CFA Institute CFA-LEVEL-1 Online Practice Questions and Exam Preparation

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1071:

  Standard III (A) - Obligation to Inform Employer of Code and Standards - requires all AIMR members, Charterholders and CFA candidates inform their employers about their personal obligation to abide by the code. Which of the following is/are true in regard to this requirement?

  I. The notification can be in either oral form or in writing, either in print, handwriting or by electronic means like email.

  II. Notification is necessary even if the employer is publicly known to have adopted the Code of Ethics.

  III.

  For compliance with Standard III (A), notification must be made to the immediate employer and not necessarily senior management.

  A. III only
  B. I, II and III
  C. I and III only
  D. I and II only
  A. III only

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  Explanation

  If the employer has publicly adopted the Code of Ethics, no explicit notification is required. Otherwise, the immediate supervisor must be informed in writing about the obligation to abide by the Code. "In writing" includes any form of communication that can be documented, including email. Refer Standard III (A) - Obligation to Inform Employer of Code and Standards

• Question 1072:

  An economy is currently in equilibrium at full employment. If there is an unanticipated decrease in demand, the employment rate in the short run:

  A. will increase.
  B. will remain unaffected but wages will decrease.
  C. will rise above the natural rate.
  D. none of these answers.
  D. none of these answers.

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  Explanation

  If there is an unanticipated decrease in demand, the demand curve will move to the left. The supply curve will not move in the short run since the demand cut-back is unanticipated. This will lead to a decrease in the employment rate and a fall in real GDP. Prices will also fall as a result of decreased demand.

• Question 1073:

  Which of the following is not a violation of Standard II (C)?

  A. Use a small part of an analysts work who also is employed in a completely different (non-competitive) industry, without acknowledgment.
  B. Use a small part of an analysts work who also is employed in the same industry, without acknowledgment.
  C. All of these answers are violations.
  D. Using one chart in a presentation that was prepared by another analyst, without acknowledgment.
  E. Giving an oral report and citing specific quotations, attributable to "leading analysts," without specific reference.
  C. All of these answers are violations.

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  Explanation

  Using excerpts from articles or reports prepared by others, either verbatim, or with only a slight change, without acknowledgment; citing specific quotations, attributable to "leading analysts," without specific reference; using charts or graphs without stating their sources; and copying proprietary computerized spreadsheets or algorithms without seeking the authorization of their creators - all of these practices are violations of Standard II (C). Only globally recognized sources of factual material such as that provided by Standard and Poor's, or Moody's Investors Service, can be used without acknowledgment, since such information is already in the public realm.

• Question 1074:

  Marlene Gooseberry, an institutional money manager with Middle Road Brokerage, has been examining a stock market series and has determined the following information:

  Anticipated ending series value: 2060 Expected dividends during the period: $41.20 Observed beginning series value: 1579.81 Required rate of return: 21% per year

  What is the anticipated annual rate of return for this stock market series? (Assume a one-year holding period.)

  A. 27. 79%
  B. 33. 00%
  C. None of these answers is correct.
  D. 25. 31%
  E. 21.31%
  B. 33. 00%

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  Explanation

  To calculate the expected rate of return for a stock market series, the following information must be known:

  The beginning value for the series

  The anticipated ending value for the series, and

  The amount of any dividends and/or shareholder distributions during the period

  Once this information has been determined, the expected return on a stock market index can be found by employing the following equation:

  E(R) = [(EV - BV + Div) / BV]

  Where: E(R) = the expected return on the stock market series, EV = the anticipated ending value for the series, BV = the observed beginning value for the series, and Div = the amount of any dividends paid during the period.

  In this example, all of the necessary information has been provided and the calculation of the expected return on this stock market series is found as follows:

  E(R) = [$2060 - $1579.81 + $41.20] / $1579.81 = 33. 00%

  This is significantly greater than the required rate of return (21%). If the assumptions behind the expected ending value and dividends are both realistic and accurate, investment in this stock market series is likely advisable.

• Question 1075:

  Which of the following types of dividends, are never paid out in the form of cash?

  A. All of these are paid in the form of cash.
  B. Stock dividends.
  C. Regular dividends.
  D. Extra dividends.
  E. Liquidating dividends.
  B. Stock dividends.

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  Explanation

  Stock dividends are dividends paid in the form of additional shares of stock rather than in cash. The total number of shares is increased, so earnings, dividends, and price per share all decline. Stock dividends that are used on a regular basis will keep the stock price more or less constrained, that is, within the optimal trading range.

• Question 1076:

  A sample of 10 observations is drawn from a population with mean 17. The mean of the observations equals 14. 3 and the sample standard deviation equals 4. 8. The sampling error in mean equals ________.

  A. 9.6
  B. -2. 7
  C. 14. 3
  D. 4. 8
  B. -2. 7

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  Explanation

  "Sampling error" refers to the difference between a sample statistic and the corresponding population parameter. In this case, the sampling error equals 14. 3 - 17 = -2. 7.

• Question 1077:

  Which type of revenue recognition method(s) is used when there is uncertainty regarding the amount or collectibility of future cash flows?

  A. percentage-of-completion and installment methods
  B. completed contract method
  C. installment and cost recovery methods
  D. installment method
  E. completed contract and cost recovery methods
  C. installment and cost recovery methods

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  Explanation

  The installment method recognizes gross profit in proportion to cash collections. The cost recovery method requires that all cash receipts be first accounted for as a recovery of costs. Only after all costs are recovered can profit be recognized.

• Question 1078:

  A stock has a beta of 0.9 and the risk-free rate is 5%. Its dividend growth rate is 2. 2% and the dividend payout ratio is 55%. If the market risk premium is 8%, the P/E ratio of the stock equals ________.

  A. 5. 2
  B. 4. 9
  C. 6. 1
  D. 5. 5
  D. 5. 5

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  Explanation

  Using CAPM, the expected return on the stock equals 5% + 0.9 * 8% = 12. 2%. Using the Dividend Discount Model, P/E = (dividend payout ratio)/(K - g). This gives P/E = 0.55/(12. 2% - 2. 2%) = 5. 5

• Question 1079:

  A preferred stock has a $100 par value and a dividend payout of $5 every 6 months. Your required rate of return is 10%. What is the value of the preferred stock?

  A. $50
  B. none of these answers
  C. $99
  D. $75
  B. none of these answers

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  Explanation

  The value of a preferred stock is the stated annual dividend divided by the required rate of return on preferred stock. In this case, V = $10 a year/.10 = $100

• Question 1080:

  Tracy company reports the following in its statement of cash flows:

  Net Income $1,000 Depreciation and Amortization 350 Decrease (Increase) in Accounts receivable (10) Decrease (increase) in inventory 200 Decrease (increase) in prepaid expenses 80 Increase (decrease) in trade payables (300) Increase (decrease) in taxes payable 75 Cash Flow from operations 1,395

  If Tracy shows cost of goods sold of $2,050 on its income statement, cash paid to suppliers is

  A. $2,650
  B. $1,550
  C. $1,950
  D. $2,150
  D. $2,150

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  Explanation

  $2,050 - $200 (purchased $200 less than used) + 300 (paid more to suppliers.