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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1281:

  Standard III (D) is ________.

  A. None of these answers
  B. Disclosure of Additional Compensation Arrangements
  C. Disclosure of Conflicts to Employer
  D. Obligation to Inform Employer of Code and Standards
  E. Duty to Employer
  F. Responsibilities of Supervisors
  B. Disclosure of Additional Compensation Arrangements

  ---

  Explanation

  Standard III (A) deals with the Obligation to Inform Employer of Code and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer. Standard III (D) deals with Disclosure of Additional Compensation Arrangements. Standard III (E) deals with Responsibilities of Supervisors.

• Question 1282:

  The NAV of an open-ended fund is $31.22. The fund charges a 6. 3% sales charge and no redemption charges. The price at which you can sell a share of the fund equals ________.

  A. $29.37
  B. $29.25
  C. $31.22
  D. none of these answers
  C. $31.22

  ---

  Explanation

  The price at which you can redeem an open-ended fund equals its NAV (in the absence of any redemption charges).

• Question 1283:

  In a systematic random sampling method,

  A. a sample selected such that every member of the population has the same chance of being selected.
  B. a sample is selected by randomly from within the first N members of the population and then selecting every Nth member of the population.
  C. a sample is selected by drawing numbers from a normal probability distribution.
  D. a sample is selected by first dividing the population into groups and then selecting members from each group.
  B. a sample is selected by randomly from within the first N members of the population and then selecting every Nth member of the population.

  ---

  Explanation

  The population members are arranges in a systematic way, such as alphabetically or by date received. A random starting point is selected and then every Nth item is selected for inclusion in the random sample.

• Question 1284:

  Assume the following information about a publicly traded specialty retailer:

  Revenue: $6,500,000 Cash flow: $1,500,000 Net worth per share: $10.87 Number of common shares outstanding: 1,000,000 Current stock price per share: $28.37

  Using this information, what are the price-to-sales, price-to-book, and price-to-cash flow ratios, respectively?

  A. 4. 36, 0.38, 18.91
  B. 4. 36, 2. 61, 18.91
  C. None of these answers is correct.
  D. The answer cannot be completely calculated from the information provided.
  E. 0.60, 2. 61, 18.91
  F. 4. 36, 2. 61, 42. 56
  B. 4. 36, 2. 61, 18.91

  ---

  Explanation

  To calculate the price-to-sales ratio, divide the market price of a common stock by its sales-per share figure. The equation for the price-to-sales ratio is as follows:

  Price-to-sales ratio = [P0 / sales per share].

  Incorporating the given information into this equation will yield the following: Price-to-sales ratio = [$28.37 / ($6,500,000 / 1,000,000)] = 4. 364 The calculation of the price-to-book ratio involves dividing the market price of a common stock by its

  net worth per share. The equation for the price-to-book ratio is as follows:

  Price-to-book ratio = [P0 / net worth per share].

  Where: net worth per share = (total assets - total liabilities) / # of common shares outstanding.

  In this example, the net worth figure has been converted to a per-share basis, and the calculation of the price-to-book ratio is straightforward:

  Price-to-book ratio = ($28.37 / $10.87) = 2. 6099

  The calculation of the price-to-cash flow ratio involves dividing the market price of a common stock by the cash-flow-per-share figure. The calculation of the price-to-cash flow ratio is as follows:

  Price-to-cash flow = (P0 / cash flow per share)

  Incorporating the given information into this equation will yield the following: Price-to-cash flow = [$28.37 / ($1,500,000 / 1,000,000)] = 18.91

• Question 1285:

  What value does the null hypothesis make a claim about?

  A. None of these answers
  B. Population parameter
  C. Sample mean
  D. Type II error
  E. Sample statistic
  B. Population parameter

  ---

  Explanation

  The null hypothesis makes claims regarding the values that the population parameter may take.

• Question 1286:

  According to the AIMR-PPS, assets assigned to subadvisors that are not part of the firm

  A. are not to be included in total firm assets and their performance record is, therefore, not part of the firm's performance record.
  B. are included in total firm assets at the investment manager's discretion and information regarding their inclusion should be included in the disclosures.
  C. are to be included in total firm assets, however, because they are subadvisors, their performance record is not part of the firm's performance record.
  D. are to be included in total firm assets, hence, their performance record is part of the firm's performance record.
  A. are not to be included in total firm assets and their performance record is, therefore, not part of the firm's performance record.

  ---

  Explanation

  Total firm assets are defined to include all discretionary and nondiscretionary assets. Assets assigned to subadvisors that are not part of the firm are not to be included in total firm assets and their performance record is, therefore, not part of the firm's record.

• Question 1287:

  Which of the following is not a required disclosure for real estate investments under the Performance Presentation Standards?

  A. amount of leverage used
  B. return formulas
  C. all of these answers
  D. accounting policies for capital expenditures
  A. amount of leverage used

  ---

  Explanation

  The performance presentation for real estate must disclose the return formulas and accounting policies for such items as capital expenditures, tenant improvements and leasing commissions. There is no requirement or recommendation that the amount of leverage used be disclosed under the 1997 standards.

• Question 1288:

  The rate of unemployment is equal to:

  A. the number of unemployed people as a fraction of the total labor force.
  B. the number of unemployed people as a fraction of the total population.
  C. none of these answers.
  D. the number of unemployed people as a fraction of the total population eligible to work.
  D. the number of unemployed people as a fraction of the total population eligible to work.

  ---

  Explanation

  The labor force of an economy consists of adults (defined as being of age 16 and above) who are either employed or actively seeking employment. The unemployment rate is then the fraction of the labor force that is not employed.

• Question 1289:

  Kwagmyre Investments, Ltd., hold two bonds: a callable bond issued by Mudd Manufacturing Inc. and a putable bond issued by Precarious Builders. Both bonds have option adjusted spreads (OAS) of 135 basis points (bp). Kevin Grisly, a junior analyst at the firm, makes the following statements (each statement is independent). Apparently, Grisly could benefit from a CFA review course, because the only statement that could be CORRECT is:

  A. Given a nominal spread for Precarious Builders of 110 bp, the option cost is -25 bp.
  B. The cost of the call option on the Mudd bond is -15bp.
  C. The Z-spread for Mudd's bond is based on the YTM.
  D. The spread over the spot rates for a Treasury security similar to Mudd's bond is 145 bp.
  D. The spread over the spot rates for a Treasury security similar to Mudd's bond is 145 bp.

  ---

  Explanation

  The "spread over the spot rates for a Treasury security similar to Mudd's bond" refers to the Z-spread on the bond.For a callable bond, the OAS < Z-spread, so this could be a true statement because 135bp < 145 bp. The other statements are

  false. The option cost is calculated using the OAS and theZ-spread,not the nominal spread. The cost of the call option should be positive.(The issuer has to compensate for increased uncertainty from the call option.) The static spread (or Zspread)is the spread over each of the spot rates in a given Treasury term structure,not the spread over the Treasury's YTM.

  Following is a more detailed discussion:

  The option-adjusted spread(OAS) is used when a bond has embedded options. The OAS can be thought of as the difference between the static or Z-spread and the option cost. For the exam, remember the following relationship between the

  static spread (Z-spread), the OAS, and the embedded option cost:

  Z Spread - OAS = Option Cost in % terms

  Remember the following option value relationships:

• Question 1290:

  Which of the following is NOT true about the responsibilities of a member with supervisory duties, as specified by Standard III (E) - Responsibilities of Supervisors?

  A. Compliance activities must be designed to anticipate the activities most likely to result in misconduct.
  B. Compliance procedures must meet industry and regulatory standards.
  C. The supervisor is always accountable for the violations committed by those who report to him.
  D. If a member cannot discharge supervisory responsibilities due to an absence of compliance system, he or she should decline to accept the duties in writing till such a system is put into effect.
  C. The supervisor is always accountable for the violations committed by those who report to him.

  ---

  Explanation

  Under Standard III (E) - Responsibilities of Supervisors, members must take reasonable care to ensure that their subordinates do not violate any laws or the code of conduct. This includes designing effective procedures to deter fraudulent activity. If such procedures are reasonable, meet industry and regulatory standards, are compatible with the AIMR code and are suitable for the firm in question, then the member cannot be held responsible for criminal activity clever enough to bypass the compliance system. Occurrence of such activity does indicate a need for a revamping of the system, though.