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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1301:

  Venture capital has proved to impact economic development in the following ways:

  A. all of these are correct
  B. job development
  C. competitive adaptation
  D. formation of capital
  E. none of these is correct
  F. technological innovation
  B. job development
  C. competitive adaptation
  D. formation of capital
  F. technological innovation

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  Explanation

  Several researchers have concluded that venture capital investments are critical to the economy in terms of capital formation, local development, economic expansion, technological growth and innovation, employment growth, and competitive

  adaptation in global markets.

  Besides adding jobs, venture capital investments have resulted in development of medical diagnostic and treatment equipment, and scientific improvements.

  Venture capital investments have developed entrepreneurs and have contributed to innovation and competitiveness.

• Question 1302:

  Under the indirect method, cash flow from operating activities is computed by adjusting net income for all of the following, except

  A. noncash changes in fixed assets.
  B. nonoperating items included in net income.
  C. noncash revenues and expenses.
  D. noncash changes in operating assets.
  E. noncash changes in operating liabilities.
  A. noncash changes in fixed assets.

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  Explanation

  Only operating assets are considered, not fixed assets.

• Question 1303:

  What quarterly payment is required beginning one period from today to pay off a $3,000 debt, if interest accrues at 6% per year, compounded quarterly, and the debt is to be retired in 10 years?

  A. $107. 41
  B. $88.63
  C. $114. 29
  D. $87. 83
  E. $100.28
  E. $100.28

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  Explanation

  On the BAII Plus, press 40 N, 6 divide 4 = I/Y, 3000 PV, 0 FV, CPT PMT. On the HP12C, press 40 n, 6 ENTER 4 divide i, 3000 PV, 0 FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/ Y value set to 1.

• Question 1304:

  A firm has net sales of $6,000 in fiscal 1998, cash expenses (including taxes) of $2,800, and depreciation of $1,000. If accounts receivable increased in the period by $800, cash flows from operations equal ________.

  A. $2,400
  B. $3,200
  C. $3,400
  D. $4,200
  A. $2,400

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  Explanation

  (6,000 - 2,800 - 800)

• Question 1305:

  Each salesperson in a large department store chain is rated either below average, average, or above average with respect to sales ability. Each salesperson is also rated with respect to his or her potential for advancement either fair, good, or excellent. These traits are the 500 salespeople were cross classified into the following table.

  Sales Ability Potential for Advancement Fair Good Excellent

  Below Average 161222 Average 456045 Above Average 9372135

  What is the probability that a sales person selected at random will have below average sales ability and fair potential for advancement?

  A. 0.32
  B. None of these answers
  C. 0.10
  D. 0.16
  E. 0.032
  E. 0.032

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  Explanation

  prob. of selecting a below average person: (16 + 12 + 22)/500 = 1/10. Prob. of selecting fair potential amongst those in the below average group: 16/50 = 8/25. Therefore 1/10*8/25 = 4/125.

• Question 1306:

  Which of the following statements about ratios is false?

  A. Analysis of ratios can identify areas that require further investigation.
  B. All of these answers are true.
  C. A ratio expresses a mathematical relation between two, or more, economically important quantities.
  D. The advantage of ratio analysis is that very little skill is required in interpreting the meaning of the ratios.
  E. Ratios must be interpreted with care since factors affecting the numerator can correlate with those affecting the denominator.
  D. The advantage of ratio analysis is that very little skill is required in interpreting the meaning of the ratios.

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  Explanation

  The usefulness of ratio analysis is highly dependent upon skillful interpretation by the analyst.

• Question 1307:

  Which of the following qualifies as a disposal of a segment of a business?

  A. Perrier Inc., producer of bottled spring water and soft drinks, discontinues production of its bottled spring water. This operation is self-contained.
  B. Superpharm Drugs, operator of chain of discount drug stores, reaches an agreement to sell its Boston location to a competitor.
  C. Irving Inc. supplies its own service stations and independent operators from its refineries. The firm decides to discontinue marketing to independents.
  D. None of these answers.
  E. Treadrite, a shoe manufacturer, has decided to discontinue its line of work boots. The firm's operations are concentrated in single plant.
  A. Perrier Inc., producer of bottled spring water and soft drinks, discontinues production of its bottled spring water. This operation is self-contained.

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  Explanation

  A segment is a component of an entity whose activities represent a separate major product line and activities can be physically and operationally distinguished from the remainder of the entity for financial reporting purposes. The discontinued spring water operation thus qualifies as disposal of a segment.

• Question 1308:

  In a rebuttal to comments made by Dilbertico's fundamental analyst, Keith Howard states that future changes in stock prices cannot be predicted based on a company's institutional ownership. State which form of the efficient market hypothesis (EMH) Howard's statement supports and also state a type of empirical study which tests that form of the EMH.

  A. Weak form of the EMH and trading rulestest.
  B. Semistrong form of the EMH and trading rules test.
  C. Semistrong form of the EMH and event study.
  C. Semistrong form of the EMH and event study.

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  Explanation

• Question 1309:

  The empirical evidence on mutual fund performance indicates which of the following?

  I. Better performance is associated with higher expense ratios.

  II. On a net basis, mutual funds under-perform the market on average.

  III.

  On average, mutual funds do better than the buy-and-hold policy by about 65 basis points.

  A. II and III
  B. II only
  C. I only
  D. I, II and III
  E. I and III
  F. III only
  G. I and II
  G. I and II

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  Explanation

  Most of the studies on mutual fund performance show I and II. On average, mutual funds have been shown to be unable to outperform a buy-and-hold policy after fund expenses are accounted for.

• Question 1310:

  The P/E ratio is determined by the expected ________ and by k and g.

  A. dividend payout ratio
  B. stock ratio
  C. earnings ratio
  D. g/k ratio
  A. dividend payout ratio

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  Explanation

  The price/earnings ratio can be computed by dividing the expected dividend payout ratio (dividends divided by earnings) by the required rate of return (k) minus the expected growth rate of dividends (g).