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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1631:

  What is the general form of the regression equation?

  A. Y' = a x bX
  B. Y' = a - bX
  C. Y' = a + bX
  D. Y' = ab
  E. None of these answers
  C. Y' = a + bX

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  Explanation

  The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line.

• Question 1632:

  The p-value in hypothesis testing:

  A. equals the significance level.
  B. is less than the probability of type I error.
  C. equals the probability of type II error.
  D. none of these answers.
  D. none of these answers.

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  Explanation

  The lowest significance level at which the null hypothesis can be rejected is called the p-value of the test. Thus, if the p-value is less than the significance level, the null hypothesis can be rejected at that significance level. None of the choices fit this definition of the p-value.

• Question 1633:

  Management fees are charged

  A. only by low-load and 12b-1 plan open-end investment companies.
  B. only be load open-end investment companies.
  C. by all investment companies.
  D. only by no-load open-end investment companies.
  C. by all investment companies.

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  Explanation

  All investment companies charge annual management fees to compensate the managers of the fund. These fees are typically 0.25 to 1 percent of average net assets of the fund and tend to decline with the size of the fund.

• Question 1634:

  An analysis of a firm's financial statements indicates that the average age of its assets is declining. This could be due to which of the following?

  I. The firm is acquiring new assets with longer depreciable lives.

  II. The firm's capital expenditures are outpacing depreciation.

  III. The firm is not using its assets as intensively as it should.

  IV.

  The firm is operating in its maturity phase.

  A. I and IV
  B. I and II
  C. I, II, III and IV
  D. III and IV
  B. I and II

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  Explanation

  Note that the firm is likely not in a maturity or declining phase but in a growth phase, which is characterized by increasing capital investments.

• Question 1635:

  In hypotheses testing, what is the level of significance?

  A. Symbolized by the Greek letter "alpha"
  B. All of these answers are true
  C. Selected before a decision rule can be formulated
  D. Value between 0 and 1
  E. Risk of rejecting the null hypothesis when it is true
  B. All of these answers are true

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  Explanation

  All the above a correct descriptions of the level of significance.

• Question 1636:

  A normal distribution has a mean of 4. 1 and a standard deviation of 2. 3. The probability that a value from this distribution will be negative equals ________.

  A. 0.0206
  B. 0.0375
  C. 0.0121
  D. 0.4625
  B. 0.0375

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  Explanation

  The z-value of a selected observation, X, from a normal distribution with mean M and standard deviation S equals z = (X-M)/S. in the present case, the z-value of X = 0 equals -4. 1/2. 3 = -1.78. Then, the probability that a number Y is negative

  is the same as the probability of a z-value less than -1.78. Using the Normal probability tables to get P(z < -1.78) is tricky because the table given in the assigned text is only for positive values. To calculate the probability, use the fact that the

  standard normal distribution is symmetrical about zero. Hence,

  P(z < -1.78) = P(z > + 1.78) = 1.0 - 0.9625 = 0.0375.

• Question 1637:

  James Volley, CFA, is evaluating a number of municipal bonds. One of the revenue bonds on his list is marked as "prercfunded." When Volley asks his assistant about the bonds, the assistant tells him that the collateral behind the bonds is a portfolio of U.S. government securities, and that, therefore, these bonds have "less credit risk than insured municipal bonds." Which of the following statements regarding these bonds is most accurate"?

  A. The bonds do indeed have less credit risk than insured municipal bonds.
  B. Only general obligation bonds can be prerefunded, not revenue bonds.
  C. Prerefunded bonds are secured by a cash escrow account, not by US government securities.
  A. The bonds do indeed have less credit risk than insured municipal bonds.

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  Explanation

• Question 1638:

  The Performance Presentation Standards ________ require retroactive compliance.

  A. never
  B. always
  C. sometimes
  C. sometimes

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  Explanation

  Retroactive compliance is not required, but it is allowed for firms with performance calculations for periods prior to the applicable dates that are not in conformance with the AIMR-PPS. In this case, the firm can restate its historical performance in accordance with the Relaxed Retroactive Standards.

• Question 1639:

  Which of the following will most likely increase aggregate supply in the long run?

  A. advances in technology
  B. a low rate of capital formation
  C. higher real interest rates due to the federal government's large budget deficits
  D. unfavorable weather conditions in agricultural areas
  E. an increase in the expected inflation rate
  A. advances in technology

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  Explanation

  Improvements in technology can cause the aggregate supply curve to permanently shift to the right. This is because such advances make it possible to produce and sustain a larger rate of output from a specific resource supply.

• Question 1640:

  Which of the following statements about asset valuation is TRUE?

  A. The bottom-up stock picking approach is: first, stock analysis, second, industry analysis, and third, economic analysis
  B. The absolute value of economic value added (EVA? is less important than the trend.
  C. Earnings are considered the variable least likely to be manipulated.
  D. A domestic steel firm and a foreign steel firm will have similar earnings per share (EPS) levels and price/earnings (P/E) ratios.
  B. The absolute value of economic value added (EVA? is less important than the trend.

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  Explanation

  Management's performance over time is most important. The other statements are false. The bottom-up stock picking approach consists of one step ?pick the stocks you believe are underpriced, regardless of the state of the economy or the industry. The choices given here for picking stocks are the steps of the top-down approach in reverse order. Sales are considered the variable least likely to be manipulated. Although the basic methodologies for international stock valuation and domestic stock valuation (dividend discount model [DDM], EPS, P/E) are the same, the analyst must be aware of and consider differences in accounting practices and factor in the impact of exchange rate movements. It is also important to consider the absolute performance of foreign firms and their relative performance against local firms.