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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1741:

  Jorgenson is a senior bond analyst with Morgan Co., a large investment banking firm. Over the past quarter, Morgan's corporate bond department has been betting on the credit spreads in the market narrowing and in anticipation, has invested a large amount of capital in the bonds of two firms, High Tech and Amerizone.com. Unfortunately, the credit spreads have not displayed much activity and as the quarter end is approaching, the department wants to unload the bonds. For this, it puts pressure on Jorgenson to push the bonds on some of his larger clients. Jorgenson believes that both the bonds are good investments since High tech and Amerizone have been doing very well and their prospects look rosy. So he goes ahead and convinces his clients to purchase as much as a third of Morgan's bond holdings in these companies. Morgan has

  A. not violated the AIMR code of ethics.
  B. violated Standard IV (A.1) - Reasonable Basis and Representations.
  C. violated Standard IV (B.7) - Disclosure of conflicts to Clients and Prospects.
  D. violated Standard IV (A.3) - Independence and Objectivity.
  A. not violated the AIMR code of ethics.

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  Explanation

  There is no evidence that Jorgenson has bowed to any external pressure in recommending the bonds to his clients. If his analysis indicates, in his judgment, that a security is a good investment and suits the needs of a client, then he should recommend it, regardless of whether there is any external pressure for or against that course of action.

• Question 1742:

  You are examining the return on equity ratios of the nation's commercial airlines. You have calculated the mean ROE to be 8%, and the sum of the squared ROEs is 0.27. Assuming there are 30 commercial airlines, what is the population variance of ROEs in this industry?

  A. 8%%.
  B. 12%%.
  C. 20%%.
  D. 26%%.
  D. 26%%.

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  Explanation

  The population variance is equal to the sum of the squared differences between each population member and the population mean, divided by the number of items in the population. There is, however, an equivalent alternate formula that is more often used for large amounts of calculation. It is equal to the average squared observation less the squared mean. In this case, we have the average squared observation will be 0.27 / 30 = 0.009, less the squared mean of 8%. We have

  0.009 - 0.0064 = 0.0026 = 26%%.

• Question 1743:

  If you make 22 deposits of $33 with the first deposit occurring next month, how much do you have immediately after the last deposit, if the account earns 4. 44% per year, compounded annually?

  A. $666. 00
  B. $1,207. 81
  C. $$457. 44
  D. $1,313. 51
  E. $1,189.62
  E. $1,189.62

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  Explanation

  On the BAII Plus, press 22 N, 4. 44 I/Y, 0 PV, 33 PMT, CPT FV. On the HP12C, press 22 n, 4. 44 i, 0 PV, 33 PMT, FV. 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 1744:

  Julia Chen, a portfolio manager for U.S.-based Dane Investments, has just established a short position in Swiss franc currency futures as part of a currency overlay strategy. The position consists of 100,000 contracts with an initial margin of $4,000, a maintenance margin of $2,500, and a contract price of 0.9120 USD/CHF. If the futures price on the subsequent two days is 0.9300, and 0.8928, respectively, what will be her margin account balance at the end of the second day?

  A. $4,000
  B. $6,200
  C. $7,720
  B. $6,200

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  Explanation

• Question 1745:

  A decrease in the Eurodollar-T-bill spread indicates that:

  A. there is a heavy demand for T-bills due to the economic strength of the U.S.
  B. investors are ready to take on higher credit risks and there is reduced demand for t-bills relative to Eurodollar futures.
  C. none of these answers.
  D. investors are bearish on a global basis.
  B. investors are ready to take on higher credit risks and there is reduced demand for t-bills relative to Eurodollar futures.

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  Explanation

  Eurodollar rate is the rate of interest paid on inter-banking U.S. Dollar loans and deposits outside the U.S. Since the U.S. Treasury has the best credit in the world, the yield on U.S. Treasury bills is lower than the Eurodollar rate. The "spread" or the difference between the two rates is a measure of the additional credit risk involved in inter-bank loans compared to loans to the U.S. Treasury. If the demand for Eurodollar lending increases relative to the purchase of t-bills, the ED-Tbill spread will narrow. Thus, the behavior of the spread reflects the risk attitude of investors in the lending markets.

• Question 1746:

  Which of the following are mandatory disclosure requirements under AIMR-PPS?

  I. The number of portfolios and assets in each composite.

  II. The fees deducted or not deducted from the calculations of returns.

  III. The volatility of the aggregate composite return.

  IV.

  Benchmarks that the composites are expected to track.

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

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  Explanation

  (III) and (IV) are recommended disclosures while (I) and (II) are mandatory.

• Question 1747:

  If you deposit $150 a month, beginning next month, for 20 years into an account paying 6% per year, compounded monthly, how much is in your account after the last deposit?

  A. $70,343. 82
  B. $48,833. 09
  C. $49,904. 67
  D. $143,582. 01
  E. $69,306. 13
  E. $69,306. 13

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  Explanation

  On the BAII Plus, press 240 N, 6 divide 12 = I/Y, 0 PV, 150 PMT, CPT FV. On the HP12C, press 240 n, 6 ENTER 12 divide i, 0 PV, 150 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 1748:

  Tomonaga Olawando is a research analyst currently doing research on Cleebok Shoes, a footwear manufacturer infamous for its exorbitantly priced shoes. Tomonoga has been interviewing Pollyanna Givens, a senior vice president with the public relations division. Pollyanna has told him that the investment community has underestimated the payoffs from Cleebok's plan to outsource shoe production to Mexico, thus cutting productions costs significantly. She told him her estimate puts thecost savings close to $600 million, as against the figure of $370 million quoted by a few active analysts. In his report, Tomonaga states that the extra savings of $230 million a year will raise the stock price by 26% over the next year and hence, represents a great buy. Tomonaga has

  I. not violated any code of ethics.

  II. has violated Standard IV (A.1) - Reasonable Basis and Representations.

  III. has violated Standard IV (A.2) - Research Reports.

  IV.

  has violated Standard IV (B.2) - Portfolio Investment Recommendations and Actions.

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

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  Explanation

  By taking an opinion of a person and representing as a fact in his research report, Tomonaga has violated Standards IV (A.1) and IV (A.2).

• Question 1749:

  Jeff Stone, CFA, is evaluating a newly issued mortgage backed security for his bond portfolio. Stone expects interest rates to rise gradually over the next few years. If Stone's interest rate forecast is correct, prepayment risk of the mortgage backed security:

  A. will fall to zero, as borrowers will have no incentive to prepay their loans.
  B. will increase, as curtailments become more likely.
  C. will decrease, although prepayments will still occur.
  C. will decrease, although prepayments will still occur.

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  Explanation

• Question 1750:

  An investment of $1,000 will return $60 annually forever. What is its internal rate of return?

  A. 6. 00%
  B. 60.00%
  C. 16. 67%
  D. cannot be determined
  E. 0.60%
  A. 6. 00%

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  Explanation

  $1,000 = $60/Irr; IRR = 0.06 = 6%.