CFA Level 2 Free Practice Test

. Annisquam is correct with regards to his comments on calibrating a binomial interest rate tree. because his comments are correct. because his comments are correct.

. Covey’s statement is based on the idea that a firm’s stock price increases if it is the target of an acquisition (i.e., a control premium). Consequently, when the acqui- sition failed with no apparent future threat of a takeover, the stock price decreases as the control premium vanishes. . The subsidiary of a conglomerate generally has a value that is below its stand-alone value due to a conglomerate discount.
. Pairs trading is a relative value strategy that does not consider the actual intrinsic value of a given firm.

. Du about factors that drive demand for office space and indus- trial and warehouse space but incorrect about retail space. Employment growth drives demand for office space, while warehouse space demand depends broadly on economic strength. The level of import and export activity is more directly related to demand for industrial and warehouse space, not retail space. Demand for retail space depends on consumer spending, job growth, and economic strength.
. Du about factors that drive demand for office space and industrial and warehouse space but incorrect about retail space.
. Du about factors that drive demand for and industrial and warehouse space

. The primary reason for crash risks is related to the fact that carry trades are leveraged: The low-yield currency is borrowed, with proceeds invested in the high-yield currency. The leverage magnifies the effect of losses and gains relative to the investors’ equity base. In low-volatility markets, investors can become complacent and allow positions to grow large in a search for yield. This crowded positioning tends to unwind rapidly when a market shock occurs because many traders try to exit their positions almost simultaneously before the leverage effects wipe out their equity. Stop-loss orders are triggered, and given the market uncertainty, there is a flight to safety that further increases demand for the low-yield currency.
. Another factor that accelerates selling is that traders often have stop-loss orders in place that are triggered when price declines reach a certain level. This can lead to cascades of selling in which position liquidation begets further position liquidation.
. During periods of market turmoil, there is generally a flight to safety into assets and currencies that seem to offer the most protection during times of uncer- tainty—typically low interest rate currencies.

. Neither model depends on current economic conditions. Credit scores do not explicitly depend on current economic conditions. Credit ratings do not explicitly depend on the business cycle, which, in turn, is affected by current economic conditions.
because the statement is correct. because the statement is correct.