Chartered Financial Analyst Level I Equities

1.Adele trades a share at 45. Her only inputs are a 20-day moving average, which just crossed above 44, and recent volume. If weak-form efficiency holds, what should she do with that signal?

2.Boris opens a filing the minute it is public. The share is already at 62, and the statements match the figures released this morning. If semi-strong efficiency holds, what should he expect from reading them now?

3.Camille studies a market where corporate insiders earned 6 percent a year above the market after their own trades. Tests on past prices and on public news show no leftover return. Which conclusion fits?

4.Darius finds a price pattern that earned 0.4 percent a trade before costs. His round-trip commission and spread cost 0.6 percent. Should he treat the pattern as a usable inefficiency?

5.Elena watches a share jump from 50 to 54, an 8 percent move, in the ten minutes after a contract award hits the tape. She asks whether that swing means the market failed to be efficient.

6.Farid holds a share at 80 after twelve straight weeks of good news. The cash flows support a value near 60. If that run was an overreaction, what should the later return look like?

7.Greta records an earnings surprise of 0.40 a share. The price rises 2 percent that day and then keeps rising for four more months. What does that drift say about semi-strong efficiency?

8.Hiroshi values a share that will pay a dividend of 2 next year. He requires 10 percent, and dividends are expected to grow at 4 percent a year. What price does the Gordon growth model give?

9.Ingrid puts a required return of 4 percent and a growth rate of 5 percent into the Gordon model. The next dividend is 3, and the formula prints a negative number. What should she do with that output?

10.Jamal is offered preferred stock that pays a dividend of 4 every year and will not grow. His required return is 8 percent. What price fits that preferred claim?

11.Keiko will receive a dividend of 1 in one year and expects to sell the share then at 22. She requires 10 percent. What is the share worth today?

12.Lars wants the justified leading price-to-earnings ratio for a firm that pays out 60 percent of earnings. Investors require 10 percent, and growth is 4 percent. Which ratio should he use?

13.Mei is setting a multiple on next year's earnings for a different firm. The payout is 50 percent, investors require 12 percent, and growth is 3 percent. What justified leading price-to-earnings ratio should she apply?

14.Nadia holds the payout at 40 percent and growth at 4 percent. She raises the required return from 9 percent to 12 percent. What happens to the justified leading multiple?

15.Oscar keeps the payout at 40 percent and the required return at 12 percent. He lifts growth from 2 percent to 4 percent, still below 12 percent. What happens to the justified leading multiple?

16.Petra buys one share at 40 on 50 percent initial margin, so she puts up 20 and borrows 20. The maintenance margin is 25 percent. At what price does the margin call begin?

17.Rafael bought at 40 with 20 of his own cash and a loan of 20. The share is now 50. What return did he earn on the cash he put up?

18.Soren shorted one share at 40. It now trades at 30, and he has not covered. Before dividends, borrow fees, or commissions, what is his result?

19.Talia is short from 40, and the price has fallen to 36, a 4-point gain before any cash she must hand over. The company then pays a dividend of 1 while her short is still open. What does that dividend do?

20.Umar owns a share at 28 and has a stop-loss sell at 25. The next trade gaps through 25 and prints at 22. What execution should he expect?

21.Vera wants a share quoted at 34. She enters a limit buy at 30 and can wait. What should she expect from that order?

22.Wesley must have the shares today for a delivery he cannot miss. The bid is 18.40 and the ask is 18.55. He cares about getting the shares, not about a better price. Which order fits?

23.Ximena sends a market sell into a book with a bid of 20.00 and an ask of 20.10. What price does that sell receive?

24.Yara must sell 200,000 shares. The displayed book shows 8,000 shares at the bid of 14.20. She is considering a dark pool for the whole order. What should she keep in mind?

25.Zane can buy 1,000 newly issued shares from the company at 25, or buy 1,000 shares from another investor at the same 25. He wants the trade that pays the company. Which one does?

26.Anika's firm earns 12 million on 6 million shares, so earnings per share are 2. A follow-on will add 2 million shares, and the new cash will not raise earnings above 12 million. What happens to earnings per share?

27.Bruno owns 4 percent of a firm. A placed deal will sell new shares to three institutions, and he is not invited. A rights offer is the other path. How can he avoid dilution of that 4 percent?

28.Celeste receives an allocation of a new issue at 18. The shares open at 23. The company sold every share at 18. How should she read that 5-point first-day rise?

29.Declan is raising equity. One bank offers a best-efforts deal. Another offers a firm commitment to buy the shares and resell them. He wants the bank to bear the shares that do not sell. Which contract does that?

30.Fatima wants shares in a hot offering. The bank is building the book from institutional indications, and she is not a client the bank is trying to please. What should she expect?

31.Gustavo's price-weighted index holds two shares, at 30 and 20. The divisor is 2, so the index stands at 25. The 30 share splits 2-for-1 and the price becomes 15. What new divisor keeps the index at 25 at the split?

32.Hana follows a price-weighted index of two firms. Before a 2-for-1 split the prices were 30 and 20. Just after the split they are 15 and 20. Which share has the larger index weight now?

33.Ivan's market-value-weighted index contains company A at a price of 10 with 100 shares and company B at a price of 10 with 10 shares. In separate months, each price rises 10 percent. Which rise moves the index more?

34.Juliet runs an equal-weighted index of 50 shares and rebalances every quarter. A cap-weighted index of the same names does not trade just to reset weights. Why is her turnover higher?

35.Kenji's firm has 100 million shares outstanding. A controlling family holds 40 million that do not trade. The price is 12. What share count should a free-float index use for the weight?

36.Leila bought a share at 40. A year later the price is still 40, and she has received a dividend of 2. What was her total return?

37.Mateo is valuing the whole firm. Equity market value is 80, debt is 30, and cash is 10. What enterprise value should he use?

38.Noor looks at a debt-heavy firm: equity value 10, earnings 2 after interest, debt 90, cash 0, and EBITDA 20. Price-to-earnings is 5 and EV/EBITDA is 5. An unlevered peer trades near 12 times earnings and 5 times EBITDA. She wants to call the levered firm cheap. What should she decide?

39.Pavel's firm lost 3 a share. The price is 24, book value is 40, and sales are 90. He still wants a usable multiple. Which one fails in this case?

40.Quinn's firm trades at 80 against a book value of 15. The gap is a brand the firm built itself, which the accounting records do not show as an asset. Is the price of 80, by itself, a bubble?

41.Rhea finds a price-to-book ratio of 0.7. The inventory is obsolete, and the liabilities on the balance sheet look complete. Should she treat 0.7 as a buy signal?

42.Samuel's firm pays no dividend and has published no payout plan. It does generate cash it could distribute. He has to choose a valuation approach. Which one fits?

43.Tomas has free cash flow to the firm of 9 next year. The cost of equity is 12 percent. The weighted average cost of capital is 8 percent because debt is cheap. A trainee wants to discount the firm cash flow at 12 percent. What rate matches it?

44.Uma expects free cash flow to equity of 4 next year, a cost of equity of 10 percent, and growth of 5 percent, with that path unchanged. What equity value does the growing perpetuity give?

45.Victor expects free cash flow to the firm of 6 next year. The weighted average cost of capital is 8 percent and growth is 3 percent. What firm value fits that growing perpetuity?

46.Willa has a firm value of 120. Debt is 30 and cash is 10. She wants the equity value. What should she report?

47.Xavier's cyclical firm just earned 8 a share at the top of the cycle. Mid-cycle earning power is about 4. He is about to put 8 into a Gordon growth model as if the peak lasted forever. What will that do to value?

48.Yuki's cyclical firm earned 1 over the last year, at the trough, and the price is 30, so the trailing price-to-earnings ratio is 30. A real recovery would lift earnings to 5. What should she say about the two multiples?

49.Amira must choose where a Gordon growth model belongs. One firm is a mature utility with a dividend of 3 that has grown about 2 percent a year. The other is a biotech firm with no sales and no dividend. Where does the model fit?

50.Bodhi covers five generic drug makers. None has a patent, the buyers are hospital chains, and a new plant can enter within a year. He must judge how high a profit these firms can sustain.

51.Chioma's market is price sensitive. One rival produces at a unit cost of 6 against her cost of 9. Another charges 15 for a product buyers can tell apart. Her firm has neither a cost edge nor a difference buyers will pay for. What return should she expect relative to those two?

52.Dmitri's cyclical firm has fixed operating costs of 70. At revenue of 100, variable costs are 20 and operating income is 10. At revenue of 60, variable costs are 12 and operating income is a loss of 22. How should that leverage enter his valuation?

53.Esme compares a water utility with an unregulated firm. Both can grow near 3 percent. A regulator sets the utility's price so its return sits close to its cost of capital. The unregulated firm keeps a spread above its cost of capital. What should she expect for the utility's justified multiple?

54.Felix screens two peers, each priced at 40, while inventory prices are rising. The FIFO firm reports earnings of 5, so its trailing price-to-earnings ratio is 8. The LIFO firm reports earnings of 4, so its ratio is 10. He is about to call the FIFO firm cheaper. What should he do?

55.Giselle's firm will repurchase shares at 30. Her value per share is 22, and she will not tender. What does the repurchase do to the owners who stay?

56.Hassan's firm repurchases shares at 18. His value per share is 22, and he does not sell. What is the effect on the owners who remain?

57.Imani's firm has 100 basic shares. Employee options will add 10 shares when exercised. The exercise cash is 80, and the market price is 20, so that cash can repurchase some shares. What diluted share count should she use?

58.Jonah's firm earns 18 percent on equity. Owners require 12 percent. Book equity is 50. What residual income should he record for the period?

59.Kira expects residual income to fade to zero. Book equity is 50, and she makes no other adjustment. From now on the firm will earn only the required return. What equity value does that model approach?

60.Leon's firm earns 6 percent on equity. Owners require 10 percent. The firm retains 80 percent of earnings and pays out the other 20 percent. Should he want that reinvestment to continue?

61.Marisol's firm earns 15 percent on equity, and owners require 12 percent. The payout moves from 60 percent to 40 percent, so retention rises. What happens to the justified leading price-to-earnings ratio?

62.Nico's share trades at 50. Next year's dividend is 1.50, so the forward dividend yield is 3 percent, and growth is 4 percent. In the Gordon model, what required return matches that yield and that growth?

63.Olga's firm will earn 5 next year. The required return is 10 percent, so a no-growth value is earnings divided by that return. The actual price is 80. What are the growth opportunities worth?

64.Priam sees a 30 gap between a share's price and its no-growth value. Every project the firm reinvests in earns only the required return, with no positive net present value. What should he conclude about that gap?

65.Quiana buys an American depositary receipt. A bank holds the foreign shares and issued the receipt she trades at home. The foreign share then falls 15 percent in its own market. What risk did she actually bear?

66.Ravi needs the foreign company's financials and a real investor-relations arrangement. One receipt is sponsored by that company. Another is unsponsored and may carry less direct reporting. Which receipt comes with the company's participation?

67.Selene holds a foreign share that rises 10 percent in its own currency. That currency falls 10 percent against her currency over the same stretch. What is her approximate combined return?

68.Tariq can buy a closed-end fund at 90 while its assets are worth 100, or an open-end fund at net asset value. He wants a price that can be created from the basket. Why can the closed-end fund stay at 90?

69.Una must sell at 11:30 a.m., not at the close. Her mutual fund is priced at the end-of-day asset value. An ETF on the same holdings is bid at 42.05 and offered at 42.15. What should she use?

70.Viktor's index fund returned 8.1 percent. The index it follows returned 8.4 percent. He wants the tracking difference. What should he report?

71.Wanda buys 2,000 shares of a thin stock with a market order. The commission is 40 dollars. Her order lifts the price by 0.30, which is 600 dollars on 2,000 shares. What does implementation shortfall include?

72.Xander buys at the ask. The midpoint is 20, the ask is 20.08, and the commission is 0.01 a share. What is his total cost per share versus the midpoint?

73.Yasmin had an urgent buy of 400,000 shares while the price rose from 15 to 18. She waited, then bought near the later volume-weighted average price and matched that average. Did the match show a good execution of the urgent order?

74.Zola sorts last year's returns. The worst performers fell 35 percent. A momentum book and a contrarian value-reversal book are both on her desk. Which strategy buys those worst performers?

75.Anders sees many managers holding the same popular stock at 90. A cash-flow value is 60. They say a client will not fault them if it falls, because everyone held it. What can that herding do to the price?

76.Bianca owns a stock and reads only notes that support it. She skipped a covenant change that limits new borrowing. What is a useful fix before she buys more?

77.Cesar bought a share at 48. It is now 29, and the reason he bought it no longer holds. Selling would realize a loss he hates to admit. The tax cost of selling is small. What should decide whether he sells?

78.Dahlia tested 200 ratios against past returns. Eight of them looked profitable in that sample. She wants to call the eight an inefficiency and trade them. What should she demand first?

79.Emile runs a fund of 4 billion. A January pattern of about 1.5 percent shows up in the smallest stocks, and those names trade with a spread wider than that 1.5 percent. Is the pattern a strategy for his fund?

80.Farah looks at funds still reporting in a database. Their average ten-year result is 9 percent. Funds that closed and stopped reporting had averaged about 2 percent. She wants the result of picking a fund at random ten years ago. What does the 9 percent figure do?

81.Gita's fund is labeled large-cap value in a style box. The holdings are mid-cap growth shares, priced near 40 times earnings, with market values well below large-cap size. What should she judge?

82.Henrik's fund shows an active share of 82 percent and a tracking error of 7 percent. The fee is 1.1 percent a year. Do those two risk figures mean the bets are worth the fee?

83.Isla's fund charges 0.85 percent and has a tracking error of 0.4 percent against a benchmark. An index fund on that same benchmark charges 0.04 percent. The active fund hugs the benchmark. What is she paying for?

84.Jiro's fund promises no more than 5 percent in one name. One position is already 9 percent. The analyst is right that the name could rise 30 percent. What does the limit require?

85.Kofi's fund owns 500,000 shares. Average daily volume over 20 days is 10,000 shares. The last price is 16, and he is treating the holding as something he could sell tomorrow at 16. What is wrong with that?

86.Lila sees the same shares at 10 in one market and, after converting the currency, at 10.40 in the other. Buying the cheap listing and selling the rich one would cost 0.50 round trip. Should she trade the gap?

87.Malik wanted cash from a company he owns. The company spins off a division, and he receives 12 shares of the new firm, quoted at 9. What did the spin-off actually give him?

88.Nia is a shareholder of a target being bought entirely with the buyer's shares. A lockup bars her from selling for 120 days. The buyer's price can still move. What does she bear until the lockup ends?

89.Omar needs a set amount of cash for a house closing. One bid for his shares is all cash. Another is the buyer's stock with a collar that can still move inside the band. Which deal fits the closing?

90.Paloma is offered a collar. If the buyer's share leaves a band of 40 to 48, the exchange ratio adjusts. She asks whether that collar is the same thing as a fixed cash price.

91.Renata owns a minority stake. The controller, who already owns 62 percent, bids to take the firm private and sits on both sides of that bid. What review does the minority need?

92.Saskia's company has a cumulative preferred dividend of 4 a year. Two years are unpaid, and the current year is also due. The board wants to pay a common dividend. How much must it pay on each preferred share first?

93.Theo's firm will pay an extra dividend after the common has received its stated amount. One preferred share participates in that extra. The other is nonparticipating, with a stated dividend of 5. Which share receives only its stated dividend?

94.Ursula holds a 7 percent preferred share and wanted that coupon to last. Market rates have fallen, and the contract lets the issuer call the shares. Who can end the preferred?

95.Vijay's issuer has a straight preferred share yielding 7 percent and a convertible preferred share yielding 4.5 percent. Both sit at the same seniority. Why is the convertible yield lower?

96.Winnie's firm can pay a common dividend of 1.20 a share or skip it and keep an interest-coverage covenant intact. Breaking the covenant would put the firm in default. The board skips the dividend. What is that choice doing?

97.Yelena reads a par value of 0.01 on the common stock and a market price of 40. She wonders whether the firm is worth 0.01 a share. What is she looking at?

98.Zubin sees additional paid-in capital of 24.99 a share. The shares were issued at 25 with a par of 0.01. The cash from that issue was spent on a factory six years ago. What is that capital account today?

99.Asha's firm reports retained earnings of 400 million and cash of 2 million. The plant account is 510 million. She wants to fund a dividend from the retained-earnings line. What does that line actually represent?

100.Benoit's firm spent 30 million to buy back its own shares. A draft valuation calls that spending an investment in an asset named treasury stock. The cash is gone and the share count is lower. How should he treat the buyback?

101.Cora's firm trades at 0.80 and will do a 1-for-10 reverse split to stay above an exchange minimum of 1.00. She expects a price near 8 afterward, with one-tenth as many shares. What did the split itself do to the company's value?

102.Deepa's newly listed firm has a lockup that expires on Friday. Employees can then sell 8 million shares. The week's business news is unchanged. What does the expiry itself tend to do?

103.Elio sees an overallotment option equal to 15 percent of a new issue. The underwriter can buy extra shares if demand is strong, or cover a short position if the price falls. Does that greenshoe keep the price from falling next quarter?

104.Freya's offering sells shares to institutions at 20. A directed program sells the same shares to employees at 16. She asks whether those employee shares are free capital for the issuer.

105.Gideon raises money in a private placement to a small group of investors. Resale is restricted, and he will file less than he would in a public offering. The buyers want a price 12 percent below a public deal. Why is that discount there?

106.Liora's fund holds preferred shares with a 1-times liquidation preference on an investment of 20, or a conversion right into 40 percent of the common. The exit proceeds are 30. Converting would pay 40 percent of 30. What does she choose?

107.Magnus holds preferred shares with a liquidation preference of 20, or conversion into 40 percent of the common. This exit is 100, so conversion pays 40 percent of 100. What does he choose?

108.Naima reads that one private owner sold the whole firm to another private owner. Nothing was offered to public investors. She asks whether the company's earnings thereby became cash in the public market. What is this sale?