CFA CFA 2

Question 1

Under the CFA Institute Code of Ethics, what must a member do when an investment recommendation could benefit the member personally?

Accepted Answer

Disclose the conflict of interest to clients and prospects

Answer

Standard VI(A) requires full and fair disclosure of all matters that could reasonably impair independence or create conflicts of interest.

Question 2

The required rate of return used to discount a firm's free cash flow to the firm (FCFF) is the:

Accepted Answer

Weighted average cost of capital (WACC)

Answer

FCFF belongs to all capital providers, so it is discounted at the WACC.

Question 3

A bond's Macaulay duration of 6 years and modified duration are related by which adjustment?

Accepted Answer

Dividing Macaulay duration by (1 + yield per period)

Answer

Modified duration equals Macaulay duration divided by (1 + yield per period).

Question 4

Which financial ratio best measures a company's ability to meet short-term obligations using its most liquid assets?

Accepted Answer

Quick (acid-test) ratio

Answer

The quick ratio excludes inventory, focusing on cash, marketable securities, and receivables.

Question 5

In the Capital Asset Pricing Model (CAPM), beta measures a security's:

Accepted Answer

Systematic (market) risk

Answer

Beta captures the non-diversifiable systematic risk relative to the market portfolio.

CFA Practice Test