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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1171:

  Clay Industries, a large industrial firm, is evaluating the sales of its existing line of coiled machine tubing. In their analysis, the operating managers of Clay Industries have identified the following information related to the coiled machine tubing division and its product: Annual fixed operating expenses of $925,000 Average selling price of $90 Average variable cost of $44 Which of the following best describes the break-even quantity for this product?

  A. 20,109 units
  B. The break-even quantity cannot be determined from the information provided.
  C. None of these answers is correct.
  D. 20,468 units
  E. 10,278 units
  F. 21,023 units
  A. 20,109 units

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  Explanation

  To calculate the break-even quantity for a product, use the following equation: {Fixed operating costs/[avg. sales price per unit - variable cost per unit]}. The determination of the break-even quantity for this product is relatively straightforward, and does not involve any algebraic manipulation of the original equation. Incorporating the given information into the equation yields the following: {$925,000/[$90 - $44]} = 20,109 units.

• Question 1172:

  ________ financing is one of the early stages of financing in venture capital.

  A. all of these answers are correct.
  B. Seed
  C. First-stage
  D. Start-up
  A. all of these answers are correct.

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  Explanation

  There are three early stages of financing:

  1. Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research.

  2. Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially.

  3. First-stage financing. This is capital provided to initiate commercial manufacturing and sales.

• Question 1173:

  Each of the following is true regarding Standard II (A), except:

  A. You must be registered for the next CFA exam in order to call yourself a candidate.
  B. This standard relates to business cards and letterheads.
  C. This standard does not relate to oral statements.
  D. There is no designation for someone who has passed Level I, II, or III.
  E. All of these answers.
  F. Candidates may state that they have completed Level I, II, or III.
  C. This standard does not relate to oral statements.

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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 1174:

  Which of the following statements is correct?

  A. The primary advantage of simulation analysis over scenario analysis is that scenario analysis requires a relatively powerful computer, coupled with an efficient financial planning software package, whereas simulation analysis can be done using a PC with a spreadsheet program or even a calculator.
  B. All of these answers are correct.
  C. Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.
  D. In comparing two projects using sensitivity analysis, the one with the steeper lines would be considered less risky, because a small error in estimating a variable, such as unit sales, would produce only a small error in the project's NPV.
  E. Sensitivity analysis is a risk analysis technique that considers both the sensitivity of NPV to changes in key variables and the likely range of variable values.
  C. Sensitivity analysis is incomplete because it fails to consider the range of likely values of key variables as reflected in their probability distributions.

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  Explanation

  A project's stand-alone risk depends on (1) the sensitivity of NPV to changes in key variables and (2) the range of likely values of these variables as reflected in their probability distribution. Sensitivity analysis considers only the first factor.

• Question 1175:

  Amartya is currently managing the investment fund for a charitable institution and has his fiduciary duties bound by the UMIFA (Uniform Management of Institutional Funds) rules. His colleague, Bhagwati, is a trustee of a personal trust fund set up by the late R. D. Tata, a famous industrialist. Which of the following is/are true about this situation?

  I. Amartya's behavior as a trustee is governed by the "Prudent Man Rule."

  II. Bhagwati is held to a standard of ordinary business care.

  III.

  In general, Amartya is held to a lower standard of professional conduct than Bhagwati.

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

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  Explanation

  In the US, the investment actions of personal trust fiduciaries is governed by the "Prudent Man Rule," which requires an exercise of care and judgment which people of "prudence, character and intelligence" would use in the management of their personal investment affairs. On the other hand, trustees of charitable funds, when governed by UMIFA, are held to the standard of ordinary business care. This standard is comparable to that which applies to someone of the rank of a director in a business corporation and is not as strict as the Prudent Man Rule. Therefore, Amartya, as a UMIFA fiduciary, is held to a lower standard than Bhagwati. Standard IV (B.1) - Fiduciary Duties - and the Topical Study "Fiduciary Duty."

• Question 1176:

  Standard II (B) is known as ________.

  A. Professional Misconduct
  B. Fair Dealing
  C. Interactions with Clients and Prospects
  D. Preservation of Confidentiality
  E. None of these answers
  F. Prohibition against Use of Material Nonpublic Information
  G. Duty to Employer
  H. Investment Process
  A. Professional Misconduct

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  Explanation

  Standard IV (A) deals with the Investment Process. Standard III (B) deals with Duty to Employer. Standard IV (B.3) deals with Fair Dealing. Standard IV (B) deals with Interactions with Clients and Prospects. Standard V (A) deals with Prohibition against Use of Material Nonpublic Information. Standard IV (B.5) deals with Preservation of Confidentiality. Standard II (B) deals with Professional Misconduct.

• Question 1177:

  Suppose that the Central Bank announces that it will increase the money supply by 5%. Producers collectively determine that this will cause a 5% increase in both the price of their products and the cost of their inputs. How will this impact real GDP?

  A. increase by more than 5% in the short-run
  B. increase by an indeterminate degree in the short-run
  C. cannot determine without knowing whether GDP is below potential
  D. increase by less than 5% in the short-run
  E. increase by 5%
  F. no impact
  F. no impact

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  Explanation

  In order for an increase in the money supply to cause a temporary increase in production, firms must essentially be fooled by inflationary price increases that are misread as an increase in demand. In the scenario described, producers know of the change in money and expect inflation, therefore the increase in the money supply has no impact.

• Question 1178:

  If the required rate of return on these projects is 10 percent, which would be chosen and why?

  A. Project B because it has the higher IRR.
  B. Neither, because both have IRRs less than the cost of capital.
  C. Project B because it has the higher NPV.
  D. Project A because it has the higher IRR.
  E. Project A because it has the higher NPV.
  C. Project B because it has the higher NPV.

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  Explanation

  NPV(A) = $15,625(PVIFA(10%,5)) - $50,000 = $15,625(3. 7908) - $50,000 = $59,231.25 - $50,000 = $9,231.25. NPVB = $99,500(PVIF(10%,5)) - $50,000 = $99,500(0.6209) - $50,000 = $61,779.55 - $50,000 = $11,779.55. NPV(B) > NPV(A); $11,779.55 > $9,231.25; Choose Project B.

• Question 1179:

  Connery, a smart professional, passed his Level II CFA exam 2 years ago. He could not take the Level III exam due to professional time commitments elsewhere. He is thinking of taking Level III a couple of years from now, once things settle down on his personal front. His resume, which he has sent to a few prestigious firms, states that he is a candidate in the CFA program and has successfully completed Level II exam. He makes no exaggerated claims about his abilities on his resume. Connery has:

  A. violated Standard II (A) - Use of Professional Designation. He cannot claim to be CFA - Level II.
  B. not violated any standards.
  C. violated Standard II (A) - Use of Professional Designation. He cannot claim to be in the CFA program since he is not registered to take Level III exam.
  D. violated Standard II (A) - Use of Professional Designation. He cannot claim to be in the CFA program without having completed the Level III exam.
  C. violated Standard II (A) - Use of Professional Designation. He cannot claim to be in the CFA program since he is not registered to take Level III exam.

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  Explanation

  Standard II (A) - Use of Professional Designation, states that a person must be registered to take the next higher level of the exam to be a "candidate" in the CFA program.

• Question 1180:

  A sample of the paramedical fees charged by clinics revealed these amounts: $55, $49, $50, $45, $52 and $55. What is the median charge?

  A. None of these answers
  B. $51.00
  C. $47. 50
  D. $52. 00
  E. $55. 00
  B. $51.00

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  Explanation

  Order them: 45,49,50,52,55,55. The median is therefore (50 + 52)/2 = 51