CMT Sample Exam Level III CMT LEVEL III SAMPLE EXAM PDF

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CMT LEVEL III SAMPLE EXAM This is a sample exam. Questions here are intended to be indicative of the style you will encounter when taking the Level III examination. These are NOT a comprehensive review of all the items in the curriculum that may be tested. Not all topics in the book will appear duri...

Description

CMT LEVEL III SAMPLE EXAM This is a sample exam. Questions here are intended to be indicative of the style you will encounter when taking the Level III examination. These are NOT a comprehensive review of all the items in the curriculum that may be tested. Not all topics in the book will appear during any given exam administration. This sample exam attempts to demonstrate possible scenarios. Any direct resemblance to actual future test questions is neither implied nor intended. The table below gives a description of the expected composition of each CMT Level III exam. In addition to this information, candidates should be aware that the point count for each exam question can also be used as an indication of how much time to spend answering a question. The guidance is that one point will equal one minute of time spent. For example, a question worth 15 points would be intended to be difficult enough that a candidate would use 15 minutes of time. Candidates should try to not use much more than this amount so that they will have enough time to complete other questions. The point value will vary from one question to the next, so this is merely a guideline to follow for time management purposes during the exam. Sections in Exam 8 total

Plan to spend 20 to 40 minutes per section

Number of Questions

Topics Covered

3 to 8 per section

Each of the exam questions will consist of an integrated mix of two or three knowledge domains from among those specified on the mta.org website:

Use the points as a guideline for intended time allocation

Risk Management, Asset Relationships, Portfolio Management, Classical Methods, Behavioral Finance, Volatility Analysis.

Points in each Section 12 for Ethics 20 to 40 points for other sections.

These will vary for each exam.

CMT Sample Exam Level III

SECTION #1: ETHICS (12 POINTS) 1. Jorge Salvador, CMT, is a technical analyst for a buy-side firm. He works researching developing countries with rapidly modernizing economies. Securities laws in these countries are not as extensive as elsewhere. When Salvador is approached by a corporate owner within one of these countries, which of the following is correct? (2 points) A) Salvador does not to worry about violating rules and laws governing insider information. B) Salvador must write a report of all his communications and inform management periodically. C) Salvador does not need to be concerned about U.S. rules since he is researching a developing country. D) Salvador may be required to abide by the requirements of the Code and Standards even if there is a distinction between rules of the code and developing country.

CMT Sample Exam Level III

2. Bobby Guyer, CMT, manages several discretionary accounts for clients as a Registered Investment Advisor. Bobby has begun to use twitter messages to communicate new ideas he is looking at as possible short-term trades in his client portfolios. His clients love getting the information because they feel he is keeping them up to the minute. The problem is that about half of his client accounts are not suitable for such trades. Bobby has not communicated with these clients about the difference in the trades he sends out on twitter. Some of the clients he has have begun to ask for more information about how they can participate in such trades, which is Bobby’s intent. Which of the following is most accurate regarding Bobby’s de facto marketing behavior? (2 points) A) Bobby is in violation of Standard III(C.2) because his recommendations are not consistent with the original mandate given him for half of his clients. B) Bobby is not in violation Standard III(C) because he does not force any trades on his clients. C) Bobby is not in violation Standard III(C.2) because his communications comply with the existing guidance and regulation governing use of social media. D) Bobby is in violation of Standard III(C) because he manages discretionary accounts.

CMT Sample Exam Level III

3. Scott Fielding, CMT, is a strategist for a firm that manages high-networth portfolios at a large global bank. The Director of sales has asked him for some figures to help launch a new specialized fund offering based on one of his strategies. The Director is looking for a 5-year track record. Scott only has one year of out-of-sample data trading the system; the other four years are a back test. The Director persuades him that the firm should publish all five years of data. Which of the following statements is most likely correct? (2 points) A) Fielding and the Director have solid data on the strategy so they are not misrepresenting the performance over the past five years. B) Fielding and the Director have violated Standard II(A) by sharing material nonpublic information. C) Fielding and the Director have violated Standard I(C) by misrepresenting their data as actual performance data instead of theoretical modeling and backtesting. D) Fielding and the Director have violated Standard III by not dealing fairly with the clients.

CMT Sample Exam Level III

4. Shelly Ulsterlow, CMT, is a senior technical analyst for an investment banking firm. She is frequently asked to make media appearances on market conditions. In the course of a recent appearance, her interviewer asked her about a sizable position her bank was rumored to have purchased in a pre-IPO company. Although Ulsterlow didn’t know anything about this situation, she did not want to appear uninformed about her own company so she acknowledged the rumor and began to articulate information she assumed would be correct. Which of the following statements is most accurate? (2 points) A) Ulsterlow is protected by the First Amendment of the U.S. constitution and can say whatever she wants as part of journalistic license. B) Ulsterlow is not in violation of any of the CFA Standards of Professional Conduct. C) Ulsterlow is in violation of multiple standards listed in the CFA Standards of Professional Conduct. D) Ulsterlow is in violation of only Standard II(B) because her statements may manipulate the perceived market value of the pre-IPO company.

CMT Sample Exam Level III

5. Ren Griswold, CMT, manages a portfolio of managed futures accounts for several institutional clients. He invests in various spread strategies involving a number of commodities. Griswold has a hunch that Gold prices are about to soar higher. In the past his hunches have been highly profitable investments, so he asks his technical analyst to draft up a bullish outlook for gold that he can use to help persuade his clients to allocate more money toward gold than his mandate normally allows. Which of the following statements about Griswold is the most accurate? (2 points) A) Griswold should do the analysis himself so that is not likely to be in violation of Standard III(A) by not acting with prudence and care. B) Griswold should do the analysis himself because the data is likely to be misrepresented otherwise. C) Griswold’s associate is not likely to be objective with his report and sharing that information would be in violation of Standard I(B). D) Griswold’s associate is not likely to be objective with his report and sharing that information would be in violation of Standard II(D).

CMT Sample Exam Level III

6. James Bunson, CMT, is a proprietary trader who has been trading a system he has developed and refined over the past five years. His firm intends to soon use the system in an automated fashion as part of their CTA business. Bunson finds one day that his performance data has inadvertently been overstated for the past year by about a third. Because the firm is only two weeks away from launching their offering, Bunson decides to say nothing. Which of the following statements is most likely to be accurate? (2 points) A) Bunson is not yet in violation of any standards. B) Bunson is in violation of Standard III(D) by not ensuring that the data is accurate. C) Bunson’s system still makes money even if the performance is slightly overstated, so it really doesn’t matter that he may be off the mark just a little. D) Bunson is in violation of Standard IV(A) by being disloyal to his employer.

CMT Sample Exam Level III

SECTION #2: BEHAVIORAL FINANCE (20 POINTS) 7. Identify which five of the following are phases of an asset bubble as Montier describes them (5 points, 2 point each), A) Lethargy—markets going nowhere B) Displacement—exogenous shock triggers profit opportunity in some sectors but not in others C) Credit creation—boom and monetary expansion D) Debt consolidation—consumer confidence dissipates E) Euphoria—overestimate of returns F) Critical stage—financial distress as insiders cash out and firms consider defaulting G) Revulsion—investors stop participating, paralyzed by fear H) Capitalization—traders take advantage of market moves I) Recovery—markets begin to rebound J) Transition—capital markets become more liquid 8. Investment committees are standard in the investment world and in some cases are legislated. Groupthink can be a big problem when it comes to investing. We often see conflicting opinions from the same firm on market direction. State two conditions where group decisions are statistically useful. (6 points) State three potential strategies to reduce group biases. (9 points)

CMT Sample Exam Level III

SECTION #3: ASSET RELATIONSHIPS (31 POINTS) You are a large-cap portfolio manager. Despite your large-cap mandate, you like to monitor the relative strength ratio of the small-cap stock index divided by the large-cap stock. After a nine-month downtrend this relative strength ratio has put in a bottom and has started to move higher. 9. What sector should you consider adding exposure to? (3 points) A) Staples B) Tech C) Telecom D) Utilities 10. Give two reasons why small-cap relative strength suggests you should add to this sector? (6 points)

11. Copper has been selling off for the past month on an absolute basis and relative to other currencies. As an emerging markets equity manager, which country should you consider reducing exposure in? (3 points) A) China B) India C) Mexico D) Russia 12. Explain one reason why weakness in copper would cause you to consider reducing exposure to this country? (3 points)

CMT Sample Exam Level III

Wayne Garthrow, CMT, is a Junior Portfolio Manager for a $3B large-cap equity fund at Illinois Investment Services Inc. Wayne is part of a team that also consists of a Portfolio Assistant, 2 Client Portfolio Managers and a Senior Portfolio Manager. Wayne was recently added to the team because of his experience in fusing technical market analysis with economic indicators. One of the Conference Board’s economic indicators that Wayne finds especially useful is the 4Week Moving Average of Initial Jobless Claims. Recently, Wayne noticed that this indicator has broken higher out of a multi-month base.

Chart 3-1

CMT Sample Exam Level III

Chart 3-2

Chart 3-3

CMT Sample Exam Level III

13.

Compare Chart 3-1 with Chart 3-2 and Chart 3-3. Which of the RRG chart options is more likely to be an actual snapshot of S&P sector rotation taking place around the timeframe marked by the letter X on Chart 3-1 above? (5 points) A. B. C. D.

Chart 3-2 Chart 3-3 Neither Both

14.

Briefly explain the reasons for your choice. Be sure to focus your comments on sector rotation and the possible implications for the economy, describe the logic behind your answer. (6 points)

15.

Which one of the following lists contains a mix of leading and lagging indicators? (5 points) A. ISM New Orders Index, Consumer Sentiment, Interest Rate Spread B. Building Permits (New Private Housing), Displaced Moving Average, Manufacturers New Orders C. Commitment of Traders Report, Odd-Lot Sales, MACD D. Short Interest Ratio, Forecast EPS growth, Return on Assets

CMT Sample Exam Level III

SECTION #4: SYSTEM DEVELOPMENT (35 POINTS) 16. Risk control can involve complex mathematics, but there are a number of commonsense principles the investment professional can follow to reduce the risk of ruin. List 3 of the most important commonsense risk-control rules. (12 points)

17. You work for a CTA firm and have worked hard to develop several viable trading systems covering a diversified variety of market instruments. You have taken care to properly test these systems, avoiding data snooping, or curve-fitting them to in-sample data. Next, you merged these several systems into an overall portfolio model. What method might you use to test your hypothesis and determine the probability of your trading system succeeding? (4 points) Briefly describe that testing method and its meaning. (6 points)

18. List three steps that, when added to a trading plan, would limit the major disadvantage of a simple trend-following system. (6 points total, 2 per answer)

CMT Sample Exam Level III

NOTE TO CANDIDATES: QUESTION 16 IS A NEW QUESTION TYPE TO BE USED BEGINNING OCTOBER 2017.

The following sample question represents a new type of question you will encounter during the October 2017 exam. This question includes the use of an interactive spreadsheet table built in to the examination platform. The purpose of the question is to test a candidate in the way an analyst on the job may need to perform. For this question a candidate will be expected to edit the cells of the spreadsheet to determine proper references or calculation of formulae. This is a way of testing the candidate’s ability to recognize accurate information and to determine its significance. The actual exam question will include a similar testing methodology to the one described as follows.

19. In reviewing a performance analysis of your firm’s two trading systems, your colleague believes that there is an error in one or more of the ratio formulas in the spreadsheet below. Your colleague points out that the entry called “composite score” shows System 1 has a much higher number than System 2—which seems incorrect to him. The composite score is an average of the Sharpe Ratio, Treynor Ratio, and Calmar Ratio, so if a value among the composite scores is wrong, there may be something wrong with one or more ratio formulas. To answer this question you will need to activate the spreadsheet and identify the error(s) in the formulas, if any, and fix them to determine the proper Composite scores. Note: the actual exam will provide instructions on how to activate the spreadsheet functions in the table.”

Review the following table of information to determine if the calculations for the performance ratios contain any errors.

CMT Sample Exam Level III

Starting Equity Value Trailing 3-year ROR Peak Equity Value Maximum Drawdown Std. Dev. Annual Largest Loss Benchmark Perf. Benchmark Std. Dev. Risk Free rate

System 1 System 2 $ 10,000,000.00 $ 12.5% 16,258,300.00 25% 15.5% 8.5% 8.50% 10.50% 0.25%

10,000,000.00 13.5% 17,855,600.00 32% 22.6% 10.7% 8.5% 10.5% 0.25%

Sharpe Ratio Treynor Ratio Calmar Ratio

0.79 0.18 0.50

0.59 0.29 0.42

Composite score

0.49

0.43

When you activate this spreadsheet table, you’ll see something similar to this:

This allows you to edit the spreadsheet/table in the question. If you click on the cell for the Sharpe Ratio for System 1, you can see the formula construction and which cells the formula is referring to. This gives you the ability to check for errors. Activating the spreadsheet and working within it are a part of answering the exam question.

CMT Sample Exam Level III

(19 continued) Once you have fixed any errors you have found, select which of the following pairs of composite score reflects the correct values. (11 points) Answer

System 1

System 2

A

.79

.59

B

.41

.49

C

.39

.41

D

.28

.59

(See answer key for this question since you cannot replicate the answer on a paper test. This explanation and sample question id not intended for practice examination, but only for informational purposes.)

CMT Sample Exam Level III

SECTION #5: CLASSICAL METHODS (40 POINTS)

Chart 5-1

20. You are newly hired on to XRHO Capital Management, a CTA firm. Last year the firm took a long position in Coffee futures (KC). The position is profitable and has met its objectives, and you are tasked with recommending whether the current conditions suggest it would be most favorable to sell now or to wait. Select either decision but explain at least four points of evidence to correctly support your decision from among the applicable signals on Chart 5-1. (16 points, 4 for each of the four points of evidence) Answer (either sell now or hold):

CMT Sample Exam Level III

Chart 5-2

21. Your predecessor recommended the firm initiate a short position on MMM, but failed to leave any explanation for this chart. Describe the three signals the analyst likely observed using available detail on Chart 5-2. (12 points) 22. Your predecessor recommended the firm enter the short position at $125 and set a stop-loss at $130. If the firm had a fund of 5 million dollars and wanted to take the trade and put only 1.5% of that amount at risk, how many shares could be traded (assuming no loss to gaps or slippage)? (12 points)

CMT Sample Exam Level III

QUESTION #6: CLASSICAL METHODS (20 POINTS) Examine Chart 6-1 (10-Year U.S. Treasury Prices).

Chart 6-1

23. Identify which circle contains the candle (1, 2, 3, or 4) that was most significant in forecasting a break above the resistance line. (4 points) 24. Explain two reasons for your selection in question 21. (6 points) 25. What is your short-term forecast for U.S. Treasury bond prices based on this chart? (10 points)

CMT Sample Exam Level III

QUESTION #7: CLASSICAL METHODS (40 POINTS)

Chart 7-1 You are a recently hired analyst. Your portfolio manager wants your shortterm recommendation on GDX, a gold-mining ETF. You must make the best recommend whether it be a LONG or SHORT position, and you must provide evidence to support your conclusion. Examine Chart 7-1: GDX. Do you recommend a LONG or SHORT position in this security? (2 points) 26. Name and discuss the implication of the 2 most recent multi-day candlestick patterns that support your conclusion (4 points each). For each candle, comment if there is anything significant in the chart that increases the strength of each candle pattern? (3 points each, 6 points total, 16 points total for question) 27. In Chart 7-1 how do the indicators Williams %R and ATR factor into your analysis? (5 pts)

CMT Sample Exam Level III

28. Determine how many shares can be traded (long or short), rounded to the nearest 100 shares. Use Chart 7-1 and assume the following conditions and demonstrate how you arrived at your answer:

 Trade entry price of $24.50 (long or short).  Position risk limited to $15,000.  Use ATR to calculate your stop price. Assume the last ATR reading is .86. Use a factor of 1.5 in your ATR stop calculation. (4 points)

4

2

1

3

Chart 7-2

29. Examine the four labeled circles in Chart 7-2. In each circle there is a multi-day candlestick pattern. Which circles contain formations that are among those Bulkowski tested as most reliable? (2 points) A) Circle 1 and 2 B) Circle 2 and 3 C) Circle 2 and 4 D) Circle 3 and 4

CMT Sample Exam Level III

30. What is the name of the pattern you selected in question 7D? (2...