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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1091:

  Under the indirect method, when reporting the cash flow from operations the starting point is

  A. the net changes of the operating asset and liability accounts.
  B. cost of goods sold.
  C. net income.
  D. all noncash expenses.
  E. cash collections.
  C. net income.

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  Explanation

  Under the indirect method the starting point is the period's net income.

• Question 1092:

  A no-load open-end fund

  A. never charges sales or redemption fees.
  B. usually charges sales fees.
  C. sometimes charges sales fees.
  D. sometimes charges redemption fees.
  D. sometimes charges redemption fees.

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  Explanation

  A no-load open-end fund does not charge sales fees, but rather sells shares at their NAVs. Some noload funds do charge redemption fees of about half a percent of NAV. The popularity of no-load funds has increased substantially in recent years.

• Question 1093:

  The table below lists information on price per share and shares outstanding for three stocks ?Rocking, Payton, and Strand.

  

  Using the information in the table, calculate the value of a price-weighted index at year-end and the one- year return on the market weighted index. At the beginning of the year, the value of the market weighted index was 100. (Note: The choices are listed in the order price-weighted index value, market value-weighted index percent return, respectively.) Which of the following choices is closest to the correct answer?

  A. 50.0, 10.6.
  B. 50.0, 110.6.
  C. -6. 3, 10.6.
  D. -6. 3, 8.4.
  A. 50.0, 10.6.

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  Explanation

  Calculations are as follows:

  

  First, we will calculate the value of the price-weighted index at year-end, and then we will calculate the return on the market-weighted index.

  Step 1: Calculate value of the price-weighted index at year-end:

  Value of price-weighted index = (sum of stock per share prices) / (number of stocks)

  = (15 + 50 + 85) / 3 =50.0

  Step 2: Calculate the one-year return on the market-weighted index:

  First, we will calculate the year-end market-weighted index value, then we will calculate the return percentage.

  Value of market-weighted index =

  [(market capitalization year-end) / (market capitalization beginning of year)]* Beginning index value

  = (442,500 / 400,000) * 100 = 110.625

  One-Year Return = [(Index value year-end/ Index value beginning of year) -1]* 100

  = [ (110.625 / 100) ?1] * 100 =10.625, or approximately 10.6%.

• Question 1094:

  Which of the following statements is/are true about observed capital structures?

  I. Firms with higher stability in sales tend to use higher debt ratios.

  II. Firms with a higher ratio of general-purpose assets to special-purpose assets tend to have higher debt ratios.

  III.

  Young firms with higher growth rates tend to have higher debt ratios.

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

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  Explanation

  Stability of sales implies a stability in profitability. This allows firms to service higher levels of debt without worrying about bankruptcy. Similarly, since general-purpose assets are more valuable as collateral than firm-specific assets, firms with a higher ratio of general-purpose assets to special- purpose assets tend to have higher debt ratios. However, young firms which face higher uncertainty in their project payoffs tend to favor equity financing.

• Question 1095:

  An expansionary fiscal policy causes which of the following effects?

  I. The domestic currency depreciates.

  II. Exports decrease.

  III. Real interest rates increase.

  IV.

  Capital flows in from abroad.

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

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  Explanation

  When the government adopts an expansionary fiscal policy, the aggregate demand increases, causing an increase in prices. Since the demand for loanable funds increases due to the governmental presence in the market, the real interest rate increases. This attracts foreign investment, raising the demand for domestic currency, which appreciates in response. The appreciation of the domestic currency makes imports cheaper and exports costlier. As a result, exports decline and imports increase over time.

• Question 1096:

  Identify the most accurate statement regarding collateralized borrowing transactions.

  A. Repurchase agreements usually offer the lowest interest cost.
  B. Margin buying usually allows for borrowing a higher percentage of the collateral value.
  C. Margin buying is usually the preferred transaction structure for institutional bond investors.
  A. Repurchase agreements usually offer the lowest interest cost.

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  Explanation

• Question 1097:

  If prices in two countries are rising at the same annual rate, then the prices of imports and exports will:

  A. increase in the country with the more valuable currency and decrease in the country with the less valuable currency.
  B. increase relative to domestically produced goods.
  C. decrease relative to domestically produced goods.
  D. none of these answers.
  E. remain unchanged relative to domestically produced goods.
  E. remain unchanged relative to domestically produced goods.

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  Explanation

  If prices in two countries are rising at the same annual rate, then the prices of imports and exports will remain unchanged relative to domestically produced goods. Equal rates of inflation in each of the countries will not cause the value of exports to change relative to imports.

• Question 1098:

  The ________ for a share of a load fund equals the NAV of the share plus a sales charge.

  A. expected price
  B. redemption price
  C. bid price
  D. offering price
  D. offering price

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  Explanation

  A load fund is typically quoted by its NAV and an offering price, which is the NAV plus a sales charge.

• Question 1099:

  Assume that a firm currently has EBIT of $2,000,000, a degree of total leverage of 7. 5, and a degree of financial leverage of 1.875. If sales decline by 20 percent next year, then what will be the firm's expected EBIT in one year?

  A. $1,600,000
  B. $3,600,000
  C. $1,350,000
  D. $400,000
  E. $2,400,000
  D. $400,000

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  Explanation

  DOL = DTL/DFL = 7. 5/1.875 = 4. 0.

  Change EBIT = (-0.20)(4. 0)($2,000,000) = -$1,600,000.

  EBIT = $2,000,000 - $1,600,000 = $400,000.

• Question 1100:

  What annual interest rate, compounded quarterly, would cause a series of 30 quarterly deposits of $500 to accumulate to $25,000, if the first deposit is made three months from today?

  A. 3. 31%
  B. 12. 78%
  C. 9.94%
  D. 13. 22%
  E. 8.15%
  D. 13. 22%

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  Explanation

  The value returned by the calculator will be the periodic interest rate which must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 30 N, 0 PV, 500 PMT, 25000 +/- FV, CPT I/Y. Then press x 4 = to see the answer. On the HP12C, press 30 n, 0 PV, 500 PMT, 25000 CHS FV, i. Then press 4 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.