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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1721:

  The stock market tends to reach a ________ shortly after times of international crisis or a ________ of the T-Bill-Eurodollar spread.

  A. trough; narrowing
  B. peak; widening
  C. peak; narrowing
  D. trough; widening
  D. trough; widening

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  Explanation

  An alternative measure of investor attitude or confidence on a global basis is the spread between T-bill yields and Eurodollar rates. It is reasoned that, at times of international crisis, this spread widens as money flows to safe-haven U.S. T-bills, which cause a decline in this ratio. The stock market tends to reach a trough shortly thereafter.

• Question 1722:

  Standard IV (B.8), Disclosure of Referral Fees, includes ________.

  A. referral fees paid in cash
  B. referral fees paid "in kind"
  C. soft dollar referral fees
  D. all of these answers
  D. all of these answers

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  Explanation

  Under Standard IV (B.8), appropriate disclosure involves disclosing the nature of the consideration or benefit given or received for the recommending of services. Consideration includes all fees, whether paid in cash, in soft dollars, or in kind.

• Question 1723:

  The length of time required for an investment's net revenues to cover its cost is known as ________.

  A. Optimal Capital Structure
  B. Net Present Valuing
  C. Capital Budgeting
  D. Payback Period
  E. Weighted Average Cost of Capital (WACC)
  D. Payback Period

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  Explanation

  Payback Period is defined as the length of time required for an investment's net revenues to cover its cost.

• Question 1724:

  A property has a potential gross rental income (PGRI) of $740,000. Operating expenses, excluding insurance and property taxes, amount to 30 percent of gross rents. Insurance and property taxes total $16,800. If the market capitalization rate is 22 percent, what is the value of this property?

  A. $1,726,667.
  B. $2,410,667.
  C. $2,430,909.
  D. $2,278,182.
  D. $2,278,182.

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  Explanation

  

• Question 1725:

  If every one of your research reports had a statement stating that every research report on issues by a corporate client reflects the unbiased opinion of the analyst, you would be complying with Standard ________.

  A. IV (A.3)
  B. IV (A.1)
  C. IV (A.2)
  D. II (A)
  E. II (C)
  F. II (B)
  A. IV (A.3)

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  Explanation

  To avoid violations of Standard IV (A.3), one of the procedures members should comply with is the need to protect the integrity of opinions. Members and their firms should establish policies stating that every research report on issues by a corporate client reflects the unbiased opinion of the analyst. In this way, firms ensure that the independence and objectivity of their member analysts is maintained.

• Question 1726:

  The creation of bond indexes is relatively new. Which of the following is the least likely reason a bond index would be difficult to create?

  A. Lack of continuous trading data.
  B. Constantly changing duration for bonds.
  C. The universe of bonds is limited.
  C. The universe of bonds is limited.

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  Explanation

• Question 1727:

  A firm has a high debt-to-asset ratio. In an inflationary environment, in order to improve this ratio in earlier years, it will prefer:

  A. FIFO inventory valuation and accelerated depreciation.
  B. FIFO inventory valuation and straight-line depreciation.
  C. LIFO inventory valuation and straight-line depreciation.
  D. LIFO inventory valuation and accelerated depreciation.
  B. FIFO inventory valuation and straight-line depreciation.

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  Explanation

  To improve the ratio, it uses FIFO and straight-line depreciation to increase income and hence, retained earnings. FIFO also increases current and total assets in inflationary conditions, improving the debt-to-asset ratio.

• Question 1728:

  According to the AIMR-PPS, subsectors or carve-outs of larger international composites

  A. may be used to create stand-alone composites only if the subsectors are actually managed as separate entities, they need not have their own cash allocations or currency management.
  B. may be used to create stand-alone composites only if the subsectors are actually managed as separate entities with their own cash allocations and currency management.
  C. may never be included in the composite with the parent company.
  D. may never be used to create stand-alone composites under any circumstances.
  B. may be used to create stand-alone composites only if the subsectors are actually managed as separate entities with their own cash allocations and currency management.

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  Explanation

  Subsectors or carve-outs of larger international composites may be used to create stand-alone composites only if the subsectors are actually managed as separate entities with their own cash allocations and currency management. Portfolios must not be switched from one composite to another unless documented changes in client guidelines make switching appropriate. This is a requirement for creation and maintenance of composites.

• Question 1729:

  The change in aggregate income/output for a given change in aggregate expenditure is known as the:

  A. demand multiplier.
  B. expenditure multiplier.
  C. marginal propensity to consume.
  D. income elasticity.
  B. expenditure multiplier.

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  Explanation

  The expenditure multiplier is directly linked to the "marginal propensity to consume" (MPC), which reflects the amount of each additional dollar in income that is spent on current consumption. In particular, the ideal expenditure multiplier equals 1/(1-MPC).

• Question 1730:

  Kim Lee is valuing a closely held private shoe retailing company. She compares the company to other shoe retailing competitors that are publicly traded and are highly liquid. Relative to the private company, the shares of the publicly traded competitors most likely include a:

  A. marketability discount.
  B. minority interest discount.
  C. control premium.
  B. minority interest discount.

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  Explanation