CFA Exam Question of the Day

Level I | Level II | Level III


Which of the following would be found on a firm's balance sheet?

I. Net Income

II. Total Assets

III. Accounts Payable

IV. Cost of Goods Sold

Select an Answer:
II and III only
II only
I, II, III, and IV
I, II, and III only
Assets are always reported on the balance sheet, as is accounts payable (a key component of liability).

Net income and COGS are income statement items.


Barbara Gutsmiedl struggles to calculate the inflation rate between 20x4 and 20x5 based on the CPI statistics in a report.

The report indicates:
  • 20x4 CPI: 110
  • 20x5 CPI: 173
Which of the following values is closest to the inflation rate implied by these CPI values?

Select an Answer:
The inflation rate is the percentage change in the CPI:

Inflation rate = (CPI this year − CPI last year) / (CPI last year) × 100

In this case:

I = (173 − 110) / (110) × 100

I = (63 / 110) × 100

I = 57.3%


The cash debt coverage ratio is computed by dividing the net cash provided by operating activities by:

Select an Answer:
ending long-term liabilities.
average total liabilities.
average long-term liabilities.
ending total liabilities.
Use average asset or liability figures wherever possible in mixed ratios. Cash is used to pay all liabilities, so it would be inappropriate here to consider long-term liabilities only.


Which of the following practices is the most supportive of shareholder protection?

Select an Answer:
transfer pricing with connected companies
use of cumulative voting in electing members of the board
use of voting caps
widespread use of anti-takeover defenses
disclosure of nominee shareholdings only
Cumulative voting is a method of stock voting that permits shareholders to cast all votes for one candidate. This is a voting system that gives minority shareholders more power by allowing them to cast all of their board of director votes for a single candidate as opposed to regular or statutory voting, in which shareholders must vote for a different candidate for each available seat or distribute their votes between a number of candidates.

Voting caps limit the number of votes that a shareholder may cast, regardless of the number of shares the shareholder may actually possess. Voting caps therefore redistribute control and may affect the incentives for shareholder participation in shareholder meetings.

Transfer pricing with connected parties may affect the interests of minority shareholders if the transactions with connected parties are effected at below-market prices.

The disclosure of nominee shareholdings only does not provide an objective and transparent picture of the company's ownership structure.

A widespread use of anti-takeover devices may be a serious impediment to the functioning of the market for corporate control. In some instances, takeover defenses can simply be devices to shield management or the board from shareholder monitoring.


Which of the following statements best explains why investors should be skeptical of anomalies?

Select an Answer:
Investors should be skeptical of anomalies because anomalies do not exist in reality.
Investors should be skeptical of anomalies because firms choose their financial policies and select projects so as to take advantage of market mispricing.
Investors should be skeptical of anomalies because traders never rely on anomalies.
Investors should be skeptical of anomalies because anomalies may not show up in subsequent sample periods.
The existence of anomalies is more apparent than real. Investors should be skeptical of anomalies because studies show that many of the well-known anomalies do not hold in different sample periods.

Traders sometimes rely on anomalies to implement various arbitrage strategies. However, research shows that the activities of practitioners who implement strategies to take advantage of anomalous behavior can cause the anomalies to disappear.

Firms choose projects that maximize value and generally take market prices of their stocks and bonds as given.