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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1361:

  Suppose you were given $10,000 today and deposited it into an account paying 10% per year, compounded monthly. If you know that you will need $5,000 in the account 5 years from now, what monthly withdrawal can you make from the account, beginning one month from now, that will leave the account with exactly $5,000 in it in 5 years?

  A. $147. 90
  B. $83. 33
  C. $1,066. 81
  D. $140.04
  E. $1,001.65
  A. $147. 90

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  Explanation

  On the BAII Plus, press 60 N, 10 divide 12 = I/Y, 10000 PV, 5000 +/- FV, CPT PMT. On the HP12C, press 60 n, 10 ENTER 12 divide i, 10000 PV, 5000 CHS FV, PMT. Note that the answer is a negative number. This is because it is a withdrawal from the account balance, just as the $5,000 is. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 1362:

  Standard IV (B.5) is known as ________.

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

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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 1363:

  Which of the following is/are true?

  I. It is harder to reject the null under a two-tailed test than under a one-tailed test.

  II. To test the hypothesis: Ho: X = 0, H1: X < 0, you have to employ a left-tailed test.

  III. The acceptance region under a right tailed test extends from zero to positive infinity.

  IV.

  The critical z-statistics in one-tailed tests are always lower than the z-statistics in the corresponding two-tailed test.

  A. I, II, III and IV
  B. none of these answers
  C. I, II and III
  D. I, II and IV
  E. II, III and IV
  D. I, II and IV

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  Explanation

  Under a two-tailed test, values on either side of the null can contribute to a rejection. Hence, the critical values under a two-tailed test have to be higher than under a one-tailed test for a given level of significance. This makes it harder to reject the null under a two-tailed test. This makes intuitive sense. In a one-tailed test, you are specifying a stricter alternative than under a completely general, two-tailed alternative (in the current example, you are claiming that X is less than zero as an alternative which is a stronger statement than the claim that X is non-zero). The rejection region in a right-tailed regression extends from the critical t-value associated with the given significance level and positive infinity. This critical value is greater than zero.

• Question 1364:

  Which of the following is a component of the risk premium?

  I. Business risk

  II. Financial risk

  III. Liquidity risk

  IV.

  Exchange rate risk

  V.

  Country risk

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

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  Explanation

  The risk premium is comprised of each of these components which are influenced by differences in the general economic and political environment as well differences in trade relations and operating leverage employed within a country. After each of these components is analyzed, a unique risk premium may be assigned to a country.

• Question 1365:

  When valuing real estate, ________ is more difficult to apply to older properties.

  A. none of these answers
  B. the comparative sales approach
  C. the cost approach
  D. the income approach
  C. the cost approach

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  Explanation

  The cost approach works best with new or relatively new properties.

• Question 1366:

  A defined contribution pension plan:

  A. disburses benefits based on the returns on the fund's investments.
  B. none of these answers.
  C. promises to pay retirees a specific income stream.
  D. pays defined benefits for a certain period after retirement.
  A. disburses benefits based on the returns on the fund's investments.

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  Explanation

  In a defined benefit contribution plan, the employee makes definite contributions to the pension plan from the regular salary. Investment of these contributions is at the discretion of the employee and the size of the benefits paid out depends upon the total contributions made and the fund performance. Thus, in this plan, the risk of pension plan performance is borne by the employee and not the employer.

• Question 1367:

  Realized gains and losses from sales of assets are measured as

  A. fair value of asset less net book value of asset.
  B. sales price of asset less net book value of asset.
  C. net book value less fair value of asset.
  D. sales price of asset less fair value of asset.
  B. sales price of asset less net book value of asset.

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  Explanation

• Question 1368:

  The current economic environment is one of steady inflation. A firm uses historical cost accounting. Which of the following is/are true?

  I. The firm's book value is overstated.

  II. The firm's depreciation expense is understated.

  III. The firm's tax expense is overstated.

  IV.

  The firm's net income is understated.

  A. II and IIIs tax expense is overstated. IV. The firm's net income is understated.
  B. I and IV
  C. I and III
  D. I, II and IV
  A. II and IIIs tax expense is overstated. IV. The firm's net income is understated.

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  Explanation

  Since the assets are carried at historical values which are lower than the current asset values due to inflation, the depreciation expense is understated. Therefore, income is overstated, leading to an overstatement of taxes. Historical cost accounting in inflationary environment implies that the asset values are understated.

• Question 1369:

  Which of the following is not subject to depreciation?

  A. automobiles
  B. machinery
  C. land
  D. land improvements
  C. land

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  Explanation

  Land has unlimited useful life and is not consumed when it is used, and therefore not subject to depreciation.

• Question 1370:

  Which is a most correct statement concerning companies that receive venture capital?

  A. The company has little control over its own future.
  B. The success rate is about the same for companies that receive venture capital funding and for those that do not.
  C. None of these statements are correct.
  D. The success rate is much higher for companies that do not receive funding because entrepreneurs do not have to deal with undue control of venture capitalists.
  E. These companies are much more likely to succeed than companies that do not receive such funding.
  E. These companies are much more likely to succeed than companies that do not receive such funding.

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  Explanation

  Companies that receive venture capital are far more likely to succeed than companies that do not receive such funding. Studies show that there is only a 10% to 20% failure rate for investments in a venture capitalist's portfolio, as compared to a 10%-20% success rate for all new companies.