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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1121:

  Members can comply with Standard IV (A.1) by undertaking the following:

  I. Analyzing basic investment characteristics

  II. Analyzing portfolio needs of the client

  III. Establishing compliance procedures to prevent violations of Code and Standards

  IV.

  Maintaining files to support investment recommendations

  A. I, II and IV
  B. II and IV
  C. I and IV
  D. I and II
  E. II, III and IV
  F. III and IV
  G. I, II, III and IV
  H. II and III
  A. I, II and IV

  ---

  Explanation

  Condition III applies to compliance with Standard III (E). For Standard IV (A.1), which deals with the Investment Process, members should investigate the investment's basic characteristics by looking at research reports. Also, a member has a continuing responsibility to review a client's needs and circumstances to determine whether or not the risk exposure of the total portfolio serves the client's needs. Finally, a member must maintain research files to justify investment decisions later under scrutiny.

• Question 1122:

  Which of the following rules apply for calculations under the Performance Presentation Standards?

  A. Accrual accounting must be used for fixed-income securities.
  B. All of these answers.
  C. Total return, including realized and unrealized gains and losses, must be used.
  D. Time-weighted rate of return must be used.
  B. All of these answers.

  ---

  Explanation

  All of these answers are general rules applying to calculation of returns under the PPS.

• Question 1123:

  The following three bonds are available for purchase: Bond X: Noncallable, accelerated sinking fund Bond Y: Nonrefundable, callable, accelerated sinking fund Bond Z: Noncallable, no sinking fund Based only on the characteristics listed above and the most likely effect of those characteristics on yield, identify the correct order for these three bonds, from highest yield to lowest yield.

  A. Bond X; Bond Z; Bond Y.
  B. Bond Y; Bond Z; Bond X.
  C. Bond Y; Bond X; Dond Z.
  C. Bond Y; Bond X; Dond Z.

  ---

  Explanation

• Question 1124:

  Consider an annual coupon bond with the following characteristics: For a 75 basis point change in interest rates, the bond's duration is:

  A. 8.17 years.
  B. 5. 09 years.
  C. 8.79 years.
  D. 5. 80 years.
  B. 5. 09 years.

  ---

  Explanation

  Since the bond has an embedded option, we will use the formula for effective duration.(This formula is the same as the formula for modified duration, except that the "upper price bound" is replaced by the call price.) Thus, we only need to calculate the price if the yield increases 75 basis points, or 0.75%. Price if yield increases 0.75%: FV =100, I/Y =7. 25= 6. 50 + 0.75, N =12, PMT =6. 5, Compute PV = 94. 12 The formula for effective

  

  jjoachim_SS15_1_C_j_duration

  Where:

  V= Call price/price ceiling

  V+

  = estimated price if yield increases by a given amount,　y

  V0

  = initial observed bond price

  　y

  = change in required yield, in decimal form

  Here,effective duration = (101.75

• Question 1125:

  Which of the following is/are true under accrual accounting?

  I. Revenues are recognized when goods are delivered.

  II. Revenues are recognized when cash is received.

  III. Revenues are recognized in proportion to expenditures incurred.

  IV.

  Revenues are matched with the associated costs.

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

  ---

  Explanation

  III is not necessarily true. It is used only by a few specific firms under a method called "Percentage completion of contract."

• Question 1126:

  Which of the following is NOT a reason for sampling the population?

  A. Some tests are destructive in nature and hence, should be carried out only on small samples.
  B. Inferences from a sample are the same that would be obtained by studying the entire population.
  C. It is almost impossible to work with the entire population in most cases.
  D. Samples are far easier to work with than the entire population.
  B. Inferences from a sample are the same that would be obtained by studying the entire population.

  ---

  Explanation

  Remember, the entire population contains more information than the sample. With the population, you would get exact parameter values characterizing the population whereas with a sample, you only get estimates.

• Question 1127:

  NL is a country with no securities laws. LS is a country that has securities laws that are less strict than the AIMR code of ethics while MS has securities laws that are stricter than the code of ethics. A securities trader lives in MS but conducts his business in LS. His behavior is governed by MS laws. However, the MS law states that the applicable business laws are the local laws where the business is conducted. In that case, the trader must adhere to:

  A. LS business laws.
  B. AIMR code.
  C. MS business laws.
  D. a combination of MS and LS business law.
  B. AIMR code.

  ---

  Explanation

  An AIMR member must always adhere to the code of ethics, unless the laws governing his/her behavior are stricter, in which case, the stricter laws must be followed. In this case, since the LS law applies to the trader's business behavior, the trader must follow the stricter AIMR code of conduct.

• Question 1128:

  A fundamental analyst for Smith, Kleen, and Beetchnutty is examining the financial information of Ludicrous Bubble Semiconductor to determine whether it is an appropriate investment for a hedge fund. In his analysis, the fundamental analyst has identified the following financial information: Sales $5,900,000 Total fixed cost $2,300,000 Total variable cost $1,665,000 Interest expense $75,750 EBIT $1,885,000 Amortization expense $47,550 Given this information, what is the Degree of Total Leverage for Ludicrous Bubble Semiconductor?

  A. 2. 338
  B. 3. 544
  C. 2. 311
  D. 2. 278
  E. 2. 565
  D. 2. 278

  ---

  Explanation

  The Degree of Total Leverage (DTL) demonstrates how a given change in sales will impact a firm's EPS. The equation used for calculating the DTL is as follows: {[Sales - variable costs] / [sales - variable costs - fixed costs - interest expense]}. Incorporating the given values for these components into the DTL equation yields the following: {[Sales $5,900,000 - variable costs $1,665,000] / [sales $5,900,000 - variable costs $1,665,000 - fixed costs $2,300,000 - interest expense $75,750]}=2. 278. "EBIT" and "amortization expense" are not explicitly incorporated into the DTL equation.

• Question 1129:

  Which of the following is NOT a financing cash flow?

  A. Both "cash used for share repurchase" and "cash received from issuing bonds."
  B. Cash used for share repurchase.
  C. Cash received from issuing bonds.
  D. Cash acquired from the sale of a liquid asset.
  D. Cash acquired from the sale of a liquid asset.

  ---

  Explanation

  You should read the question carefully. It asks for the cash flow that is not a financing cash flow. Cash used for share repurchase and cash received from debt issue are both financing cash flows while cash received from asset sales is an investing cash flow.

• Question 1130:

  Composite ________ measures represent the consistency of a firm's composite performance results with respect to the individual portfolio returns within a composite.

  A. disclosure
  B. fee
  C. dispersion
  D. deviation
  E. error
  C. dispersion

  ---

  Explanation

  The AIMR-PPS require that managers disclose the dispersion of portfolio returns within each composite.