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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1351:

  In a management trainee program, 80 percent of the trainees are female, 20 percent male. Ninety percent of the females attended college, 78 percent of the males attended college. A management trainee is selected at random. What is the probability that the person selected is a female who did not attend college?

  A. 0.8
  B. 0.25
  C. 0.20
  D. 0.08
  E. None of these answers
  D. 0.08

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  Explanation

  Prob. of choosing a female=0.8. Prob. of a female not attending college = 0.1. So 0.8*0.1 = 0.08.

• Question 1352:

  Intelligent Semiconductor, a diversified technology company, is evaluating the sales of its cadmium silicon transistor coils, and has identified the following information: Fixed production costs for these transistors: $750,000 Average sales price per unit: $405. 00 Variable cost per unit: $313. 60 Which of the following best describes the breakeven quantity for this product?

  A. The breakeven quantity for this product cannot be determined from the information provided.
  B. 8,206 units
  C. 1,044 units
  D. 5,397 units
  E. 7,397 units
  B. 8,206 units

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  Explanation

  To calculate the breakeven quantity for a product, use the following equation: {Fixed operating costs/[avg. sales price per unit - variable cost per unit]}. Incorporating the given information into this equation yields the following: {$750,000/[$405

  -$313. 60]}=8,206 units.

• Question 1353:

  IRK Investments is actively engaged in various risk management strategies involving swaps. The company currently has a position as the fixed rate payer in a quarterly fixed for equity swap with an interest rate of 6. 8%, a tenor of five years and notional principal of $10 million. Payments on the swap are netted. The underlying equity return is based on the SandP 500 Index. IRK currently owes a payment of $400,000. Which of the following is most likely correct?

  A. The underlying equity index experienced a loss greater than 1.7% over the quarter.
  B. The underlying equity index experienced a loss less than 1.7% over the quarter.
  C. The underlying equity index experienced a loss equal to 1.7% over the quarter.
  A. The underlying equity index experienced a loss greater than 1.7% over the quarter.

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  Explanation

• Question 1354:

  Which of the following is the least accurate description of behavioral finance and related investor bias?

  A. Avoiding or ignoring new information that would call a decision into question is an example of overconfidence bias.
  B. Behavioral finance may explain some of the anomalies that tend to refute the efficient markets hypothesis.
  C. Committing more funds to a position that has lost value is an example of escalation bias.
  A. Avoiding or ignoring new information that would call a decision into question is an example of overconfidence bias.

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  Explanation

• Question 1355:

  In periods of rising prices, which inventory costing method results in the highest net income?

  A. FIFO
  B. Average cost
  C. Perpetual
  D. LIFO
  A. FIFO

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  Explanation

  FIFO assigns the lowest dollar value amounts to COGS when purchase prices are rising, thus resulting in higher net income.

• Question 1356:

  An increase in margin debt would by viewed by technical analysts as

  A. signaling a market peak.
  B. neither particularly bullish nor bearish.
  C. a bearish sign.
  D. a bullish sign.
  E. irrelevant.
  D. a bullish sign.

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  Explanation

  Those who purchase securities on margin tend to be relatively sophisticated investors. Technical analysts trying to follow the "smart money" would view an increase in margin debt (debit balances in brokerage accounts) as indicating that those sophisticated investors are bullish on the market, which would lead the analysts to also be bullish.

• Question 1357:

  If you deposit $400 a month, beginning next month, for 10 years into an account paying 8% per year, compounded monthly, how much is in your account after that last deposit?

  A. $18,121,973. 53
  B. $73,178.41
  C. $48,000.00
  D. $13,091.62
  E. $88,402. 98
  B. $73,178.41

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  Explanation

  On the BAII Plus, press 120 N, 8 divide 12 = I/Y, 0 PV, 400 PMT, CPT FV. On the HP12C, press 120 n, 8 ENTER 12 divide i, 0 PV, 400 PMT, FV. On the BAII Plus, make sure the value of P/Y is set to 1. Note that the answer is displayed as a negative number.

• Question 1358:

  Which of the following statements about directors of a company is true?

  A. Directors only get paid if the company increases its profitability that year.
  B. All directors of a company are senior managers in that company.
  C. Directors are shareholders' representatives.
  D. Directors are elected by management of a company.
  C. Directors are shareholders' representatives.

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  Explanation

  The stockholders elect the board of directors, which in turn decide on the major business policies of the corporation.

• Question 1359:

  Kaylee Sumners, Level 1 CFA candidate, has just finished reviewing flash cards for the reading on the efficient market hypothesis (EMH). Confused by the different tests for the different forms of the EMH, she outlines the information (of which four summary points appear below) from memory. It appears that Sumners should review the material because three of the points are incorrect. Which of her summary points is CORRECT?

  A. Early tests of the semi-strong form used the equation: ReturnAbnormal = ReturnActual - (RMarket * BetaStock).
  B. The superior historical performance of exchange specialists and corporate insiders rejects the semi-strong form of the EMH.
  C. Cross-sectional tests such as the price-earnings ratio, neglected firms tests, and book value to market value tests support the semi-strong form of the EMH.
  D. Statistical and trading rule tests support the weak-form of the EMH.
  D. Statistical and trading rule tests support the weak-form of the EMH.

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  Explanation

  These two tests support the weak-form EMH contention that security prices reflect all historical market information and that mechanical trading rules do not result in superior returns. The other statements are false.Latertests of the semi-strong form EMH used the equation: ReturnAbnormal= ReturnActual?(RMarket* BetaStock). Early tests omitted beta, using the formula: ReturnAbnormal= ReturnActual?RMarket. The superior historical performance of exchange specialists and corporate insiders rejects thestrongform of the EMH. Cross-sectional tests such as the price-earnings ratio, neglected firms tests, and book value to market value testsrejectthe semi- strong form of the EMH. These tests show that certain stocks have high realized returns (for example, low P/E stocks and high book value to market value stocks).

• Question 1360:

  Bond X carries a rating of BBB-/Baa3. Bond Y has a rating of B/B2. Both bonds are callable after five years, and both bonds mature in ten years. Identify the most accurate statement regarding the credit risk of these bonds. Which bond's value would be most affected by a ratings downgrade, and which bond has the higher default risk?

  A. Bond X would be more affected by a ratings downgrade, but Bond Y has higher default risk.
  B. Bond Y would be more affected by a ratings downgrade, but Bond X has higher default risk.
  C. Bond X has higher default risk, but both bonds would feel equivalent effects of a ratings downgrade.
  A. Bond X would be more affected by a ratings downgrade, but Bond Y has higher default risk.

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  Explanation