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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1161:

  Call options on the stock of Verdant, Inc., with a strike price of $45 are priced at $3. 75. Put options with a strike price of $45 are priced at $3. 00. Which of the following most accurately describes the potential payoffs for owners of these options (assuming no underlying positions in Verdant)?

  A. The call writer has the maximum loss exposure.
  B. The put buyer has the maximum loss exposure.
  C. The put writer has the maximum potential gain.
  A. The call writer has the maximum loss exposure.

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  Explanation

• Question 1162:

  Which of the following can be found in Standard III?

  A. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.
  B. Members shall maintain knowledge of and comply with all applicable laws.
  C. Members shall maintain appropriate records to support the reasonableness of recommendations.
  D. Members shall not participate in plagiarism.
  E. Members shall not undertake any independent practice in competition with employer without written consent.
  E. Members shall not undertake any independent practice in competition with employer without written consent.

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  Explanation

  Standard III states: "Members shall not undertake any independent practice that could result in compensation or other benefit in competition with their employer without written consent from both the employer and the person for whom they undertake independent practice."

• Question 1163:

  At the beginning of fiscal 1998 Jones Company had retained earnings of $1,000,000 and at the beginning of fiscal 1999 Jones Company had retained earnings of $1,200,000. During fiscal 1998 Jones Company declared a dividend of $300,000 and declared a 3 for 1 stock split. How much did Jones Company earn during fiscal 1998?

  A. $200,000
  B. $166,667
  C. $600,000
  D. $500,000
  D. $500,000

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  Explanation

  The company's retained earnings increased by $200,000 during 1998 and dividends were paid of $300,000, therefore earnings had to be $500,000. The stock split has no effect on retained earnings.

• Question 1164:

  Which of the following is true regarding Standard II (A)?

  A. You must be registered for the next CFA exam in order to call yourself a candidate.
  B. All of these answers.
  C. Candidates may state that they have completed Level I, II, or III.
  D. There is no designation for someone who has passed Level I, II, or III.
  E. This standard relates to oral statements.
  F. This standard relates to business cards and letterheads.
  B. All of these answers.

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  Explanation

  Standard II (A) relates to the responsibility of AIMR members and candidates to use their professional designation properly and in a non-misleading manner. A person must be registered to take the next scheduled CFA exam to be a "candidate" in the CFA program. There is no designation for someone who has passed Level I, II, or III of the CFA exam. Candidates may state, however, that they have completed Level I, II, or III. The standard applies to all related explanations or descriptions of the CFA designation, including letterheads and business cards, resumes, directory listings, printed advertising, brochures and oral statements to clients and prospects.

• Question 1165:

  Which of the following are assumptions of the dividend discount model?

  A. No inflation
  B. All of these answers
  C. The required rate of return is greater than the growth rate
  D. Earnings will not be negative
  C. The required rate of return is greater than the growth rate

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  Explanation

  The assumptions of the Dividend Discount Model are: (1) Dividends grow at a constant rate; (2) The constant growth rate will continue for an infinite period; (3) The required rate of return is greater than the growth rate.

• Question 1166:

  Which accounting principle is consistent with reporting financial results that can be compared with previous periods?

  A. matching
  B. adequate disclosure
  C. materiality
  D. consistency
  D. consistency

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  Explanation

  The consistency principle requires that an accounting procedure, once adopted by a company, remain in use from one period to the next unless users are informed of the change.

• Question 1167:

  If the effects of an expansionary macroeconomic policy are accurately anticipated, then

  A. wages will rise more rapidly than product prices.
  B. market participants will quickly adjust to the expected inflation.
  C. profit margins will improve.
  D. resource prices will remain constant.
  B. market participants will quickly adjust to the expected inflation.

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  Explanation

  Anticipated macroeconomic policies are ineffective in stimulating aggregate output and employment because market participants create labor contracts which automatically account for rising prices. Thus, employment is not increased because the real wage is constant.

• Question 1168:

  At the end of an accounting period, each expense that has been incurred but not yet paid should be recorded as ________.

  A. a closing entry
  B. an opening entry
  C. an adjusting entry
  D. a reversing entry
  C. an adjusting entry

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  Explanation

  Expenses should be recognized in the period in which they are incurred. In order to be consistent with the matching principle, an adjusting entry must be made to record the expense, regardless of whether it has been paid.

• Question 1169:

  Calculate the weighted average cost of capital (WACC) for a company with the following capital component information: The firm can issue new common stock with a price of $40.00, floatation costs of 3. 0%, and a dividend in year 0 of D0= $3. 00. Which of the following is closest to the correct answer? The WACC equals:

  A. 9.82%.
  B. 9.49%.
  C. 9.05%.
  D. 10.05%.
  B. 9.49%.

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  Explanation

  Step 1: Determine the after-tax cost of debt:

  Theafter-tax cost of debt[kd(1

• Question 1170:

  Suppose we set the criterion for the rejection of the null that is extremely lax, assuring us that the null will not be rejected. Then, which of the following is/are true?

  I. The probability of a Type I error is zero.

  II. The probability of Type II error is zero.

  III.

  The significance level of the test is 1. A.

  I and III

  B.

  II only

  C.

  II and III

  D.

  none of these answers

  E.

  I only

  Correct Answer. E
  E

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  Explanation

  A Type I error refers to the event that we will reject the null when, in fact, it is true. If the criterion is so loose that you never reject the null, then the probability of type I error is zero. A Type II error refers to the event that we will fail to reject the null when, in fact, it is false. If you never reject the null, then the probability of type II error is clearly non-zero. Finally, the significance level is the same as the probability of making a Type I error.