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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1141:

  The third step of the three-step, top-down approach to valuation is to decide to allocate investment funds

  A. among the various types of securities.
  B. among individual firms, and the various securities they offer.
  C. among the various groups of firms.
  D. among individual firms.
  D. among individual firms.

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  Explanation

  The third step of the three-step, top-down approach is the analysis (for purposes of allocating investment funds) of individual companies and stocks. The decision of types of securities to invest in is made in the first step, and the decision to focus on certain industries is made in the second step.

• Question 1142:

  Johnny deposited a check he received from his Aunt when he was 10 years old into an account paying 10% per year, compounded monthly. If the original check was for $100, how much does Johnny have in his account today, 50 years later?

  A. $151.43
  B. $5,905. 33
  C. $58,304. 28
  D. $100.00
  E. $14,536. 99
  E. $14,536. 99

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  Explanation

  There are 600 months in 50 years (50 x 12). On the BAII Plus, press 600 N, 10 divide 12 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 600 n, 10 ENTER 12 divide i, 100 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 1143:

  Which of the following is/are true about stock dividends?

  I. stock dividends lead to a decrease in the retained earnings account.

  II. large stock dividends are valued at their par value.

  III.

  small stock dividends are valued at their fair market value at the time of issuance.

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

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  Explanation

  Stock dividends are given to move retained earnings into capital accounts and hence represent a permanent capitalization of earnings. In that sense, stock dividends do not have any economic significance but are an accounting bookkeeping device. The recapitalization does have legal implicationsfor future distributions since the retained earnings account is the primary source of cash dividends and other accounts are more difficult to dip into for distributions. If the stock dividend is less than 20-25%, the additional stocks are valued at fair market value on the declaration date and the resultant amount moved from retained earnings account to the "par-value" account and the "additional paid-in capital" account. Larger stock dividends are valued at par.

• Question 1144:

  What is the area under the normal curve between z = -1.0 and z = -2. 0?

  A. 0.0228
  B. 0.4772
  C. 0.3413
  D. 0.1359
  E. None of these answers
  D. 0.1359

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  Explanation

  From the z-tables, z = 1 is 0.3413 and z = 2 is 0.4772. So the area in between is 0.4772 - 0.3413 = 0.1359.

• Question 1145:

  Suppose changes in corporate law make it more difficult for debt holders to force companies into bankruptcies. This will cause firms to:

  A. raise more equity capital through retained earnings.
  B. either increase or decrease their debt levels.
  C. increase their debt-to-equity ratios.
  D. decrease their debt-to-equity ratios.
  B. either increase or decrease their debt levels.

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  Explanation

  It is tempting to assume that lower probability of bankruptcy will entice firms into borrowing more. However, remember that debt holders are not entirely stupid! They will factor in this change in the law and demand a higher yield and stricter covenants on corporate debt to compensate for the lower recourse they have against the firms. Depending on whether they actually underestimate or overestimate the effect and also depending on whether the firms perceive that the debt holders have under- or overestimated the effect, companies could increase or decrease their debt levels.

• Question 1146:

  Estimating company earnings per share is a function of the ________ and the ________.

  A. firm's historical sales levels; relationship between sales and various relevant economic and industry series
  B. firm's internal performance; problems that might affect its future performance
  C. firm's competitive strategy; the firm's relationship with the industry
  D. sales forecast; estimated profit margin
  E. historical earnings per share; historical earnings multiplier
  D. sales forecast; estimated profit margin

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  Explanation

  The future value of a stock is derived by predicting the stock's earnings per share and expected earnings multiplier. Expected earnings per share is a function of the sales forecast and the estimated profit margin.

• Question 1147:

  Three defective electric toothbrushes were accidentally shipped to a drugstore by the manufacturer along with 17 nondefective ones. What is the probability that the first two electric toothbrushes sold will be returned to the drugstore because they are defective?

  A. 1/4 or 0.25
  B. 3/20 or 0.15
  C. None of these answers
  D. 3/17 or 0.176
  E. 3/190 or 0.01579
  E. 3/190 or 0.01579

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  Explanation

  3/20*2/19 = 3/190

• Question 1148:

  With regard to real estate, all properties must be included in at least one ________.

  A. account
  B. investment type
  C. composite
  D. sector
  E. portfolios
  C. composite

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  Explanation

  Consistent with the general requirements for all composites, all properties with discretionary fee-paying investors must be included in at least one account. Because of the unique nature of individual real estate investments, however, composites containing single properties are appropriate in many cases.

• Question 1149:

  When the weighted average method is used, ending inventory units are priced at the:

  A. average price
  B. none of these answers
  C. lower of cost or market
  D. earliest price
  A. average price

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  Explanation

  Under the weighted average method, inventory is priced at the average cost of the goods available for sale (Beginning inventory plus purchases during the period).

• Question 1150:

  The accounting equation reads:

  A. Revenue minus expenses equals profit
  B. Assets equal Liabilities plus Stockholders' Equity
  C. Assets plus Liabilities is equal to Stockholders' Equity
  D. None of these answers is correct
  B. Assets equal Liabilities plus Stockholders' Equity

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  Explanation

  The accounting equation shows us that the Assets (Own) are equal to the Liabilities (obligations) plus the Stockholders' Equity.