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Test Prep CFA-Level-I Exam
CFA® Level I Chartered Financial Analyst (Page 156 )

Updated On: 11-Jan-2026
Page 156 of 793
PDF with 3963 Questions

If a bond sells at a discount:

  1. its YTM will exceed its horizon yield.
  2. its current yield is greater than its YTM.
  3. its coupon rate is greater than its current yield.
  4. its coupon rate is less than the market rate of interest.

Answer(s): D

Explanation:

When a bond sells at a discount, the market rate goes above the coupon rate and the bond's price falls below par. The current yield is the coupon rate / price, so as price falls below 1000 the current yield rises above the coupon rate. The YTM considers the current yield plus the capital gain associated with the discount.



Which of the following statements about contrary-opinion and smart money technicians is INCORRECT?

  1. When margin balances in brokerages accounts increase, contrary-opinion technicians are bearish.
  2. The investment advisory ratio is at 0.65. Contrary-opinion technicians are bullish.
  3. The OTC volume is less than 87% of the NYSE volume. Investors are bearish.
  4. A narrowing of the T-bill - Eurodollar futures spread is a signal for a smart-money technician to buy.

Answer(s): A

Explanation:

Although an increase in margin (debit) balances in brokerages accounts means investors are bullish, it is not an indicator used by contrary-opinion technicians. This would be a bullish sign to smart-money technicians.
The other statements are correct. When the investment advisory ratio (bearish opinions/total opinions) is equal to or greater than 0.60, it means that investors are bearish, and contrary-opinion technicians are bullish.
Investors are considered bullish if the OTC volume is greater than 112% of the NYSE volume.
Summary of the indicators for contrary-opinion and smart money technicians:
Contrary-opinion technicians (trade the opposite of the mass of general investor):
Smart-money technicians (follow the professional investors):



Weak form efficiency states that excess risk adjusted returns cannot be obtained by using:

  1. insider information
  2. technical analysis
  3. fundamental analysis
  4. portfolio theory

Answer(s): B

Explanation:

Weak form - you can't make excess returns using technical analysis. Semi-Strong form - you can't make excess returns using fundamental analysis, which is the use of public information. Strong Form - you can't make excess returns using non-public information.



Which of the following statements is false?

  1. The price to book value ratio is seldom greater than one for industrial firms. This is caused by the fact that due to accounting rules book value will exceed market value in most firms.
  2. Since cash flows are more stable than earnings the price to cash flow ratio should be used in conjunction with the P/E ratio.
  3. Economic value added (EVA) is a present value technique used to measure management's ability over time to add value to the firm through their investment decisions.
  4. Market Value Added equals the market value of the firm's capital minus the adjusted book value of the firm's capital.

Answer(s): A



Jefferson Blake invests only in bonds and other fixed-income securities. Blake believes there is a good opportunity to purchase an undervalued 4% annual pay corporate bond with three years left until maturity and a par value of $1,000. Blake observes that 1-year, 2-year, and 3-year Treasury strip rates are currently 4.0%, 4.5%, and 4.75%, respectively. What is the maximum price Blake should be willing to pay for the bond?

  1. $1,069.58.
  2. $979.93.
  3. $958.36.

Answer(s): B



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