概要信息：

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Questions 1~18 Relate to Ethics .................................................................................. 2 
Questions 19~32 Relate to Quantitative analysis ...................................................... 7 
Questions 33~44 Relate to Economics ...................................................................... 13 
Questions 45~68 Relate to Financial Statement Analysis ....................................... 17 
Questions 69~76 Relate to Corporate finance ......................................................... 28 
Questions 77 ~88 Relate to Equity investment ........................................................ 31 
Questions 89~94 Relate to Derivatives ..................................................................... 35 
Questions 95~106 Relate to Fixed-income Analysis ................................................ 37 
Questions 107~110 Relate to Alternative Investments ............................................ 41 
Questions 111 ~120 Relate to Portfolio Management ............................................. 43 
 
  
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Questions 1~18 Relate to Ethics 
1. Correct answer: C. 
Under Standard III(B)-Fair Dealing, members and candidates should disclose to clients and 
prospective clients how they select accounts to participate in and how they determine the amount 
of securities each account will buy or sell. Trade allocation procedures must be fair and equitable, 
and disclosure of inequitable allocation methods does not relieve the member or candidate of this 
obligation. All discretionary accounts should be treated in the same manner. Treating newer 
accounts differently would be considered inequitable regardless of whether this policy is 
disclosed.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard III(B)  
 
2. Correct answer: B. 
Members should disclose all matters that reasonably could be expected to impair the member's 
objectivity as outlined in Standard I(B), and Standard VI(A).  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard I(B), Standard VI(A) 
 
3. Correct answer: C. 
Although departing employees may not take employer property when departing, as the guidance 
for Standard IV(A) – Loyalty outlines, the model Piedmont presented to his new employer was not 
Branch's property. It was created by Piedmont prior to his employment with Branch. The model 
was not created for Branch in the course of his employment, even though it was adopted by 
Branch.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard IV(A) 
 
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4. Correct answer: C. 
Prior to undertaking analysis with regard to expected returns, an adviser must determine the 
suitability of an investment class, including whether it fits within the client's risk tolerance and 
whether it is an allowable asset class as per the client's investment policy statement. Only after 
these factors have been determined should she proceed, if appropriate, to analyze expected returns 
to determine a particular investment recommendation.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard III(C)  
 
5. Correct answer: A. 
Standard VI (A) requires disclosure of conflicts but does not prohibit members from making 
recommendations as long at the potential conflicts are appropriately disclosed.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
 Standard IV(A)  
 
6. Correct answer: A. 
Photocopying copyrighted material, regardless of the year of publication, is a violation  of 
Standard I(A) because copyrighted materials are protected by law. Candidates and members must 
comply with all applicable laws, rules, and regulations and must not knowingly participate or 
assist in a violation of laws.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard I(A) 
 
7. Correct answer: C. 
Composites (Standard IV – Composites) must be defined according to similar investment 
objectives and/or strategies. Terminated portfolios must be included in the historical returns of 
appropriate composites, and only fee-paying portfolios are to be included in composites. 
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Non-discrectionary portfolios must not be included in a firm's composites.  
CFA Level I 
"Introduction to the Global Investment Performance Standards (GIPS)," CFA Institute 
 
8. Correct answer: B. 
Firms must provide investors with a comprehensive view of their performance in terms of risk and 
returns, not just returns. 
CFA Level I 
―The GIPS Standards,‖ CFA Institute  
Section: Overview 
 
9. Correct answer: C. 
Under Standard I(B), members and candidates must protect their independence and objectivity. 
Agreeing to provide objective research coverage of a company does not constitute a violation of 
this standard, provided the analyst writing the report is free to come up with his own independent 
conclusion. Smith can agree to provide research coverage but cannot commit Granite's research 
department to providing a favorable recommendation.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard I(B) 
 
10. Correct answer: C. 
A composite must include all actual fee-paying, discretionary portfolios managed in accordance 
with the same investment mandate, objective, or strategy (Standard IV–Composites). By including 
both the value and growth portfolios, the composite is made up of portfolios with different 
investment mandates or strategies.  
CFA Level I 
"Introduction to the Global Investment Performance Standards (GIPS)" 
Composites 
 
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11. Correct answer: C. 
Historically, the GIPS standards focused primarily on returns. In the spirit of fair representation 
and full disclosure, and in order to provide investors with a more comprehensive view of a firm's 
performance, the current GIPS standards includes new provisions related to risk.  
CFA Level I 
"The GIPS Standards," CFA Institute 
Section: Overview 
 
12. Correct answer: A. 
Making full and fair disclosure of all matters that could reasonably be expected to impair one's 
independence and objectivity or interfere with respective duties to one's clients is required by 
Standard VI(A)–Disclosure of Conflicts.  
CFA Level I 
"Guidance for Standards I–VII" 
Standard VI(A)–Disclosure of Conflicts 
 
13. Correct answer: B. 
Prior-clearance processes guard against potential and actual conflicts of interest; members are 
required to abide by their employer's compliance procedures (Standard VI (B)).  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard V(A), Standard VI(B) 
 
14. Correct answer: B. 
Jones has used the mosaic theory to combine nonmaterial, nonpublic information with material 
public information.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard II(A) Material Nonpublic Information 
 
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15. Correct answer: C. 
Punishing abuse in the financial markets is not one of the six components of the Code of Ethics.  
CFA Level I 
―Code of Ethics,‖ CFA Institute 
Section: The Code of Ethics 
 
16. Correct answer: C. 
After a firm presents a minimum of five years of GIPS-compliant performance, the firm must 
present an additional year of performance each year, building up to a minimum of 10 years of 
GIPS-compliant performance.  
CFA Level I 
"The GIPS Standards," CFA Institute 
Section: Historical Performance Record 
 
17. Correct answer: B. 
Lan's actions do not violate Standard IV (A) – Duties to Employers. Lan does not use company 
time to make arrangements for his new venture, nor does he misappropriate any information 
(financial models or client contacts) from his former employer. All of Lan's actions are permissible 
under Standard IV (A).  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
Standard IV(A) 
 
18. Correct answer: A. 
Members and candidates are required to disclose any compensation arrangement to their 
employers that involves performing tasks or services that their employers can charge for. 
Disclosure is required even if the activities occur during non-work hours.  
CFA Level I 
"Guidance for Standards I-VII," CFA Institute 
 Standard IV(A) Loyalty to Employer  
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Questions 19~32 Relate to Quantitative analysis 
19. Correct answer: A. 
The EBIT-to-interest ratio is equal to 2.0 when the EBIT is $40 million. Given that the values 
between $36 million and $48 million are equally likely, the probability of the ratio being equal to 
or less than 2.0 is 33.3% (= [$40 million – $36 million]/[$48 million – $36 million]). 
Consequently, the probability of the ratio being greater than 2.0 is 66.7% (i.e., 1 – Probability of 
the ratio being equal to or less than 2.0). 
CFA Level I 
"Common Probability Distributions," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, 
and David E. Runkle 
Section 3.1 
 
20. Correct answer: B. 
First the outcome of interest, –0.40, is standardized for the given normal distribution:  
Z = (X – µ)/σ = (–0.40 – 5.00)/2 = –2.70. 
Then use the table to find the probability of a Z value being 2.70 standard deviations below the 
mean (i.e., when z ≤ 0). The value is 1 – P(Z ≤ +2.70). In this problem, the solution is: 1 – 0.9965 
= 0.0035 = 0.35%.  
CFA Level I 
"Common Probability Distributions," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, 
and David E. Runkle 
Section 3.2 
 
21. Correct answer: B. 
Because the screens are independent, the probability of passing all four simultaneously is the 
product of their respective probabilities:  
P(ABCD) = P(A) P(B) P(C) P(D), 
where 
P(A) = 0.65 and is the probability of passing Valuation Screen 1, 
P(B) = 0.45 andis the probability of passing Valuation Screen 2, 
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P(C) = 0.40 andis the probability of passing Valuation Screen 3, 
P(D) = 0.30 and is the probability of passing Valuation Screen 4. 
P(ABCD) = 0.65 × 0.45 × 0.40 × 0.30 = 0.0351. 
Given 1,200 potential investments, approximately 1,200 × 0.0351 = 42.12 ~ 42 will pass the 
screens. 
CFA Level I  
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2 
"Financial Statement Analysis: Applications," Thomas R. Robinson, Jan Hendrik van Greuning, 
Elaine Henry, and Michael A. Broihahn 
Section 5 
 
22. Correct answer: B. 
Odds are calculated as P(Z)/[1 – P(Z)]. In this problem, 0.14/0.86 = 0.16279 ~ 0.163. 
CFA Level I 
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2 
 
23. Correct answer: B. 
Across two periods, there are four possibilities: an up move followed by an up move ($121.00 end 
value), an up move followed by a down move ($101.20 end value), a down move followed by an 
up move ($101.20 end value), and a down move followed by a down move ($84.64 end value). 
The probability of an up move followed by a down move is 0.40 × 0.60 = 0.24. The probability of 
a down move followed by an up move is 0.60 ×0.40, which also = 0.24. Both of these sequences 
result in an end value of $101.20. Therefore, the probability of an end value of $101.20 is 48%. 
Alternatively, the following formula could be used:  
         1 1
x!x)!(n
n!
1xXpXp Equationpppp
x
n xnxxnx 








  
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Where 
n = 2 (number of periods) 
x = 1 (number of up moves: ud and du) 
p = 0.40 (probability of an up move) 
   
 
48.060.040.026.040.0
!1!12
2!
0.4010.40
1
2
1p 11121 









CFA Level I 
―Common Probability Distributions,‖ Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, 
and David E. Runkle  
Section 2.2 
 
24. Correct answer: C. 
p
fp
S
RR
p

nS
as defined is returns, historical on based, portfolio a for ration Sharp The
Where pR  is the mean return to the portfolio, fR is the mean return to a risk-free asset, and 
pS is the standard deviation of return on the portfolio. In this instance, p4%)/S-(20%=2 , 
Solving for   %82/%4%20S  :S pp  . 
CFA Level I 
"Statistical Concepts and Market Returns," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. 
Pinto, and David E. Runkle 
Section 7.8 
 
25. Correct answer: C. 
A Type I error is the mistake of rejecting the null hypothesis when it is, in fact, true. 
CFA Level I 
"Hypothesis Testing," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2 
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26. Correct answer: A. 
Using a financial calculator: N = 60; the discount rate, I/Y = (6.5%/12) = 0.54166667; PMT = 
€1,200; Future value = €0; Mode = Begin; Calculate present value (PV): PV = €61,662.62. 
Alternatively: Treat the stream as an ordinary annuity of 59 periods and add the current value of 
€1,200 to the derived answer. Using a financial calculator: N = 59; the discount rate, I/Y = 
(6.5%/12) = 0.54166667; PMT = €1,200; Future value = €0; Mode = End; Calculate PV: PV = 
€60,462.62; Total PV = €1,200 + €60,462.62 = €61,662.62.  
CFA Level I 
"The Time Value of Money," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and 
David E. Runkle 
Section 6.1 
 
27. Correct answer: B. 
A positive "hoped for" condition means that the null will be rejected (and the alternative accepted) 
only if the evidence indicates that the population parameter is greater than θ0. Thus, H0: θ ≤ θ0 
versus Ha: θ > θ0 is the correct statement of the null and alternative hypotheses, respectively.  
CFA Level I 
"Hypothesis Testing," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2 
 
28. Correct answer: B. 
The covariance between Fund A and B, given the standard deviation of returns and the correlation 
between the two funds, is calculated as : 
        00728.0%13%780.0,RR,RRCov BABA  BA RR  , 
Where 
   AR  and  BR  are the standard deviations of returns of  Funds A and B, respectively, 
   BA R,R  is the correlation between the returns of Fund A and B. 
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Then the portfolio standard deviation of returns is calculated as follows: 
         5.0
BA
2222 R,RCov2 BABBAAportfolio WWRWRWR    
Where AW  and BW  are the weights of Funds A and B in the portfolio 
    8.35%00728.00.300.7020.130.300.070.70Rσ
0.52222
portfolio 
Alternatively , correlation is used directly in the formula for portfolio standard deviation: 
             5.02222 ,2 BABABABBAAportfolio RRRRWWRWRWR    
   
8.35%
0.130.070.800.300.7020.130.300.070.70Rσ
0.52222
portfolio


 
CFA Level I 
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 3 
 
29. Correct answer: A. 
Given that X and Y are independent, their joint probability is equal to the product of their 
individual probabilities. In this case: P(XY) = P(X)P(Y) = 0.2 × 0.5 = 0.1. 
CFA Level I 
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2 
 
30. Correct answer: B. 
With a sample size of 10, there are 9 degrees of freedom. The confidence interval concept is based 
on a two-tailed approach. For a 95% confidence interval, 2.5% of the distribution will be in each 
tail. Thus, the correct t-statistic to use is 2.262. The confidence interval is calculated as:  
nSt /X 025.0  
Where X  is the sample mean, s is the sample standard deviation, and n is the sample size. In this 
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case: 6.25 ± 2.262 × 12/√10 = 6.25± 8.58369 or –2.33 to 14.83.  
CFA Level I 
―Sampling and Estimation,‖ Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and 
David E. Runkle 
Section 4.2 
  
31. Correct answer: B. 
This scenario provides an example of a discrete random variable. The paired outcomes for the dice 
are indicated in the following table. The outcome of the dice summing to six is the most likely to 
occur of the three choices because it can occur in five different ways, whereas the summation to 
five and nine can occur in only four different ways. 
 
Summed Outcome Paired Outcomes (Die 1, Die 2) Possible Combinations 
5 (1, 4), (2, 3), (3, 2), and (4, 1) 4 
6 (1, 5), (2, 4), (3, 3), (4, 2), and (5, 1) 5 
9 (3, 6), (4, 5), (5, 4), and (6, 3) 4 
CFA Level I 
"Common Probability Distributions," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, 
and David E. Runkle 
Section 2 
 
32. Correct answer: A. 
The two defining properties of a probability are as follows: 
1. The probability of any Event E is a number between zero and one. 
2. The sum of the probabilities of any set of mutually exclusive and exhaustive events equals one. 
CFA Level I 
"Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. 
Runkle 
Section 2  
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Questions 33~44 Relate to Economics 
33. Correct answer: B. 
The loss in consumer surplus because of higher prices is represented by area E+F+G+H. This 
exceeds the gains from producer surplus (E) and government revenues on imports (G). Hence the 
net welfare effect to the country is a deadweight loss of [E+F+G+H] – [E] – [G] = F+H. 
CFA Level 1 
―Demand and Supply Analysis: Introduction,‖ Richard V. Eastin and Gary L. Arbogast, CFA  
Sections 3.9, 3.10, 3.13  
―International Trade and Capital Flows,‖ Usha Nair-Reichert, PhD, and Daniel Robert 
Witschi, PhD, CFA 
Section 3.1 
 
34. Correct answer: C. 
An increase in capacity utilization will cause an increase in aggregate demand through higher 
investment and will increase GDP (economic expansion). 
CFA Level I 
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz 
Section 3.3.1 
 
35. Correct answer: C. 
The Fisher effect states that the nominal interest rate is the sum of the real rate of interest and the 
expected rate of inflation over a given time horizon. An increase in expected inflation will result in 
a higher nominal rate.  
CFA Level I 
―Monetary and Fiscal Policy,‖ Andrew Clare and Stephen Thomas 
Section 2.1.7 
 
36. Correct answer: C. 
The sum-of-value-added method involves summing the value added (or income created) at each 
step in the production and distribution process. 
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CFA Level I 
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz 
Section 2.1 
 
37. Correct answer: C. 
 
If both aggregate demand (AD) and aggregate 
supply (AS) increase, real GDP will increase 
but the impact on inflation is not clear unless 
we know the magnitude of the changes because 
an increase in AD will increase the price level, 
whereas an increase in AS will decrease the 
price level.  If AD increases more than AS, the 
price level will increase. If AS increases more 
than AD, as depicted in the graph to the right, 
the price level will decline. 
  
 
CFA Level I 
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz 
Section 3.4.5 
 
38. Correct answer: B. 
Veblen goods violate the fundamental axioms of demand theory, whereas Giffen goods do not. 
CFA Level I 
"Demand and Supply Analysis: Consumer Demand," Richard V. Eastin and Gary L. Arbogast 
Sections 6.4, 6.5 
 
39. Correct answer: A. 
A boom in the stock market increases the value of financial assets and household wealth. An 
increase in household wealth increases consumer spending and shifts the aggregate demand curve 
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to the right. 
CFA Level I 
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz 
Section 3.3.1 
 
40. Correct answer: B. 
 
CFA Level I 
"Demand and Supply Analysis: Introduction," Richard V. Eastin and Gary L. Arbogast 
Section 3.2 
 
41. Correct answer: C. 
If demand is elastic, a 1% reduction in price increases the quantity sold by more than 1%. 
CFA Level I 
"Demand and Supply Analysis: Introduction," Richard V. Eastin and Gary L. Arbogast 
Section 4.1 
 
42. Correct answer: C. 
A recessionary gap arises when equilibrium GDP is below potential GDP. Decreased confidence 
Initial Price Quantity Relationship 
QDPizza = 11  0.70 PPizza + 0.009  $500  0.20  1.25 = 15.25 – 0.70 PPizza  
Resulting Demand Curve:   PPizza = 21.79 – 1.43 QDPizza 
Price Quantity Relationship at New Income Level 
QDPizza = 11  0.70 PPizza + 0.009  $700 - 0.20 1.25 = 17.05 – 0.70 PPizza ,  
Resulting Demand Curve:   PPizza = 24.36 – 1.43 QDPizza 
The slope of her demand curve for pizza will still be -1.43 even with the higher income of $700 
as the increase in income has shifted the demand curve outward and upward but has not affected 
its slope. 
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lowers aggregate demand, which, in turn, leads to economic contractions. As demand declines, 
companies reduce their workforce and the unemployment rate rises. 
CFA Level I 
"Aggregate Output, Prices, and Economic Growth," Paul R. Kutasovic and Richard G. Fritz 
Section 3.4.2 
 
43. Correct answer: A. 
Consumer surplus arises when a consumer pays less for a good than the maximum price that she 
or he was willing to pay for it. Consumer surplus is the value (or marginal benefit) of a good 
minus the price paid for it, summed over the quantity bought. Because no consumer will (willingly) 
pay a price greater than the marginal value or benefit, consumer surplus is always positive. 
CFA Level I 
"Demand and Supply Analysis: Introduction," Richard V. Eastin and Gary L. Arbogast 
Section 3.9 
 
44. Correct answer: A. 
A Giffen good is an inferior good. All inferior goods have a negative income effect (less is 
purchased as income rises). Although the substitution effect is always positive for all goods, for a 
Giffen good, the income effect is so strong and so negative that it overpowers the substitution 
effect. The result is that as its price declines, less of it is purchased; this relationship results in a 
positively sloped individual demand curve. Therefore, it is least likely that the substitution effect 
is negative.  
CFA Level I 
"Demand and Supply Analysis: Consumer Demand," Richard V. Eastin and Gary L. Arbogast 
Sections 6.3, 6.4 
  
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Questions 45~68 Relate to Financial Statement Analysis 
45. Correct answer: A. 
Common size statements offer a convenient way to compare companies of different magnitudes. 
Company X reports better (higher) gross margin performance. Company Y reports better (higher) 
operating margin performance. 
 
Metric (common size) Company X Company Y Comparison 
Sales 100% 100%   
Cost of goods sold 51 53   
  Gross margin (GM) 49 47 X’s GM is higher 
Administrative costs 17 15   
Research & development expenses 13 12   
  Operating margin (OM) 19 20 Y’s OM is higher 
 
CFA Level I 
"Understanding Income Statements," Elaine Henry and Thomas R. Robinson 
Section 7.1 
 
46. Correct answer: A. 
U.S. GAAP requires that long term contracts whose outcomes can be reliably measured should be 
accounted for using the percentage-of-completion method, based on the stage of completion. 
Under the original assumptions, the company would have recognized $15 million of revenue. 
 
Calculations Under the Percentage-of-Completion Method 
Costs incurred to date  $12 million 
Estimated total costs  $32 million 
% total costs incurred to date     37.5% 
  
Total contract revenue  $40 million 
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% revenue to be recognized    37.5% 
Current year revenue $15 million 
 
Now that the company is unclear on the appropriate design and thus the cost, the outcome cannot 
be reliably measured. The completed contract method is used. Under this approach, no revenue 
($ 0) is recognized until the contract is substantially complete. The difference in reported revenue 
under the two methods is: $15 million - $0 = $15 million.  
CFA Level I 
"Understanding Income Statements," Elaine Henry and Thomas R. Robinson 
Section 3.2.1 
 
47. Correct answer: B. 
Whether the company sells or leases the asset, inventory will be reduced. For sales, the company 
would report an accounts receivable classified as a current asset (assuming sales terms are not in 
question). If the leases qualify as finance leases, then the company will report a lease receivable, 
which is primarily long term. Therefore, compared with selling units outright, the company's 
current assets are lower under leasing and its liquidity position will decrease. 
CFA Level I 
"Long-Lived Assets," Elaine Henry and Elizabeth A. Gordon 
Section 9.2.2 
"Non-Current (Long-Term) Liabilities," Elizabeth A. Gordon and Elaine Henry 
Section 3.2.2 
 
48. Correct answer: B. 
The general journal records transactions in the order in which they occur (chronological order) and 
is thus sorted by date. 
CFA Level I 
"Financial Reporting Mechanics," Thomas R. Robinson, Jan Hendrik van Greuning, Karen 
O'Connor Rubsam, Elaine Henry, and Michael A. Broihahn 
Section 6.1 
CFA level1-Mock-113 
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49. Correct answer: A. 
The costs to include in inventories are all costs of purchase, costs of conversion, and other costs 
incurred in bringing the inventories to their present location and condition. It does not include 
abnormal waste costs or storage of finished product.  
 
Cost ¥ Millions 
Purchase price 100,000 
Minus trade discounts –5,000 
Import duties 20,000 
Shipping of raw materials to manufacturing facility 10,000 
Manufacturing conversion costs 50,000 
Total inventory costs 175,000 
 
CFA Level I 
―Inventories,‖ Michael A. Broihahn 
Section 2 
 
50. Correct answer: C. 
If the leases were capitalized, both total assets and liabilities would increase by the present value 
of the lease payments, as shown in the following table. 
 
Present Value of Operating Lease Payments (€ Millions) 
The lease commitments after 2019 are assumed to be the same as in 2019, so there are estimated 
to be 240/80 = 3 additional payments. 
The present value of the operating lease payments can be calculated as the sum of the present 
values of two annuities-in-advance (PVAADV): a four-year annuity starting immediately 
(beginning of 2015) and another four-year annuity starting in four years (2019) 
Years Cash Flow × Annuity-in-Advance Factor Discount Present Value 
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by  at Start of 
2015 
2015 to 2018 130 × PVAADV (4 years, 6%) = 477.5 Not 
required 
477.5 
2019 and 
beyond 
80 × PVAADV (4 years, 6%) = 293.8 at 2019 
 406.1
1
 
232.7 
    Total 710.2 
PVAADV (4 years, 6%) by financial calculator: N = 4; I = 6; PMT = 1; Mode = BGN; Compute 
PV 
  
Adjusted Long-Term Debt/Asset Ratio Calculation  
Adjusted long-term debt  1,347 + 710 = 2,057 
Adjusted total assets 20,097 + 710 = 20,807 
Adjusted long-term debt/asset ratio 2,057/20,807 = 9.9% 
 
 
CFA Level I 
"Long-Lived Assets," Elaine Henry and Elizabeth A. Gordon 
Alternatively, the individual cash flows can be separately discounted. 
Present Value of Operating Lease Payments (€ millions) 
Year Cash Flow Cash Flow x PV Factor PV 
0 130 130 × PV(0y, 6.0%) 130.0 
1 130 130 × PV(1y, 6.0%) 122.6 
2  130 130 × PV(2y, 6.0%)  115.7 
3 130 130 × PV(3y, 6.0%) 109.1 
4 80 80 × PV(4y, 6.0%) 63.3 
Beyond 4 240/80 per year = 3 
years 
80 × PVA(3y, 6.0%) × PV(4y, 6.0%)  169.4 
    Total 710.1 
PVA (3 years, 6%) by financial calculator: N = 3; I = 6; PMT = 1; Mode = END; Compute PV 
CFA level1-Mock-113 
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Section 9.2.1 
"Non-Current (Long-Term) Liabilities," Elizabeth A. Gordon and Elaine Henry 
Section 3.2.1 
 
51. Correct answer: C. 
The IFRS Conceptual Framework specifies a number of general features underlying the 
preparation of financial statements, including materiality and accrual basis. Matching is not one of 
those general features; it is a general principle of expense recognition. 
CFA Level I 
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning, and Thomas R. 
Robinson 
Sections 5.5, 5.5.2 
"Understanding Income Statements," Elaine Henry and Thomas R. Robinson 
Section 4.1 
 
52. Correct answer: A. 
For a publicly traded firm in the United States, the auditor must express an opinion as to whether 
the company's internal control system is in accordance with the Public Accounting Oversight 
Board, under the Sarbanes–Oxley Act. The opinion is given either in a final paragraph in the 
auditor's report or as a separate opinion. 
CFA Level I 
"Financial Statement Analysis: An Introduction," Elaine Henry and Thomas R. Robinson 
Section 3.1.7 
 
53. Correct answer: B. 
The two fundamental qualitative characteristics that make financial information useful are 
relevance and faithful representation. Materiality relates to the level of detail of the information 
needed to achieve relevance. 
CFA Level I 
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning, and Thomas R. 
CFA level1-Mock-113 
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Robinson 
Section 5.2 
 
54. Correct answer: C. 
Metric  (£’000) 
Ending retained earnings 821,000 
Less:  opening retained earnings (580,000) 
Add back:  dividends paid 60,000 
Net income 301,000 
Comprehensive income 246,000 
OCI = Comprehensive income – net income 55,000 LOSS 
CFA Level I 
"Understanding Income Statements," Elaine Henry and Thomas R. Robinson 
Section 8 
 
55. Correct answer: B. 
Because both the preferred shares and the bonds are dilutive, they should both be converted to 
calculate the diluted EPS. Diluted EPS is the lowest possible value. 
  Basic EPS Diluted EPS: 
Bond Converted 
Diluted EPS: 
Preferred 
Converted 
Diluted EPS: 
Both 
Converted 
Net income $1,000,000 $1,000,000 $1,000,000 $1,000,000 
Preferred dividends –$20,000 –$20,000 0 0 
After-tax cost of interest 
8% × $80,000 × (1 – 0.40) 
    
$3,840 
    
$3,840 
Numerator $980,000 $983,840 $1,000,000 $1,003,840 
Average common shares 
outstanding 
100,000 100,000 100,000 100,000 
Preferred converted     10,000 10,000 
CFA level1-Mock-113 
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Bond converted   20,000   20,000 
Denominator 100,000 120,000 110,000 130,000 
          
EPS $9.80 $8.20 $9.09 $7.72 
CFA Level I  
―Understanding Income Statements,‖ Elaine Henry and Thomas R. Robinson  
Sections 6.2, 6.3 
 
56. Correct answer: A. 
An effective framework should enhance the transparency of the underlying economics through the 
financial statements; transparency arises through full disclosure and fair presentation. 
CFA Level I 
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning and Thomas R. 
Robinson 
Section 6.1 
 
57. Correct answer: B. 
The periodic and perpetual systems result in the same inventory and cost of goods sold values (and 
thus gross profit margin) using both FIFO and specific identification valuation methods but not 
always under LIFO. 
CFA Level I 
―Inventories,‖ Michael A. Broihahn  
Section 3.6 
 
58. Correct answer: C. 
A liquidity-based presentation can be used when it provides information that is reliable and more 
relevant. Entities that typically choose this format include banks. 
CFA Level I 
"Understanding Balance Sheets," Elaine Henry and Thomas R. Robinson 
CFA level1-Mock-113 
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Section 2.2, 2.3 
 
59. Correct answer: B. 
Relevance and faithful representation are the two fundamental qualitative characteristics that make 
financial information useful, according to the IASB Conceptual Framework. 
CFA Level I 
"Financial Reporting Standards," Elaine Henry, Jan Hendrik van Greuning, and Thomas R. 
Robinson 
Section 5.2 
 
60. Correct answer: A. 
Intangible assets with indefinite lives need to be tested for impairment at least annually. Property, 
plant, and equipment (including land) and intangibles with finite lives are only tested if there has 
been a significant change or other indication of impairment.  
CFA Level I 
―Understanding Balance Sheets,‖ Elaine Henry and Thomas R. Robinson 
Sections 4.1, 4.3 
 ―Long-Lived Assets,‖ Elaine Henry and Elizabeth A. Gordon 
Sections 5.1, 5.2, 5.3  
 
61. Correct answer: C. 
In periods of rising prices, FIFO results in a higher inventory value and a lower cost of goods sold 
and thus a higher net income. The higher net income increases return on sales. The higher reported 
net income also increases retained earnings and thus results in a lower debt-to-equity ratio, not a 
higher one. The combination of higher inventory and lower cost of goods sold (CGS) decreases 
inventory turnover (CGS/Inventory). 
CFA Level I 
―Inventories,‖ Michael A. Broihahn  
Sections 3.2, 3.3, 3.5, 3.7 
 
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62. Correct answer: C. 
There would be no effect on the accounting equation because the company has exchanged one 
asset for another. Cash has decreased and office equipment, a capital asset, has increased. 
CFA Level I 
"Financial Reporting Mechanics," Thomas R. Robinson, Jan Hendrik van Greuning, Karen 
O'Connor Rubsam, Elaine Henry, and Michael A. Broihahn 
Section 4.2 
 
63. Correct answer: B. 
Under IFRS, the recovery of a previous write-down is limited to the amount of the original 
write-down (€20,000) and is reported as a decrease in the cost of sales.  
CFA Level I 
―Inventories,‖ Michael A. Broihahn  
Section 6 
 
64. Correct answer: B. 
The notes disclose information about the accounting policies, methods, and estimates used to 
prepare the financial statements.  
CFA Level I 
"Financial Statement Analysis: An Introduction," Elaine Henry and Thomas R. Robinson 
Section 3.1.5 
 
65. Correct answer: C. 
The used aircraft that the manufacturer buys and leases back are classified as operating leases. For 
the lessor, these assets under operating leases would be classified in property, plant, and 
equipment in capital assets and thus would lead to an increase in capital assets. With payments in 
advance, there would be no lease receivable arising from the operating lease; long-term lease 
receivables arise from financing leases, not operating leases. Although revenues will increase by 
the lease payments, the leased assets are depreciated, and therefore EBIT will increase by the lease 
payment received minus depreciation expense. 
CFA level1-Mock-113 
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CFA Level I 
"Long-Lived Assets," Elaine Henry and Elizabeth A. Gordon 
Section 9.2.2 
"Non-Current (Long-Term) Liabilities," Elizabeth A. Gordon and Elaine Henry 
Section 3.2 
 
66. Correct answer: C. 
The role of financial reporting is to provide information about the performance of a company, its 
financial position, and changes in financial position that is useful to a wide range of users in 
making economic decisions. 
CFA Level I 
"Financial Statement Analysis: An Introduction," Elaine Henry and Thomas R. Robinson 
Sections 2, 3.1.7 
 
67. Correct answer: A. 
The statement about accrued expenses is correct. A valuation adjustment for an asset converts its 
historical cost to current market value; accrued revenue arises when revenue has been earned but 
not yet received. 
CFA Level I 
"Financial Reporting Mechanics," Thomas R. Robinson, Jan Hendrik van Greuning, Karen 
O'Connor Rubsam, Elaine Henry, and Michael A. Broihahn 
Section 5.1 
 
68. Correct answer: A. 
The expensing of the previously capitalized interest is a non-cash amount and does not affect cash 
flow from operations. Under US GAAP, cash flow from operations is higher as a result of the 
initial capitalizing of interest but not its subsequent expensing. If the interest had not been 
capitalized, interest expense would have been greater and net income and cash from operations 
lower. 
CFA Level I 
CFA level1-Mock-113 
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"Long-Lived Assets," Elaine Henry and Elizabeth A. Gordon 
Section 2.1 
  
CFA level1-Mock-113 
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Questions 69~76 Relate to Corporate finance 
69. Correct answer: C. 
The annual after-tax cost of debt is the after tax annual yield to maturity (YTM). Find the YTM by 
using a financial calculator as follows:  
Present value (PV) = –1,030.34; Future value (FV) = 1,000; N = 40 (20 × 2); Payment (PMT) = 31 
(0.062 × 1,000 × ½); compute i.  
i = 2.97 semiannually.  
Annually, YTM = 2.97 × 2 = 5.94. 
Therefore, the associated after-tax value = 0.0428 = 0.0594 × (1 – 0.28). 
CFA Level I 
―Cost of Capital,‖ Yves Courtois, Gene C. Lai, and Pamela Peterson Drake  
Section 3.1.1 
 
70. Correct answer: B. 
The optimal capital budget occurs when the marginal cost of capital (MCC) intersects with (is 
equal to) the investment opportunity schedule (IOS).  
CFA Level I 
"Cost of Capital," Yves Courtois, Gene C. Lai, and Pamela Peterson Drake 
Section 2.3 
 
71. Correct answer: C. 
Note: 60% debt financing is equivalent to a debt-to-equity ratio of 1.50 = 0.60/(1 – 0.60). 
βAsset = βEQ × {1/[1 + (1 – t)D/E)]} = 1.4/[1 + (1 – 0.35) × 1.5] = 0.7089. 
CFA Level I 
―Cost of Capital,‖ Yves Courtois, Gene C. Lai, and Pamela Peterson Drake  
Section 4.1 
  
CFA level1-Mock-113 
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72. Correct answer: C. 
    Company A Company B Comparison 
Net profit 
margin rurnover Asset
ROA
 
6.75 ÷ 1.50 
= 4.50% 
11.25 ÷ 2.50 
= 4.50% 
Same 
Financial 
leverage ROA
ROE
 
10.13 ÷ 6.75 
= 1.50 
16.88 ÷ 11.25 
= 1.50 
Same 
In this instance, times interest earned can be found as the correct answer by process of eliminating 
the other choices as potential correct answers. Keep in mind, however, that even when companies 
have equal times interest earned ratios, it does not mean that the amount of interest expense is the 
same for both because the companies may not be of equal size. 
CFA Level I 
―Financial Analysis Techniques,‖ by Elaine Henry, Thomas R. Robinson, and Jan Hendrik van 
Greuning 
Sections 4.2–4.3 
―Measures of Leverage,‖ by Pamela Peterson Drake, Raj Aggarwal, Cynthia Harrington, and 
Adam Kobor  
Section 3.4 
 
73. Correct answer: A. 
Renegotiating debt contracts is a secondary source of liquidity because it may affect the 
company’s operating and/or financial positions. 
CFA Level I 
―Working Capital Management,‖ Edgar A. Norton, Jr., Kenneth L. Parkinson, and Pamela 
Peterson Drake 
Sections 2.1.1, 2.1.2 
 
74. Correct answer: C. 
Incorrect.  
CFA level1-Mock-113 
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Financing costs are not included in a cash flow calculation but are considered in the calculation of 
the discount rate. 
CFA Level I 
―Capital Budgeting,‖ John D. Stowe and Jacques R. Gagné 
Section 3 
 
75. Correct answer: A. 
Use the following formula: 
 
 
10.0
05.0169.14$
32.0$
1229.0
1P
D
r
0
1
e















 g
f
 
where 
1D  = Expected dividend 
0P  = Current price 
f = Flotation costs 
g = Growth rate  
CFA Level I,  
―Cost of Capital,‖ Yves Courtois, Gene C. Lai, and Pamela Peterson Drake  
Sections 3.3.2, 4.4 
 
76. Correct answer: C. 
The PI is: 026.1
253,16
11.423
1   
CFA Level I,  
―Capital Budgeting,‖ John D. Stowe and Jacques R. Gagné  
Section 4.1, 4.6 
  
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Questions 77 ~88 Relate to Equity investment 
77. Correct answer: C. 
Information-motivated traders expect to earn returns in excess of market returns because they 
trade on securities they believe the market has over- or undervalued. Unlike pure investors, they 
expect to earn a return on their information in addition to the normal return expected for bearing 
risk. Excess returns are generated when the market recognizes and corrects the valuation error on 
such a security. 
CFA Level I 
"Market Organization and Structure," Larry Harris 
Section 2.1.6 
 
78. Correct answer: A. 
Fundamentally weighted indices generally will have a contrarian ―effect‖ in that the portfolio 
weights will shift away from securities that have increased in relative value and toward securities 
that have fallen in relative value whenever the portfolio is rebalanced. 
CFA Level I 
 ―Security Market Indices,‖ Paul D. Kaplan and Dorothy C. Kelly  
Section 3.2.4 
 
79. Correct answer: C. 
Instruments that are infrequently traded and expensive to carry as inventory (e.g., very large 
blocks of stock, real estate properties, fine art masterpieces, and liquor licenses) are executed in 
brokered markets. Organizing order-driven markets for such instruments is not sensible because 
too few traders would submit orders to them. 
CFA Level I 
―Market Organization and Structure,‖ Larry Harris 
Section 8.2 
 
80. Correct answer: B. 
Behavioral biases in which investors tend to avoid realizing losses but, rather, seek to realize gains 
CFA level1-Mock-113 
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is the disposition effect. 
CFA Level I 
―Market Efficiency,‖ by W. Sean Cleary, Howard J. Atkinson, and Pamela Peterson Drake 
Section 5.3 
 
81. Correct answer: C. 
Real estate securities qualify as alternative investments. 
CFA Level I 
"Market Organization and Structure," Larry Harris 
Section 3.1 
 
82. Correct answer: C. 
Information availability (e.g., active financial news media or information regarding trading 
activity and traded companies) and financial disclosure should promote or increase market 
efficiency. 
CFA Level I 
"Market Efficiency," W. Sean Cleary, Howard J. Atkinson, and Pamela Peterson Drake 
Section 2.3 
 
83. Correct answer: A. 
Compared with equity indices, the large number of fixed-income securities—combined with the 
lack of liquidity of some securities—has made it more costly and difficult for investors to replicate 
fixed-income indices and duplicate their performance.  
CFA Level I 
―Security Market Indices,‖ Paul D. Kaplan and Dorothy C. Kelly  
Section 6.1 
 
84. Correct answer: C. 
Most forward contracts do not require an upfront cash outlay. Other hedging vehicles, such as 
futures (which require margin accounts) and options (which must be purchased for a fee), do 
CFA level1-Mock-113 
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require upfront payments. 
CFA Level I 
"Market Organization and Structure," Larry Harris 
Section 3.4.1 
 
85. Correct answer: A. 
An index provider will adjust the value of the divisor as necessary to avoid changes in the index 
value that are unrelated to changes in the prices of constituent securities. 
CFA Level I 
"Security Market Indices," Paul D. Kaplan and Dorothy C. Kelly 
Section 2 
 
86. Correct answer: C. 
Closed-end funds may trade at a premium (discount) to net asset value when investors believe that 
the portfolio securities are undervalued (overvalued). 
CFA Level I 
"Market Organization and Structure," Larry Harris 
Section 3.2.3 
 
87. Correct answer: C. 
Equal weighting assigns an equal weight to each constituent security at inception. Therefore, it is 
the sum of the total return from each security divided by the number of securities in the portfolios. 
Stock (P1 – P0 + D)/P0  Total Return (%) 
A (37 – 40 + 2.00)/40 = –2.5 
B (52 – 50 + 1.50)/50 = 7.00 
C (34 – 30 + 0)/30 = 13.33 
Portfolio return with equal weighting:  
(–2.50 + 7.00 + 13.33)/3 =  
5.94 
CFA Level I 
CFA level1-Mock-113 
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―Security Market Indices,‖ Paul D. Kaplan and Dorothy C. Kelly  
Section 3.2.2 
 
88. Correct answer: B. 
An embryonic industry is one that is just beginning to develop and is characterized by slow 
growth, high prices, volumes not yet sufficient to achieve meaningful economies of scale, 
developing distribution channels, and low brand loyalty because there is low customer awareness 
of the industry’s product. 
CFA Level I 
 ―Introduction to Industry and Company Analysis,‖ Patrick W. Dorsey, Anthony M. Fiore, and Ian 
Rossa O’Reilly 
Section 5.1.5.1 
  
CFA level1-Mock-113 
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Questions 89~94 Relate to Derivatives 
89. Correct answer: B. 
Given the formula for the value of a forward contract:  
      tT
t rTFS

 1TV 0t  
it follows that the value of the contract goes up as the price of the underlying goes up. 
2015 CFA Level 1 
―Basics of Derivative Pricing and Valuation,‖ Don M. Chance, CFA 
Section 3.1.3 
  
90. Correct answer: C. 
One benefit of derivatives markets is information discovery. Implied volatility reveals information 
about the risk of the underlying. Increases in implied volatility are an implication of increased 
market uncertainty. 
CFA Level I 
 ―Derivative Markets and Instruments,‖ Don M. Chance 
Section 5.2 
 
91. Correct answer: A. 
If the convenience yield is high, holding the underlying confers large benefits, thus the spot price 
can exceed the forward price for a forward contract with a value of zero. Based on the formula 
       
 
01 1
t T t
t tV T S y r F T r
 
       and an initial value  0tV  of zero, large 
benefits explain why the spot price can exceed the forward price.    
2015 CFA Level 1 
―Basics of Derivative Pricing and Valuation,‖ Don M. Chance, CFA 
Section 2.2.5 
  
92. Correct answer: C. 
A fiduciary call, defined as a long position in a call and in a risk-free bond, generates a payoff that 
is equal to the market value of the asset if it expires in the money. 
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CFA Level I 
"Basics of Derivative Pricing and Valuation," Don M. Chance 
Section 4.1.9 
 
93. Correct answer: A. 
Convenience yield is primarily associated with commodities and generally exists as a result of 
difficulty in shorting the commodity or unusually tight supplies.  
CFA Level I 
"Basics of Derivative Pricing and Valuation," Don M. Chance 
Section 2.2.5 
 
94. Correct answer: A. 
The forward price is the spot price compounded at the risk-free rate over the life of the contract. 
Since Contract 2 has the longer life, compounding will lead to a larger value. 
CFA Level I 
"Basics of Derivative Pricing and Valuation," Don M. Chance 
Section 3.1.2 
  
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Questions 95~106 Relate to Fixed-income Analysis 
95. Correct answer: A. 
Because the security's coupon rate moves in the opposite direction (or inversely) from the risk-free 
rate, it is an inverse floater. (Specifically, Coupon rate = 12.00% – 2 × Risk-free rate.)  
CFA Level 1 
"Fixed-Income Securities: Defining Elements," Moorad Choudhry and Stephen E. Wilcox 
Section 4.2 
 
96. Correct answer: B. 
The size of the spread between the bid price and the ask price is the primary measure of market 
liquidity of the issue. Market liquidity risk is the risk that the investor will have to sell a bond 
below its indicated value. The wider the bid–ask spread, the greater the market liquidity risk. 
CFA Level I 
"Fundamentals of Credit Analysis," Christopher L. Gootkind 
Section 2 
 
97. Correct answer: B. 
The forward and spot curves are interconnected to each other. The spot curve can be calculated 
from the forward curve, and the forward curve can be calculated from the spot curve. Either curve 
can be used to value fixed-rate bonds. 
CFA Level I 
"Introduction to Fixed-Income Valuation", James F. Adams and Donald J. Smith 
Section 4 
 
98. Correct answer: C. 
The bond's PVBP is computed using 
   
2
 

PVPV
PVBP   
so,  095.0
2
40.10859.108


 
CFA Level 1 
CFA level1-Mock-113 
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"Understanding Fixed-Income Risk and Return," James F. Adams and Donald J. Smith 
Section 3.5 
 
99. Correct answer: A. 
When interest rates are low, the callable bond's price will not increase as much because the 
presence of the call option will limit the price increase. Because the bond is likely to be called 
when interest rates are falling, the embedded call option will reduce the effective duration of the 
bond. 
CFA Level 1 
"Understanding Fixed-Income Risk and Return," James F. Adams and Donald J. Smith  
Section 3.3 
 
100. Correct answer: A. 
An original issue discount tax provision allows the investor to increase the cost basis of the bond, 
so when the bond matures, the investor faces no capital gain or loss. 
CFA Level 1 
"Fixed-Income Securities: Defining Elements," Moorad Choudhry and Stephen E. Wilcox 
Section 3.3 
 
101. Correct answer: B. 
A spot rate is defined as the yield to maturity on a zero-coupon bond maturing at the date of that 
cash flow. 
CFA Level I 
"Introduction to Fixed-Income Valuation," James F. Adams and Donald J. Smith 
Section 2.4 
 
102. Correct answer: A. 
The duration gap is the bond's Macaulay duration minus the investment horizon, which is positive 
in this case. A positive duration gap implies that the investor is currently exposed to the risk of 
higher interest rates. 
CFA level1-Mock-113 
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CFA Level I 
"Understanding Fixed-Income Risk and Return", James F. Adams and Donald J. Smith 
Section 4.2 
 
103. Correct answer: B. 
Securitization allows banks to originate (or create) loans and the process results in a reduction in 
the layers between borrowers and ultimate investors. The loans are repackaged into more complex, 
not simpler, structures. 
CFA Level I 
"Introduction to Asset-Backed Securities", Frank J. Fabozzi 
Section 2 
 
104. Correct answer: B. 
A callable bond exhibits negative convexity at low yield levels and positive convexity at high 
yield levels. 
CFA Level 1 
"Understanding Fixed-Income Risk and Return," James F. Adams and Donald J. Smith 
Section 3.6 
 
105. Correct answer: A. 
The value of a zero-coupon bond is,  
 Nr

1
value Face
 
where r is the market discount rate per period and N is the number of evenly spaced periods to 
maturity. The value of the zero-coupon bond is,  
 
74.122$
2/12.01
000,1$
218




 
CFA Level I 
"Introduction to Fixed-Income Valuation," James F. Adams and Donald J. Smith 
Section 2.1 
CFA level1-Mock-113 
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106. Correct answer: A. 
The bank does not have a claim against the borrower for the shortfall of $150,000 on the mortgage 
balance outstanding relative to the proceeds received from the property's sale indicating that the 
home mortgage is a non-recourse loan. 
CFA Level I 
"Introduction to Asset-Backed Securities", Frank J. Fabozzi 
Section 4.5 
  
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Questions 107~110 Relate to Alternative Investments 
107. Correct answer: B. 
The soft hurdle rate is surpassed, because the return of the fund is 10%. For that reason, the full 
fee, based on the full performance, is due.  
Management fee: 2% of $110 million = $2.2 million. 
Incentive fee: 20% of $10 million = $2 million. 
Total fees: $4.2 million. 
Therefore, the fund assets at the end of the period after fees are $105.8 million. The return for the 
investor is 5.8%.   
2014 CFA Level I 
"Introduction to Alternative Investments," by Terri Duhon, George Spentzos, and Scott D. Stewart 
Section 3.3 
 
108. Correct answer: C. 
A limited partnership that takes long and short positions in publicly traded equity is one type of 
hedge fund, a category of alternative assets. 
CFA Level I 
"Introduction to Alternative Investments," Terri Duhon, George Spentzos, and Scott D. Stewart 
Section 2.1 
 
109. Correct answer: C. 
Real estate investment trusts (REITs) provide investors with indirect equity real estate exposure. 
Real estate investment partnerships are a form of direct real estate equity investment. Commercial 
mortgage-backed securities (CMBSs) provide investors with indirect debt investment 
opportunities in real estate. 
CFA Level I 
"Introduction to Alternative Investments," Terri Duhon, George Spentzos, and Scott D. Stewart 
Sections 5.1, 5.2 
 
110. Correct answer: C. 
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A master limited partnership (MLP) is publicly traded, whereas a private equity fund is not. 
Therefore the MLP will have market pricing information to help with valuation. A brownfield 
investment is an existing asset that likely has operational and financial history to aid in valuation; 
whereas a greenfield investment is in new construction. 
CFA Level I 
"Introduction to Alternative Investments," Terri Duhon, George Spentzos, and Scott D. Stewart 
Section 7 
  
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Questions 111 ~120 Relate to Portfolio Management 
111. Correct answer: C. 
The statement is an absolute risk objective because it expresses a maximum loss in value with an 
associated probability of loss. 
CFA Level I 
"Basics of Portfolio Planning and Construction," Alistair Byrne and Frank E. Smuddle 
Section 2.2 
 
112. Correct answer: C. 
Because the estimated return on the stock is lower than the expected return using the CAPM, the 
stock does not compensate the investor for the level of risk and so it is most likely overvalued. 
CFA Level I 
"Portfolio Risk and Return: Part II," Vijay Singal 
Section 4.3 
 
113. Correct answer: A. 
For an investor who holds a fully diversified portfolio, the Treynor ratio and Jensen's alpha are the 
appropriate portfolio performance measures. They are appropriate because in a fully diversified 
portfolio, only systematic risk matters; both these metrics measure performance relative to beta or 
systematic risk. 
CFA Level I 
"Portfolio Risk and Return: Part II," Vijay Singal 
Section 4.3 
 
114. Correct answer: A. 
The Treynor ratio measures the return premium of a portfolio versus the risk-free asset relative to 
the portfolio's beta, which is a measure of systematic risk. 
CFA Level I 
"Portfolio Risk and Return: Part II," Vijay Singal 
Section 4.3.2 
CFA level1-Mock-113 
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115. Correct answer: A. 
An organization with a strong competitive position can recover from losses more easily than one 
with a weaker competitive positive. Therefore an organization's risk tolerance should reflect its 
competitive position. An organization's size does not define the risks sources it faces or the 
relative losses it can absorb; therefore it should not be reflected in its risk tolerance. Neither the 
risk sources affecting an organization nor the size of the losses an organization can absorb are a 
function of its perception of market stability. 
CFA Level I 
"Risk Management: An Introduction," Don M. Chance and Michael Edelson 
Section 3.2 
 
116. Correct answer: B. 
We first compute the firm’s beta using: 
m
imi


 ,
i   The beta is:  
 
6.1
15.0
30.08.0
i The expected return is computed using: 
     ifmfi RRERRE    So,     %8.186.108.006.0 iRE  
CFA Level I 
―Portfolio Risk and Return: Part II,‖ Vijay Singal 
Sections 3.2 and 4.2 
  
117. Correct answer: C. 
Investor B has a higher risk aversion coefficient, which means a lower risk tolerance and a lower 
expected return on the capital allocation line. 
CFA Level I 
―Portfolio Risk and Return: Part I,‖ Vijay Singal 
Section 3.3 
 
CFA level1-Mock-113 
45/45 
 
118. Correct answer: A. 
A return-generating model based on such factors as earnings growth and cash flow generation is a 
fundamental factor model. 
CFA Level I 
"Portfolio Risk and Return: Part II," Vijay Singal 
Section 3.2.1 
 
119. Correct answer: A. 
Insurance companies need to be relatively conservative and liquid, given the necessity of paying 
claims when due. 
CFA Level I 
"Portfolio Management: An Overview," Robert M. Conroy and Alistair Byrne 
Section 3 
 
120. Correct answer: B. 
The standard deviation of a two-asset portfolio is given by the square root of the portfolio's 
variance:  
212,121
2
2
2
2
2
1
2
1 2  wwwwp   
Using this formula, the existing standard deviation is calculated as follows: 
%90.7062.0179.05.025.075.02062.075.0179.025.0 2222 
CFA Level I 
"Portfolio Risk and Return: Part I," Vijay Singal 
Section 2.3.3