CFA. Level 1 Volume 2 Practice Exams 2015

270 Pages·15.311 MB·English

by  Schweser Notes.

...................................................................................................
Online Resources 3
.......................................................................................
How to Use This Book 4
Exam1
...........................................................................................
Morning Session 5
..........................................................................................
Afiernoon Session 33
Exam 2
..........................................................................................
Morning Session 61
..........................................................................................
Afternoon Session 89
Exam 3
..........................................................................................
Morning Session 117
........................................................................................
Afternoon Session 145
ham 1 Answers
..........................................................................................
Morning Session 177
........................................................................................
Afternoon Session 193
Exam 2 Answers
.........................................................................................
Morning Session 209
....................................................................................
Afternoon Session 225
Exam 3 Answers
.......................................................................................
Morning Session 240
.......................................................................................
Afternoon Session 255
SCHWESER 2015 CFA LEVEL I PRACTICE EXAMS VOLUME 2
02014 Kaplan, Inc. All rights reserved.
Published in 2014 by Kaplan, Inc.
Printed in the United States of America.
ISBN: 978-1-4754-2763-9 1 1-4754-2763-8
PPN: 3200-5535
If this book does not have the &logram with the Kaplan Schweser logo on the back cover, it was
distributed without permission of Kaplan Schweser, a Division of Kaplan, Inc., and is in direct violation
of global copyright laws. Your assistance in pursuing violators of this law is greatly appreciated.
Required CFA Institute disclaimer: "CFA Institute does not endorse romote, or warrant the accuracy
p@
or quality of the products or services offered by Kaplan Schweser. CFA and Chartered Financial
.4nalysta are trademarks owned by CFA Institute."
Certain materials contained within this text are the copyrighted property of CFA Institute. The
following is the copyright disclosure for these materials: "Copyright, 2014, CFA Institute. Reproduced
and republished from 2015 Learning Outcome Statements, Level I, 11, and 111 questions from CFA@
Program Materials, CFA Institute Standards of Professional Conduct, and CFA Institute's Global
Investment Performance Standards with permission from CFA Institute. All Rights Reserved."
These materials may not be copied without written permission from the author. The unauthorized
duplication of these notes is a violation of global copyright laws and the CFA Institute Code of Ethics.
Your assistance in pursuing potential violators of this law is greatly appreciated.
Disclaimer: The Schweser Notes should be used in conjunction with the original readings as set forth
by CFA Institute in their 2015 CFA Level I Study Guide. The information contained in these Notes
covers topics contained in the readings referenced by CFA Institute and is believed to be accurate.
However, their accuracy cannot be guaranteed nor is any warranty conveyed as to your ultimate exam
success. The authors of the referenced readings have not endorsed or sponsored these Notes.
02014 Kaplan, Inc.
All purchasers of this book are sent login information for Online Access in an e-mail.
This is your login to use Performance Tracker and access other Schweser online resources.
Simply log in at www.schweser.com to use any of these features. If you need password
help, go to ~~'~?r.schweser.com/~assworo urdse the "Password Help" link that appears if
your login is unsuccessful.
VOLUME2 OKLINE FEATURE,S4 T A GLANCE
Links to Carricu!urn
Wirhin the online answer explanations, we have included page references to the relevant
text in both the SchweserNotes and the CFA Institute program texts as zs the primary
J-~arningO utcome Statement supporting the question.
E~unzD iagnostics
When you enter your answers in our Performance Tracker utility, you can request a
breakdown of your overall score on any one-half (120 question) exam. See how you
performed by topic area, study session, or reading. You can also get the Learning Outcome
Statement references for just those questions you answered incorrectly to help you focus
your review efforts.
When you enter your answers in Performance Tracker, you can find out how your score on
each half-exam compares to the scores of others who entered their answers.
Log in today and enjoy the benefits of Performance Tracker and the other online resources
in your account.
02014 Kaplan, Inc. Page 3
How TO USE THISB OOK
Practice Exams are a very important part of the Schweser Study Program. Don't neglect
them.
You shouldn't take the Level I CFA@E xam without lots of practice answering exam-like
questions.
Test yourself with these Practice Exams only after you have completed all the assigned
readings. As on the actual CFA exam, assume International Financial Reporting
Standards (IFRS) apply unless a question indicates otherwise.
The purpose of these questions is to make sure that you know all the concepts and ideas
that are in the assigned readings. If you truly know the material you will do well on the
actual exam. While our practice questions cover all the material, they are not actual
exam questions. Our practice exams are not designed to predict your score on the actual
CFA exam, although we try to match the level of difficulty on the exam. Use them to
practice and identify those areas in which you need additional work.
Remember though, that CFA Institutem tries very hard every year to come up with new
and innovative ways to test you. Your only defense against a good exam writer is to
actually know the material. Learning the material and how to pace yourself on the exam
is what our practice questions are designed to help you do.
The CFA exam is structured so that the morning and afternoon exams are each
independent exams covering all topic areas. So, the three 6-hour practice exams here in
Volume 2 really are six 3-hour practice exams. This gives you several opportunities to
test your progress.
Our recommendations for using this book are:
After you have finished your first complete review of the assigned reading material,
take the morning portion of Practice Exam 1, paying strict attention to the time
constraint. Enter your answers online. Performance Tracker will identify your weak
. .
spots and point you toward the material you need to review. Go back and study the
material related to your weak areas.
After you have reviewed that material, take the afternoon portion of Practice Exam 1.
Again, pay strict attention to the allotted time and review the material related to
your weak areas identified by Performance Tracker.
* During the weeks prior to the exam, set aside two days to take Exams 2 and 3.
Complete each of these 6-hour exams on one day with only a lunch break between
the two halves. This will get you used to doing what you must do on exam day.
Again review your weak areas but also look at the explanation for every problem you
missed, so it won't happen again.
Finally, review all of Study Session 1 on the day before the exam. Ethical and
Professional Standards and Global Investment Performance Standards will be
approximately 15% of the Level I exam. A final review of this material, including all
the text and all the examples in the Standard ofpractice Handbook, will serve you
well on exam day.
Don't plan on passing the exam by memorizing questions and answers. Instead, learn
the reasoning behind each of the questions. CFA InstituteB isn't going to ask you our
questions, but they will ask you questions that address the same concepts, logic, and
definitions necessary to answer the practice exam questions.
Page 4 0201 4 Kaplan, Inc.
Topic Questions Points
Ethical and Professional Standards
Quantitative Methods
Economics
Financial Reporting and Analysis
Corporate Finance
Portfolio Management
Equity Investments
Fixed Income
Derivatives
Alternative Investments
02014 Kxplan, Inc. Page 5

Questions 1 through 18 relate to Ethical and Professional Standards.
(27 minutes)
1. Ronnie Smith is registered to sit for the next CFA Level I1 exam
after failing the exam the past two years. Smith posts the following
comment on a popular Internet bulletin board: "I believe CFA Institute
is intentionally limiting the number of charterholders to increase its
cash flow by continuing to fail candidates." Does Smith's comment
violate the Code and Standards?
A. No.
B. Yes, because his comment is false.
C. Yes, because his comment brings CFA Institute into disrepute.
2. Apex Investments has adopted the Global Investment Performance
Standards (GIPS)~T. he firm had presented performance for a high
yield fixed income composite, but discontinued it one year ago. With
respect to the discontinued composite, GIPS:
A. requires that Apex include it on the firm's list of composites.
B. does not require that Apex include the discontinued composite on the
firm's list of composites or make any specific disclosure about it.
C. requires that Apex include information regarding the discontinued
composite in the ccDisclosures"s ection of the presentation, but does
not require its inclusion as a composite.
3. Jack Wilson, CFA, a hedge fund manager, takes a large short position
in Bonner, Snc. stock. After Wilson establishes his short position,
Bonner shares trade down 1.15%. One week later, Bonner shares
are trading 3.84% below the initial short price, and Wilson reverses
the short position and establishes a short position in shares of the
company's competitor, Hatch Company. On a well-known investor
message board, Wilson posts a highly critical message about Hatch,
which grossly exaggerates problems with a crucial supplier to Hatch.
The day after Wilson's message post, Hatch shares fall 0.97% and
Wilson reverses the short position. Did Wilson's actions related to
Bonner stock and/or Hatch stock violate the CFA Institute Standards of
Professional Conduct?
A. Yes, in both cases.
B. Only in the case of Hatch.
C. Only in the case of Bonner.
0201 4 Kaplan, Inc. Page 7
Exam1
Morning Session
4. After working 20 years on Wall Street, Jim Gentry, CFA, decides
to open his own investment firm on Turtle Island, located in the
Caribbean. Turtle Island has securities laws that are much less stringent
than U.S. laws or the CFA Institute Standards of Professional Conduct.
Many of his U.S.-based clients have agreed to keep Gentry as their
portfolio manager and move their assets to his new firm. After a few
months of operations, Gentry has encountered several instances in
which Turtle Island regulations relieve him of disclosing information
to investors that he had been required to disclose while working in
New York. According to the CFA Institute Code and Standards, Gentry
must adhere to the:
A. Code and Standards or U.S. law, whichever is more strict.
B. laws of Turtle Island, but disclose any discrepancies to U.S.-based
clients.
C. Code and Standards because as a charterholder, he need only
adhere to the Code and Standards under all circumstances.
5. Rene Green, CFA, uses a statistical model to estimate the intrinsic
value of potential investments. Clients are aware of the general model
but not its details. Green recently changed the model in an attempt to
more accurately price assets. In an e-mail to all of his prospects and
clients, Green describes the new model and states that more accurate
asset valuations are expected from the new model. Has Green violated
the CFA Institute Standards of Professional Conduct?
A. No, Green's actions are consistent with CFA Institute Standards.
B. Yes, because he should have notified existing clients before
notifying prospects.
C. Yes, because he suggested that the new model will generate more
accurate asset valuations.
6. Thomas Baker recently passed the Level I11 CFA examination. Baker
is reviewing a draft of the firm's marketing material to be distributed
after he receives his CFA charter. One passage reads, "Baker is
especially proud of the fact that he passed all three Levels of the exam
on his first attempts in three consecutive years." Is this statement in
compliance with CFA Institute Standards?
A. Yes, as long as it is a statement of fact.
B. No, because it implies that Baker has superior ability.
C. No, because Members or Candidates who passed the exams on their
first attempts may not differentiate themselves from those who did
not.
Page 8 02014 Kaplan, Inc.
Jimmy Dcinioger, CFA, manages several client portfolios. One of his
clients offers him use of a cabin in a vacation spot because the client's
investment results under Deininger's management have exceeded
the client's goals. Deininger discloses the gift to his employer. With
reference to the Standards of Practice, Deininger:
A. has complied with the Standards and may accept the gift.
B. is not permitted to accept the gift because he does not have
permission from his employer.
C. has appropriately disclosed the gift to his supervisor, but must also
disclose it to his other clients.
8. Giselle Holt, CFA, is a portfolio manager in the trust department of
State Bank. Holt recently inherited a substantial amount of stock of
Brown & Company and accepted a position on the board of directors
for TVC Plastics, Inc. Many of the trust clients at the bank hold
positions in Brown & Company and in TVC Plastics. According to
CFA Institute Standards of Professional Conduct, Holt must disclose:
A. both the stock ownership and board position to her clients.
B. the board membership to her clients and the stock ownership to
State Bank.
C. both the stock ownership and board position to her clients and State
Bank.
9. Roy Marek, CFA, is an investment banker who is working for Elsdon
Company. Elsdon's managers inform Marek of their revenue and
earnings projections, which have not been released to the public.
Marek uses this information in his analysis to determine an offering
price for an upcoming IPO of Elsdon shares. Has Marek violated the
Standard concerning material nonpublic information?
A. No, because the information may be used for this purpose.
B. Yes, because he is acting or causing others to act on the
information.
C. Yes, because the information would likely affect investors'
valuation of the shares.
10. Ron Welch, CFA, manages trust accounts at a regional U.S. bank.
Welch was hired four years ago to manage the Craig Family Trust. The
investment policy statement for the trust specifies a passive investment
strategy of mirroring the risk and return of the S&P 500 Index. Over
the past year, Welch over-weighted technology stocks, which allowed
the trust portfolio to earn a return 200 basis points above the S&P 500
return with only slightly higher risk. With respect to the Standards
concerning suitability and loyalty, prudence, and care, Welch violated:
A. both of these Standards.
B. neither of these Standards.
C. only one of these Standards.
0201 4 Kaplan, Inc. Page 9
lkam1
Morning Session
11. Among all analysts who cover Saris Corporation, the consensus
earnings estimate for the current period is $2.14. Lee Rutherford,
CFA, is convinced that Saris will release earnings substantially above
what is anticipated. Rutherford publishes a research report in which
he estimates earnings for Saris to be $2.13 per share. In conversations
with selected clients, Rutherford mentions his reasons for expecting
an announcement of higher earnings. With respect to the Code and
Standards:
A. the conversations do not violate the Standards because the research
report is the official document, and that is what Rutherford is
supporting.
B. Rutherford is in violation of the Standards by failing to deal with
clients fairly in disseminating material changes in investment
recommendations.
C. Saris Corporation is in violation of the Standards by not disclosing
material earnings information to the public.
12. Carlos Mendez, CFA, is beginning an investment advisory relationship
with a new client and plans to formulate an investment policy
statement (IPS) for the client. According to the Standard concerning
suitability, Mendez is least likely to consider the client's:
A. regulatory and legal circumstances.
B. conflicts of interest.
C. performance measurement benchmarks.
13. Chuck Hill, CFA, the financial manager of Niseron Corp., has just
learned that Niseron's quarterly net income will fall well short
of consensus analyst expectations. Hill decides that he should
immediately notify analysts covering Niseron of this negative
development. He calls two particular analysts first who have followed
Niseron stock for several years and have alerted Hill to important
developments at competing firms. Failing to notify these analysts might
damage Hill's ability to monitor his competition, to the detriment of
his own shareholders. Under CFA Institute's Code and Standards, Hill
should most appropriately:
A. notify no analysts until he is ready to issue the final numbers for the
quarter.
B. notify the two analysts first because their information adds value
for Niseron's shareholders.
C. issue a press release regarding Niseron's earnings prior to calling
analysts.
Page 10 0201 4 Kaplan, Inc.