €43
B. €44
C. €45

Q28. A key catalyst for the relative growth of passive investing compared to active
investing is most likely the:

A. lower costs of index funds.

B. higher returns to investors from outperforming benchmarks.
C. increased correlation of returns between traditional investments and alternative
investments.

Q29. A high-quality and a high-yield corporation are each issuing subordinated debt
with similar characteristics.
Compared to the high-yield issuer, the notching adjustment for the high-quality issuer
will most likely be:

A. smaller.
B. the same.
C. larger.

Q30. All else being equal, which of the following statements based on the binomial
model is accurate? When the volatility of the underlying increases, the value of a:

A. put option and the value of a call option on the underlying will increase.
B. put option on the underlying will increase while the value of a call option on
the underlying will decrease.
C. call option on the underlying will increase while the value of a put option on
the underlying will decrease.
Q31. Which of the following statements about interest rate forward and swap
contracts is most accurate? Both interest rate forward and swap contracts:

A. have symmetric payoff profiles.

B. involve an exchange of cash upfront.
C. have no counterparty credit exposure.

Q32. Convenience yield is primarily associated with which of the following assets?

A. High-yield bonds
B. Dividend-paying stocks
C. Commodities in short supply

Q33. Which of the following asset-backed securities provides the highest level of
protection against prepayment risk?

A. A mortgage pass-through security

B. A collateralized mortgage obligation
C. A commercial mortgage-backed security

Q34. A strategy that seeks to profit from investing in companies that are likely to be
acquired is best described as a(n):

A. macro strategy.
B. event-driven strategy.
C. relative value strategy.

Q35. Risk management is a process that can most likely be best described as:

A. minimizing risks while attempting to maximize returns.

B. forecasting the level of risk that can meet a defined required return.
C. defining a level of risk to be taken with the goal of maximizing the portfolio's
value.

Q36. A short exposure to an underlying instrument is achieved by:

A. writing a put option.

B. buying a put option.
C. buying a call option.
Q37. ROE is closest to:
A. 3.6%.
B. 10.0%.
C. 15.0%.

Q38. Which of the following statements is most accurate? Venture debt is private debt
funding provided to:

A. public companies with the intent to take them private.

B. startup or early-stage companies that may have little or negative cash flow.
C. mature companies that face bankruptcy or other complications with meeting
debt obligations.

Q39. All else being equal, the value of a European put option is most likely inversely
related to the time to expiration when interest rates are high, the time to expiration is
long and the put is:

A. at-the-money.
B. deep in-the-money.
C. deep out-of-the-money.

Q40. An investor who prefers an asset with an uncertain expected payoff of $50 to a
guaranteed payoff of $50 is best described as:

A. risk averse.
B. risk neutral.
C. risk seeking.

Q41. Spot rates are best defined as:

A. the current yields on coupon bonds at different maturities.

B. the yields-to-maturity on coupon bonds at different maturities.
C. the yields-to-maturity on zero-coupon bonds at different maturities.

Q42. All else equal, interest rate risk is lowest for which of the following non-callable
bonds?
 A. Discount
B. Premium
C. Zero-coupon

Q43. The covariance between Stock 1 and Stock 2 is closest to:

A. 0.0025.
B. 0.0338.
C. 0.0675.

Q44. All else being equal, which of the following portfolios should have the lowest
risk profile? A portfolio consisting of:

A. greenfield assets only.

B. brownfield assets only.
C. both greenfield assets and brownfield assets.

Q45. With respect to an investment policy statement, which of the following is best
classified as a legal and regulatory constraint?

A. An investor's tax status

B. A pension fund's self investment limit
C. An investor's desire to avoid investments in the gambling industry

Q46. Information-motivated traders are most likely to differ from pure investors in
that they:

A. pay lower transaction fees.

B. expect to earn excess returns.
C. hold well-diversified portfolios.

Q47. Which of the following statements regarding certificates of deposit (CDs) is

most accurate?

A. Small-denomination CDs are typically traded among institutional investors.

B. Non-negotiable CDs can be sold in the open market prior to the maturity date.
 C. CDs are available in domestic bond markets as well as in the Eurobond market.

Q48. Which investment will most likely expose investors to the greatest level of
extension risk?

A. Commercial mortgage-backed securities with a balloon payment

B. Shorter-term tranches in a collateralized mortgage obligation structure
C. Planned amortization class tranches in a collateralized mortgage obligation
structure

Q49. Which of the following lines is depicted on a graph using systematic risk on the
horizontal axis?

A. Capital market line (CML)

B. Security market line (SML)
C. Capital allocation line (CAL)

Q50. Investors are least likely to use derivatives to:

A. take short positions.

B. replicate a cash market strategy.
C. offset market-based exposures incidental to their financing activities.

Q51. At expiration, if the price of the underlying is $9.35, the profit to the call seller
is:
A. 0
B. 1.1
C. 1.15

Q52. An analyst discovers that several stocks exhibit a pattern of price declines in the
spring and price increases in the fall. If the analyst can consistently earn abnormal
returns using this information, the market is most likely:

A. inefficient.
B. weak-form efficient.
 C. semi-strong-form.

Q53. According to put-call forward parity, a fiduciary call is equal to:

A. a long call and a long risk-free asset.

B. a long call, a short forward and a long risk-free bond.
C. a long forward, a short call and a short risk-free bond.

Q54. On 1 January, an investor purchases an option-free bond that pays an annual

coupon rate of 10% on Dec 31 and matures in ten years at its par value of $100. The
investor plans to sell the bond immediately after receiving the seventh coupon. If the
coupons are reinvested at an annual interest rate of 8% over the investor's holding
period, the future value of the reinvested coupon payments at the end of the investor's
holding period is closest to:
A. $70.00.
B. $75.90.
C. $89.23.

Q55. The holders of common shares of a company are legally entitled to:

A. receive regular dividends from the company.

B. a repayment of the purchase price of their shares.
C. a claim on the company's net assets in the event of liquidation.

Q56. Which of the following sections of an investment policy statement most likely
details the role of the custodian for a client's assets?

A. Procedures
B. Investment Guidelines
C. Statement of Duties and Responsibilities

Q57. A market where buyers and sellers trade only with dealers is most likely a(n):

A. brokered market.
B. order-driven market.
C. quote-driven market.

Q58. An investor buys a call for $24.70 that has a strike price of $670. If the value at
expiration for this call is $47.60, the price of the underlying at expiration is closest to:
A. $622.40.
B. $692.90.
C. $717.60.
Q59. An investor borrows the maximum amount allowed by the initial margin
requirement of 40% to purchase 100 shares of a stock selling at $60 per share. If the
investor sells the stock when its price increases to $70 per share, her return before
commissions and interest will be closest to:
A. 16.7%.
B. 27.8%.
C. 41.7%.

Q60. Which of the following is the most conservative price for valuing a hedge fund's
short position?

A. The bid price

B. The ask price
C. The average of the bid and ask prices

Q61. A bond has a modified duration of 6.2 and an approximate annual convexity of
328. If yields increase by 30 bps, the expected percentage price change of this bond is
closest to:
A. -2.01%.
B. -1.71%.
C. -1.56%.

Q62. If the market portfolio's standard deviation of returns is 20%, the asset with the
highest standard deviation is:

A. Asset 1.
B. Asset 2.
C. Asset 3.

Q63. If a stock is purchased on margin and the minimum initial margin requirement is
40%, the maximum leverage ratio is closest to:
A. 1.50.
B. 1.67.
C. 2.50.

Q64. Which of the following types of investors most likely has the highest risk
tolerance?

A. Banks
B. Endowments
C. Insurance companies

Q65. An analyst observes that stock markets usually demonstrate return distributions
concentrated to the right with a higher frequency of negative deviation from the mean.
This feature is most likely known as:

A. kurtosis.
B. positive skewness.
C. negative skewness.

Q66. A zero coupon bond is priced at 90 and has three years to maturity. Based on a
compounding periodicity of 4, the bond's annual yield-to-maturity is closest to:
A. 1.8%.
B. 2.7%.
C. 3.5%.

Q67. A commodity market is in contango when futures prices are:

A. lower than the spot price.

B. the same as the spot price.
C. higher than the spot price.

Q68. For an investor with a long position, the price of a futures contract will most
likely be higher than the price on a forward contract on the same asset with the same
expiration date if there is a:

A. negative correlation between the futures price and interest rates.

B. zero correlation between the futures price and interest rates.
C. positive correlation between the futures price and interest rates.

Q69. In a rising interest rate environment, the risk of a lower bond price is greater than
the coupon reinvestment risk when the Macaulay duration of the bond is:

A. less than the investor's investment horizon.

B. equal to the investor's investment horizon.
 C. greater than the investor's investment horizon.

Q70. An efficient market is best described as one in which:

A. an active investment strategy is preferred to a passive strategy.

B. consistent, superior, risk-adjusted returns, net of all expenses, cannot be
achieved.
C. the time frame for price adjustment to new information allows many traders to
profit.

Q71. When presented with new information, if an analyst asks themselves the
question how much does this information change my forecast? then which of the
following biases is the analyst most likely trying to overcome?

A. Hindsight bias
B. Self-control bias
C. Conservatism bias

Q72. The historical results forecasting approach is most appropriate for a company:

A. making a large acquisition.

B. operating in a cyclical industry.
C. with a low sensitivity to the business cycle.

Q73. Which type of index does not use market capitalization as a weighting method?

A. A commodity index
B. A broad equity market index
C. A real estate investment trust (REIT) index

Q74. Two assets are correctly priced according to the CAPM. If the assets have the
same expected variance of returns but different expected returns, the two assets must
have different levels of:

A. systematic risk only.

B. nonsystematic risk only.
C. both systematic risk and non-systematic risk.

Q75. Which of the following types of private debt is expected to be the riskiest?

A. Mezzanine debt
B. Infrastructure debt
C. Senior direct lending
Q76. An investor bears more risk than initially thought because of the failure to
consider the interaction of credit risk and market risk. This type of risk interaction is
best described as:

A. solvency risk.
B. wrong-way risk.
C. operational risk.

Q77. Which of the following is best described as a relative risk objective?

A. Aiming for a return in the top quartile relative to the peer group
B. Requiring returns to be within 5% of the return on the SP 500 index
C. Setting the 12-month 95% value at risk (VaR) limit of a portfolio at #10 billion

Q78. A security is most likely undervalued if its estimated intrinsic value is higher
than its:

A. par value.
B. book value.
C. market price.

Q79. Using the Gordon growth model, if the analyst's required return is 10%, the
justified forward P/E for the company is closest to:
A. 15.
B. 18.
C. 20.

Q80. Jensen's alpha is most appropriate in measuring portfolio performance when:

A. idiosyncratic risk is relevant for an investor.

B. evaluating the performance of real estate against equity investments.
C. the investor holds a well-diversified portfolio with negligible diversifiable risk.
Q81. To be eligible for the upcoming dividend, the latest date an investor needs to
purchase the share is on the trading day before the:

A. ex-date.
B. record date.
C. declaration date.

Q82. Which of the following market anomalies describes the consistent

outperformance of stocks with low P/E ratios?

A. The size effect

B. The value effect
C. The earnings surprise anomaly

Q83. A fiduciary call is equal to which of the following positions?

A. Long a call and long a risk-free bond

B. Long a call, long a risk-free bond, and short a put
C. Long a call, short the underlying, and long a risk-free bond

Q84. When the market yield on a callable bond is significantly lower than the bond's
coupon rate, the bond mostly likely exhibits:

A. negative convexity.
B. zero convexity.
C. positive convexity.

Q85. The total amount of fees earned by the hedge fund is:

A. $2.80 million.
B. $2.96 million.
C. $3.20 million.
Q86. The portion of a bond's value that an investor loses in an event of default best
defines:

A. default risk.
B. loss severity.
C. expected loss.

Q87. The current yield for a coupon-paying bond trading at a premium is:

A. less than the coupon rate.

B. equal to the coupon rate.
C. greater than the coupon rate.

Q88. Regarding distribution methods in alternative investments, which of the

following is most advantageous to the general partners?:

A. A European waterfall
B. An American waterfall
C. A whole-of-fund waterfall

Q89. Replication is most likely used to:

A. increase leverage.
B. reduce portfolio risk.
C. exploit pricing differentials.

Q90. If a general partner exits successful deals early in a fund's life but incurs losses
on deals later, which of the following most likely allows a limited partner to reclaim
some of the general partner's fees?

A. A hurdle rate.
B. A catch-up clause.
C. A clawback provision.