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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 111:

  KCE stock is currently selling for $51.13 per share in the market. Six-month American put options on KCE with a strike price of $55 are available, and the risk-free rate of interest is 3. 66%. Calculate the lower bound for the KCE American put options.

  A. $2. 89
  B. $3. 75
  C. $3. 87.
  C. $3. 87.

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  Explanation

• Question 112:

  What is the range of values for the coefficient of determination?

  A. None of these answers
  B. 0 to +1 inclusive
  C. -1 to +1 inclusive
  D. -3 to +3 inclusive
  E. #AI -1 to 0 inclusive
  B. 0 to +1 inclusive

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  Explanation

  R-square ranges from 0-1 inclusive.

• Question 113:

  The net incomes of a sample of importers were organized into the following table:

  Net Income (in $ millions) Number of Importers 2 - 41 5 - 74 8 - 1010 11 - 133 14 - 162

  What is the mean net income?

  A. None of these answers
  B. $7. 65 million
  C. $14. 2 million
  D. $9.15 million
  E. $9.00 million
  D. $9.15 million

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  Explanation

  (3*1)+(6*4)+(9*10)+(12*3)+(15*2) = 183. Mean is 183/20 = 9.15

• Question 114:

  A manager who pays a higher commission than would normally be paid to purchase the goods or services:

  A. may be violating the fiduciary duties owed to the client.
  B. none of these answers.
  C. is violating the fiduciary duties owed to the client.
  D. is not violating the fiduciary duties owed to the client.
  C. is violating the fiduciary duties owed to the client.

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  Explanation

  This practice is commonly referred to as "paying up" for services.

• Question 115:

  What is the bond's yield to call (YTC)?

  A. 10.05%.
  B. 9.26%.
  C. 10.34%.
  D. 10.55%.
  A. 10.05%.

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  Explanation

  N = 8, PMT = 120, PV = -1150, FV = 1100, CPT I/Y.

• Question 116:

  A variable, W, is normally distributed with a mean of 12. 68% of its observations lie between 8 and 16. The coefficient of variation of W is ________.

  A. 0.66
  B. 1.5
  C. 3. 0
  D. 0.33
  D. 0.33

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  Explanation

  For a normal distribution, 68% of the observations lie within one standard deviation of the mean. Hence, the standard deviation of X equals 12-8 = 4. The coefficient of variation is then equal to standard deviation/mean = 4/12 = 0.33.

• Question 117:

  An analyst with Churn Brothers is examining shares of Microscam International, a multinational software firm, for possible investment. Shares of Microscam are anticipated to grow at a rate of 20% per year for the next two years, then grow at 15% in the third year. Thereafter, the growth rate of Microscam International is expected to be at 11% per year forever. Similar investments have warranted a 15% per year rate of return, and Microscam paid a dividend of $0.50 at t0. Using this information, what is the value of Microscam International common stock? Use the two-stage dividend discount model.

  A. $16. 72
  B. $26. 39
  C. $21.39
  D. $22. 59
  E. The answer cannot be calculated from the information provided.
  F. None of these answers is correct.
  A. $16. 72

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  Explanation

  The multi-stage dividend discount model is a more realistic way of valuing fast-growing companies that pay dividends. With this model, it is necessary to estimate the above-average, or "supernormal" rate of growth, as well as the long-term rate of growth. Once these growth rates have been determined, they are used to calculate the dividends at various points in the future. In this example, you are provided with two supernormal growth rates, in addition to the long-term rate of growth, and the calculation is somewhat more complex than a situation characterized by a single supernormal growth rate. Nonetheless, the multistage dividend discount model can be applied.

  The multi-stage dividend discount model is often referred to as the "two-stage dividend discount model," and these two titles should be considered interchangeable for all intents and purposes, i.e. the "two stage" dividend discount model can be used to determine the value of a company that has multiple growth rate changes.

  Incorporating the given information into the multi-stage dividend discount model will yield the following:

  P = {[$0.50 * 1.20) / 1.15] + [($0.60 * 1.20) / 1.3225] + [($0.72 * 1.15) / 1.52087] + [($0.828 * 1.11) / (.15 11)]/1.52087}

  which can further be developed into:

  P = {$0.52174 + $0.54442 + $0.54442 + $15. 11} = $16. 72

• Question 118:

  Venture capitalists expect to actually realize their returns

  A. up front, before the firm has any operating profit.
  B. spread out evenly over the length of the investment.
  C. only if the company becomes profitable on a consistent basis.
  D. only when they are able to cash out.
  E. during the first round of financing.
  D. only when they are able to cash out.

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  Explanation

  The objective of the venture capitalist is to earn a 40%-60% annual return on an investment, net of inflation. Venture capitalists expect to actually realize their returns only when they are able to cash out, which hopefully is less than ten years, and preferably in three to seven.

• Question 119:

  Donald Northerland forecasts the stock return, beta, and standard deviation for three stocks: Cayman, Bonaire, and Lucia. The expected return and standard deviation for the broad market equal 12% and 20%, respectively. The risk-free rate equals 5%.

  Using the capital asset pricing model, determine which of the following statements is least likely correct.

  A. Cayman is overvalued.
  B. Bonaire is undervalued.
  C. Lucia is overvalued.
  A. Cayman is overvalued.

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  Explanation

• Question 120:

  Under Standard IV (B.6), Prohibition against Misrepresentation, a member may discuss a "guaranteed" investment, as long as that investment is which of the following?

  A. domestic stocks
  B. foreign stocks
  C. medium-term notes
  D. long-term bonds
  E. none of these answers
  F. short-term Treasury securities
  F. short-term Treasury securities

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  Explanation

  Standard IV (B.6) prohibits statements that an investment is "guaranteed", or that superior returns can be expected in the future based on the member repeating past success. It does not preclude truthful statements on investments with guaranteed returns, such as some insurance contracts, short-term Treasury securities and insured bank deposits.