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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 117 )

Updated On: 26-Jan-2026
Page 117 of 793
PDF with 3960 Questions

Party A enters into a plain vanilla 1-year interest rate swap agreement with Bank B in which he will make fixed- rate payments in exchange for receiving floating-rate payments based on LIBOR plus 100 basis points. Assume that payments are made quarterly in arrears based on a 360-day year. The fixed rate on the swap is 6.5%. The current interest rates on 90, 180, 270, and 360-day LIBOR are 5.2%, 5.5%, 5.8%, and 6.0%, respectively. If the notional principal is SI00 million, what will Party A's net cash flow at the end of the first quarter equal?

  1. -$675,000
  2. -$75,000
  3. +$75,000

Answer(s): B



Krissy Steele, CFA, manages money for high net worth individuals. Steele develops unique investment policies for all of her clients and uses various investment funds to construct portfolios. However, Steelehas been

reluctant to use hedge funds. Which of the following statements made by Steele is least likely to be correct?

  1. The volatility of historical returns associated with hedge fund indexes understates their true risk level.
  2. Hedge fund returns are normally distributed.
  3. Published information on hedge fund returns is based on incomplete historical data.

Answer(s): B



When compared to a traditional mutual fund, an ETF will most likely offer:

  1. better risk management
  2. less portfolio transparency
  3. higher exposure to capital gains distribution taxes.

Answer(s): A



An investor purchases oil commodity futures contracts worth $25 million and an equal amount of 10-year Treasury notes with an interest rate of 3.5%. Assuming that oi! prices rise by 10% and the price of the notes remains unchanged, the total return of the position after three months is closest to:

  1. $2,500,000
  2. $2,600,000
  3. $2,700,000

Answer(s): C



Archie Boone, CFA, is the managing director at Hoffman Advisors, an alternative investment management company. Boone is reviewing the work of a real estate analyst and finds that in calculating net operating income (NOI) for a property, the analyst has understated vacancy by $3,000, overstated depreciation expense by $4,000, overstated insurance expense by $4,000, and understated interest expense by $2,000. If Boone corrects the analyst's estimates of NOI for all these items, the updated estimate will:

  1. increase by $1,000 as the restatement of vacancy will be partially offset by the restatement of insurance expense.
  2. increase by $1,000 as the restatement of depreciation expense will be partially offset by the restatement of vacancy.
  3. decrease by $1,000 as the restatement of insurance expense will be more than offset by the restatement of vacancy and interest expense.

Answer(s): A



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