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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 181:

  Giovanni DiPaglia is VP of strategic planning for Megaquistion Holdings, a global conglomerate active in the mergers and acquisition market. DiPaglia is looking to invest in a new portfolio company for Megaquistion, and has selected

  Temptytarg, Inc. as a potential candidate. He has gathered the following information for Temptytarg, Inc.

  Price/Book Value (P/BV) for Temptytarg is closest to:

  A. 1.1. B. 1.5.
  C. 2. 0.
  C. 2. 0.

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  Explanation

• Question 182:

  Suppose you need $500 in 20 months. How much must you deposit today, if the deposit will earn interest at 8% per year, compounded monthly?

  A. $2,330.48
  B. $437. 78
  C. $571.06
  D. $249.93
  E. $107. 27
  B. $437. 78

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  Explanation

  On the BAII Plus, press 20 N, 8 divide 12 = I/Y, 0 PMT, 500 FV, CPT PV. On the HP12C, press 20 n, 8 ENTER 12 divide i, 0 PMT, 500 FV, PV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 183:

  The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.

  Net Income $50,000 Provision for bad debts $2,000 Increase in Inventory $1,000 Increase in accounts payable $2,000 Purchase of new equipment $15,000 Sale of equipment for $10,000 gain $20,000 Depreciation expense $5,000 Repurchase of common stock $10,000 Payment of dividend $4,000 Interest payment $3,000

  What is net cash flow from financing?

  A. $6,000
  B. ($17,000)
  C. $3,000
  D. ($14,000)
  D. ($14,000)

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  Explanation

  ($14,000) = ($10,000) for repurchase of stock and ($4,000) for payment of dividend

• Question 184:

  The date on which the right to the current dividend no longer accompanies a stock is known as the:

  A. Payment Date
  B. Declaration Date
  C. Expiration Date
  D. Ex-Dividend Date
  E. Holder-of-Record Date
  D. Ex-Dividend Date

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  Explanation

  The Ex-Dividend date is the date on which the right to the current dividend no longer accompanies the stock. This date is usually four days prior to the holder-of-record date.

• Question 185:

  Cyclical unemployment is a result of

  A. inaccurate and/or costly information about job opportunities.
  B. an inadequate matching of qualified workers and available jobs.
  C. not enough employees to fill available jobs.
  D. insufficient employment in the building trades.
  E. a downturn in economic activity.
  E. a downturn in economic activity.

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  Explanation

  Cyclical unemployment occurs due to recessionary business conditions and inadequate aggregate demand for labor.

• Question 186:

  Which of the following is/are true?

  I. Doubling every single value in a sample doubles the sample mean.

  II. Adding a constant to each value in a sample leaves the mean unchanged.

  III.

  The mean of a sample decreases as the number of observations increases.

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

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  Explanation

  Adding a constant to each value in a sample increases the mean by the same constant. III is incorrect. As the number of observations increases, it is the expected difference between the sample mean and the population mean that decreases.

• Question 187:

  An employee had the following percentage increases in salary over the last 5 years: 4%, 7%, 10%, 15%, 12%. The geometric mean of his salary increases equals ________.

  A. 9.60%
  B. 9.22%
  C. 9.53%
  D. 8.72%
  D. 8.72%

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  Explanation

  The straight geometric mean of the increases is (0.04*0.07*0.1*0.15*0.12)^(1/5) = 8.72%. Note that this is different from geometric rate of change, which in this case would be (1.04*1.07*1.1*1.15*1.12)^(1/5) - 1 = 9.53%. You should be very careful about this point since the Mason and Lind textbook is quite ambiguous on this point. Finally, note that the geometric mean may not be defined if some of the salary changes are negative.

• Question 188:

  Which of the following represents a "smart money" technical indicator?

  A. Futures traders bullish on stock index futures.
  B. Breadth of market.
  C. Short interest.
  D. Diffusion Index.
  E. None of these answers is correct.
  F. Debit balances in brokerage accounts.
  F. Debit balances in brokerage accounts.

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  Explanation

  Of the choices listed, only "debit balances in brokerage accounts" is a smart money technical indicator. Technical analysts view investors who leverage their portfolios through margin loans as being sophisticated. So said, technical analysts see an increase in debit balances, i.e. an increase in margin borrowing, as a bullish signal. Conversely, technical analysts would view a decline in margin borrowingas a bearish sign. While this viewpoint is somewhat counter intuitive, the degree to which technical analysts use aggregate margin debit balances to track the "smart money" is high. "Breadth of market" refers to the measure of advancing versus declining issues. The Diffusion Index is a measure of market breadth and is defined as the volume of advancing issues plus one-half of the volume of unchanged issues, divided by the total number of issues traded. Short interest measures the total volume of outstanding short positions, and the sentiment of futures traders is used by contrarian technical analysts, who take a contra approach.

• Question 189:

  In general, the earnings multiplier for a stock market series is a more volatile figure than the earnings-per-share for the same series. The greater relative volatility of the earnings multiplier is mostly attributable to which of the following?

  A. The EPS figure is subject to cash flow adjustments, which "normalize" the EPS figure over time.
  B. The earnings multiplier is subject to a tax-deleveraging effect.
  C. The earnings multiplier is more sensitive to changes in the payout ratio.
  D. The earnings multiplier is more sensitive to changes in the spread between k and g.
  E. None of these answers is correct.
  D. The earnings multiplier is more sensitive to changes in the spread between k and g.

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  Explanation

  The greater relative volatility of the earnings multiplier versus the EPS figure is primarily attributable to an increased sensitivity to changes in the spread between the required rate of return "k" and the anticipated growth rate "g." Remember

  that the equation used to determine the appropriate earnings multiplier for a stock market series is the following:

  {P/E = [D/E / (k - g)]}

  Where: P/E = the earnings multiplier, or Price-to-Earnings ratio, D/E = the dividend payout ratio at t1, k = the required rate of return, and g = the anticipated growth rate of dividends. As you can see, changes in the spread between the

  required rate of return and the anticipated growth rate can have a dramatic effect on the earnings multiplier for a stock market series. While the earningsmultiplier is sensitive to changes in the dividend payout ratio, volatility in this figure is not

  cause for the increased volatility of the earnings multiplier versus the EPS figure.

• Question 190:

  You are examining a group of 4 stock analysts within an industry. The average stock analyst correctly predicts the direction of a given stock 51% of the time. For these analysts, their accuracy has been 40%, 50%, 60%, and 70%. What is the mean absolute deviation of their accuracy from the average?

  A. 12%.
  B. 10%.
  C. 15%.
  D. 9%.
  B. 10%.

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  Explanation

  The mean absolute deviation = the sum of (as i goes from 1 to n) of the absolute value of (X_i - Xbar), divided by n. Here, we have [|40% - 51%| + |50% - 51%| + |60% - 51%| + |70% - 51%|]/4 = [11% + 1% + 9% + 19%] / 4 = 40%/4 = 10%.