CFA-LEVEL-2 Free Sample Questions

An analyst is valuing a non-callable, non-putable corporate bond using a binomial interest rate tree. The bond has two years remaining to maturity, a 5% annual coupon, and a par value of $1,000. The current one-year spot rate is 3.0%. The interest rate volatility is assumed to be 15%. The binomial tree for one-year forward rates is calibrated as follows: ``` Time 0 Time 1 / i(1,u) = 3.964% i(0) = 3.0% -- \ i(1,d) = 2.924% ``` To ensure the tree is arbitrage-free, what should be the price of a one-year, zero-coupon bond with a face value of $100?

A portfolio manager is evaluating Sterling Corp., a company that has a defined benefit pension plan. The manager has gathered the following data from the company's financial statement footnotes: | Item | Value (in millions) | |---------------------------------|---------------------| | PBO at beginning of year | $1,200 | | Fair value of plan assets at BOY | $1,000 | | Service cost | $50 | | Interest cost | $72 | | Expected return on plan assets | $80 | | Actual return on plan assets | $60 | | Employer contributions | $90 | | Benefits paid | $110 | What is the net pension liability to be reported on Sterling Corp.'s balance sheet at the end of the year?

A financial analyst is using the residual income model to value a company. The company's book value per share is $25.00, and its required rate of return on equity is 11%. The analyst projects the following earnings per share (EPS) and dividends per share (DPS) for the next three years, after which the residual income is expected to grow at a constant rate of 3%. | Year | EPS | DPS | |------|--------|--------| | 1 | $3.50 | $1.50 | | 2 | $3.80 | $1.60 | | 3 | $4.10 | $1.70 | What is the terminal value of the residual income at the end of Year 3?

A U.S.-based multinational company, Global Exports Inc., has a subsidiary in the United Kingdom. The subsidiary's functional currency is the British pound (GBP), and the parent's presentation currency is the U.S. dollar (USD). The subsidiary's balance sheet shows inventory valued at GBP 500,000. The relevant exchange rates are: - Rate at time of inventory purchase (historical rate): 1.25 USD/GBP - Average rate for the period: 1.30 USD/GBP - Exchange rate at the balance sheet date (current rate): 1.35 USD/GBP Under the current rate method of translation, what is the value of the inventory that will be reported on the parent's consolidated balance sheet?

Which of the following statements regarding the assumptions of multiple linear regression are TRUE? (Select TWO)

A European call option on a non-dividend-paying stock has a strike price of $50 and 90 days until expiration. The current stock price is $52, the risk-free rate is 4% per annum (continuously compounded), and the stock's volatility is 25% per annum. An analyst uses a Black-Scholes-Merton model to value this option and finds that N(d1) = 0.6517 and N(d2) = 0.6026. What is the value of a corresponding European put option with the same strike and expiration?

True or False: In the context of hedge fund strategies, a market-neutral strategy is designed to generate returns that have a high correlation with the overall stock market.

An investment firm is launching a new fund and is preparing its performance presentation materials. To comply with the Global Investment Performance Standards (GIPS), which of the following actions are required? (Select TWO) I. Include all actual, fee-paying, discretionary portfolios in at least one composite. II. Exclude terminated portfolios from composite performance history after they are terminated. III. Use only total returns before deducting management fees. IV. Define composites based on similar investment objectives or strategies. V. Selectively show the performance of the best-performing portfolios in a representative composite.

A country's economy is characterized by the following production function: Y = A * K^0.4 * L^0.6, where Y is output, A is total factor productivity (TFP), K is capital, and L is labor. If the labor force grows by 2%, the capital stock grows by 5%, and total factor productivity grows by 1.5%, the growth rate of output is closest to:

An analyst is evaluating a capital budgeting project for a company. The project has an initial outlay of $500,000. The company's marginal tax rate is 25%, and its cost of capital is 10%. The project is expected to increase pre-tax operating cash flow by $150,000 per year for 5 years. The asset will be depreciated using the straight-line method over 5 years to a zero salvage value. At the end of 5 years, the asset can be sold for an estimated $50,000. What is the terminal year after-tax non-operating cash flow (TNCF) for this project?