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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1791:

  Contrary-opinion rules hold that

  A. imitation of the trading patterns of astute investors will lead to superior returns.
  B. technical analysis is false.
  C. the majority of investors are wrong as the market approaches peaks and troughs.
  D. it is always best to trade against the general market sentiment.
  C. the majority of investors are wrong as the market approaches peaks and troughs.

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  Explanation

  Contrary-opinion rules are technical trading rules that work on the assumption that the majority of investors are wrong as the market approaches peaks and troughs. Technical analysts try to determine when the majority of investors are either very bullish or bearish, and then trade in the opposite direction.

• Question 1792:

  You are going to hold a stock for 3 years. It is estimated to pay dividends of $2. 50, $2. 60 and $2. 80. The estimated sale price at the end of the holding period is $68. Using the dividend discount model, calculate the value of the stock if your required rate of return is 14%.

  A. $51.98
  B. $48.60
  C. $55. 60
  D. $46. 82
  A. $51.98

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  Explanation

  Calculation = $2. 50/(1+.14) + 2. 60/(1+.14)^2 + 2. 80/(1+.14)^3 + 68.00/(1+.14)^3 = $51.98.

• Question 1793:

  The following information is provided about Jacko Industries.

  Using the method of average return on equity, Jacko's P/E ratio is closest to:

  A. 10.0
  B. 16. 67
  C. 20.0
  A. 10.0

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  Explanation

• Question 1794:

  An increase in the nominal interest rate would

  A. encourage people to hold larger money balances.
  B. cause households to increase consumption.
  C. encourage people to hold smaller money balances.
  D. force the Fed to reduce the money supply.
  C. encourage people to hold smaller money balances.

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  Explanation

  The nominal interest rate represents the opportunity cost of holding money as cash-money held as cash earns no interest. Money held in some checking accounting or other interest bearing accounts earns a positive interest rate. Thus, money held as cash could be earning this interest rate. An increase in the nominal interest rate encourages people to hold less money as cash and to hold more money in interest bearing accounts since they can now earn a greater return by doing so.

• Question 1795:

  What simple annual interest rate would cause a $110 deposit to grow to $120 in 2 years?

  A. 4. 55%
  B. 9.09%
  C. 8.33%
  D. 54. 55%
  E. 4. 17%
  A. 4. 55%

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  Explanation

  To solve this question, we have to rearrange the simple interest formula, I=PRT so that the R is by itself. Note that the I (interest) is equal to 10 (120 - 100). On the BAII Plus, press 10 divide 110 divide 2 = to see the answer. On the HP12C, press 10 ENTER 110 divide 2 divide to see the answer.

• Question 1796:

  Which of the following is not an example of a cash flow from operations?

  A. cash paid for merchandise
  B. none of these answers
  C. cash received from customers
  D. cash paid for taxes
  B. none of these answers

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  Explanation

  Operating activities include the cash effects of transactions and other events that enter into the determination of net income. All of the responses apply.

• Question 1797:

  Discrepancies between the changes in accounts reported on the balance sheet and those reported in the cash flow statement are due to

  A. investment in majority interests.
  B. foreign exchange translations.
  C. unfunded pension liabilities.
  D. prior period adjustments and accounting rule changes.
  E. acquisitions and divestitures, and foreign subsidiaries.
  E. acquisitions and divestitures, and foreign subsidiaries.

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  Explanation

  Acquisitions, divestitures, and continuing corporate reorganizations can distort trends in both cash flows from operations and investing cash flows.

• Question 1798:

  Consider the following information for a company.

  Common Stock Price $53. 25

  Preferred Stock Par Price $50

  Preferred Dividend $3. 5

  Debt Rating BB+

  Owners Equity 25%

  Preferred Stock Flotation Cost 2. 0%

  The Preferred Stock is issued at Par

  Calculate the component cost of this newly issued preferred stock. (Note that for existing preferred stock, flotation costs may be ignored.)

  A. 18.78%
  B. 7. 14%
  C. 6. 57%
  D. 7. 0%
  E. 10%
  F. 3. 5%
  G. 12. 5%
  B. 7. 14%

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  Explanation

  The component cost of preferred stock is the dividend divided by issue price minus floatation cost. In this case the component cost of preferred stock = $3. 50 / (50 - 1) = 7. 14%.

• Question 1799:

  Which of the following can be found in Standard I?

  A. Members shall deliver a copy of the Code to their employer.
  B. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.
  C. Members shall not knowingly participate or assist in any violation of laws, rules or regulations.
  D. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.
  E. Members shall not misrepresent investment performance.
  C. Members shall not knowingly participate or assist in any violation of laws, rules or regulations.

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  Explanation

  Standard I states that members shall: "A. Maintain knowledge of and comply with all applicable laws of any governing agency or professional association governing the member's professional activities, and B. Not knowingly participate or assist in any violation of laws, rules or regulations."

• Question 1800:

  A test statistic is:

  A. a value calculated from a sample and used to accept or reject the null hypothesis.
  B. all of these answers.
  C. a sample value that is used to measure a population parameter.
  D. a parameter characterizing the null hypothesis.
  A. a value calculated from a sample and used to accept or reject the null hypothesis.

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  Explanation

  A test statistic is a value calculated from a sample and used to accept or reject the null hypothesis concerning a population's parameter.