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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 171:

  A sample of assistant professors on the business faculty at state supported institutions in Ohio revealed the mean income to be $32,000 for 9 months with a standard deviation of $3,000. Using Chebyshev's Theorem, what is the proportion of faculty that earn more than $26,000 but less than $38,000?

  A. At least 25%
  B. None of these answers
  C. At least 75%
  D. At least 100%
  E. At least 50%
  C. At least 75%

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  Explanation

  26,000 and 38,000 are two standard deviations away from the mean. Using 1-(1/k^2) where k = 2, we get 0.75

• Question 172:

  Which of the following is false?

  A. All of these answers.
  B. The IRR and NPV rules do not always give the same project rankings.
  C. A project with a higher IRR is always preferable to a project with a lower IRR.
  D. Both IRR and NPV rules are based on cash flow discounting.
  C. A project with a higher IRR is always preferable to a project with a lower IRR.

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  Explanation

  You should always use the NPV criterion for selecting projects. The IRR method can give project rankings different from the NPV criterion depending on the type of cash flows of the project as well as the cost of capital involved. Further, a project with a higher NPV at the project's cost of capital can have a lower IRR than another project with lower NPV. Therefore, (III) is false.

• Question 173:

  In reference to AIMR-PPS, which of the following is/are true?

  I. The PPS are explicitly incorporated in the AIMR Code of Ethics and Standards of Professional Conduct.

  II. In case of system incompatibilities, the firm can claim compliance for only those assets that are measured and monitored on compatible systems.

  III.

  Plan sponsors, consultants and software vendors cannot claim compliance with the PPS; they can only endorse or require their clients to be in compliance.

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

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  Explanation

  The PPS are an adjunct to the AIMR Code of Ethics and Standards of Professional Conduct and not explicitly incorporated in that framework. Compliance with PPS is voluntary, not required.

• Question 174:

  The U.S. Department of Education reported that for the past six years 23, 19, 15, 30, 27 and 25 women received doctorate degrees in computer and information sciences. What is the mean arithmetic annual number of women receiving this degree?

  A. 15. 1
  B. None of these answers
  C. 22. 9
  D. 37. 9
  E. 23. 2
  E. 23. 2

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  Explanation

  (23 + 19 + 15 + 30 + 27 + 25)/6 = 23. 2

• Question 175:

  A statistician is working with the following dataset:

  129, 162, 159, 192, 142, 195, 203, 177, 138, 187, 149, 123, 146, 169, 162, 191, 155, 146, 176, 182, 174, 190, 168.

  The relative frequency in the frequency class 150-175 equals ________.

  A. 0.30
  B. 0.29
  C. 7. 00
  D. 0.34
  A. 0.30

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  Explanation

  There are 23 observations. Of these, 7 lie in the 150-175 class. relative frequency = class frequency/total # of observations = 7/23 = 0.30

  Remember that relative frequency is always a number between zero and one.

• Question 176:

  The correction of an error in the financial statements of a prior-period should be reported, net of applicable income taxes, in the current

  A. none of these answers.
  B. income statement after income from continuing operations and after extraordinary items.
  C. income statement after income from continuing operations and before extraordinary items.
  D. retained earnings statement after net income but before dividends.
  E. retained earnings statement as an adjustment of the opening balance.
  E. retained earnings statement as an adjustment of the opening balance.

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  Explanation

  Accounting rules require that prior-period adjustments due to a correction of an error cannot be reported on the current year income statement because they do not affect this year's operations. They are shown as an adjustment to the opening balance of retained earnings.

• Question 177:

  The "Management Discussion and Analysis" section of the stockholder's report need not contain which of the following?

  I. Analysis of cash flows and liquidity.

  II. Discussion of unusual events like discontinued operations.

  III. Future outlook based on current and past events.

  IV.

  Firm's ability to maintain its dividend policy while sustaining growth.

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

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  Explanation

  Companies are encouraged, but not required, to provide forward-looking information i.e. they need not extrapolate past trends into the future to draw conclusions about the firm's prospects.

• Question 178:

  Which combination leads to the lowest income tax paid in earlier years of a firm?

  Inventory valuationDepreciation

  I.FIFOStraight-line II.LIFOStraight-line III.FIFODouble Declining IV.LIFODouble Declining

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

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  Explanation

  In the earlier years, this combination results in the lowest income reported and hence, the lowest taxes.

• Question 179:

  All of the following are components of Shareholder's equity EXCEPT ________.

  A. par value
  B. dividends paid
  C. retained earnings
  D. capital contributed in excess
  B. dividends paid

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  Explanation

  Dividends declared are part of equity.

• Question 180:

  Which of the following statements about contrary-opinion and smart money technicians is CORRECT?

  A. A contrary-opinion technician is bearish when the specialist short sale ratio falls below 30%.
  B. A smart-money technician buys when futures traders are bullish on stock index futures.
  C. When investor credit balances are falling, contrary-opinion technicians are bearish.
  D. A smart-money technician takes a bullish position when the yield spread on high quality versus lower-quality bonds increases from 75 basis points to 150 basis points.
  C. When investor credit balances are falling, contrary-opinion technicians are bearish.

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  Explanation

  When investor credit balances are falling, investors are bullish, so contrary-opinion technicians are bearish.

  The other statements are incorrect. Although a specialist short sale ratio less than 30% indicates a bull market, this indicator is followed by smart money technicians. When the yield-differential between high quality and lower-quality bonds

  widens, the confidence index decreases, and smart-money technicians would be bearish. A widening yield spread is a bearish sign to smart-money technicians because it means that the confidence index has decreased. When 75% or more

  of futures traders are bullish on stock index futures,contrary-opinion technicians become bearish and sell.

  Summary of the indicators for contrary-opinion and smart money technicians:

  Contrary-opinion technicians (trade the opposite of the mass of general investors):

  Smart-money technicians (follow the professional investors):