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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1901:

  Grazelle Garbo has decided to change the recommendation on one of the firms she is following from hold to buy. She has communicated her research report to her senior manager, who is reviewing it. If the recommendation passes muster, it will be released three days from now. In the meanwhile, Grazelle has decided to follow her research and purchase the stock for several of her clients' accounts for which the stock is an appropriate investment and for which she has discretionary investment powers. In the course of the luncheon meeting that same day, she mentioned that she had bought the stocks for some client accounts to one of her prospective clients and described her research which caused her to change her recommendation. Grazelle has

  I. violated Standard IV (B.3) - Fair Dealing - by revealing the change in recommendation.

  II. violated Standard IV (B.5) - Preservation of Confidentiality - by revealing the information about stock purchase.

  III.

  did not violate the Ethics code.

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

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  Explanation

  Since Grazelle has not revealed any information about the specific client accounts or any confidential information, she is not in violation of Standard IV (B.5) - Preservation of Confidentiality. However, by revealing the information on the change in recommendation prematurely to one of her prospective clients, she has violated Standard IV (B.3) - Fair Dealing. The information is potentially quite valuable and giving to one client before another in a partisan fashion is a violation of the AIMR code of Ethics.

• Question 1902:

  Christine Crumbwell and Dorothy Drummond are two portfolio managers with Neptune Funds. Cristine is managing the personal trust fund of Paul Roker, who created the fund as an income support for his wife and a legacy for his two sons after his wife's death. Dorothy is in charge of a fund created by Katey Koric. Katey had started this fund as a long-term investment but recently decided to shift the asset mix toward municipal and high-income bonds. Her friend pointed out a great investment opportunity in the newly issued, high-yield-high-income Orange County bonds and Katey instructed Dorothy to sell off a large chunk of the stock holdings in the fund and reinvest in the Orange County bonds. Dorothy spoke to Christine about this and they both agreed that the bonds were an excellent buy. Dorothy carried out Katey's instructions and Christine decided that Paul's portfolio would be better off if she sold some of the small cap stocks and bought the bonds and followed Dorothy's suit.

  I. Dorothy has violated Standard IV (B.1) - Fiduciary Duties by not discussing the issues further with Katey.

  II. Christine has violated Standard IV (B.1) - Fiduciary Duties by tilting the portfolio mix toward high-income instruments.

  III.

  Katey has violated Standard V (A) - Prohibition Against Use Of Non-Public Information.

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

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  Explanation

  Christine, as a manager of a personal trust, has to balance the interests of the income beneficiaries and the remaindermen who need capital appreciation. By tilting the asset mix toward high-income bonds, Christine has violated her fiduciary duties toward Paul Roker's sons by effectively transferring some of their wealth to their mother. On the other hand, Dorothy has violated no such duty since she in charge of an advisory account. The account belongs to Katey alone and she is free to instruct Dorothy to change investments as she pleases. Finally, the Orange County bonds have already been issued and there is no misuse of any inside information so Katey cannot be accused of insider trading. Standard IV (B.1) Fiduciary Duties

• Question 1903:

  Which of the following would be a debit in the U.S. balance of payments?

  A. a short-term loan extended to a Japanese manufacturer by a U.S. bank
  B. the purchase of a Japanese car by an American
  C. the purchase of air service from a U.S. airline by a Japanese traveler
  D. the purchase of U.S. grain by a Japanese bakery
  B. the purchase of a Japanese car by an American

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  Explanation

  Since the purchase of a car from a Japanese firm by an American increases the supply of U.S. dollars on the foreign exchange market, this transaction is accounted for as a debit on the U.S. current account.

• Question 1904:

  If you deposit $10,000 into an account paying 6% per year, compounded semiannually, how much do you have in the account in 10 years?

  A. $15,403. 52
  B. $18,061.11
  C. $18,938.48
  D. $21,667. 70
  E. $17,800.00
  B. $18,061.11

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  Explanation

  On the BAII Plus, press 20 N, 6 divide 2 = I/Y, 10000 PV, 0 PMT, CPT FV. On the HP12C, press 20 n, 6 ENTER 2 divide i, 10000 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 1905:

  All of the following comments about the capital budget post auditing process are correct EXCEPT:

  A. After the initial capital budgeting decision is made, the company should follow up and compare the actual results to the projected results.
  B. The project managers should explain large variances (projection versus actual).
  C. The function of the post audit includes improving forecasting and operations.
  D. One of the purposes of the post-audit process is to limit risky projects.
  D. One of the purposes of the post-audit process is to limit risky projects.

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  Explanation

  The role of the post-audit process is to follow-up on capital budgeting decisions and to track results. The process is not meant to limit the capital projects; the company will still want to accept projects based on the decision rules for net present value (NPV), internal rate of return (IRR), and other valuation methods (using internal and external benchmarks).

• Question 1906:

  Open-end mutual funds

  A. sell their shares at their NAV. In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 10 to 11% of NAV.
  B. sometimes sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees are known as load open-end funds. The sales fee tends can range from 3. 0 to 8.0% of NAV.
  C. sell their shares at their net asset value (NAV). In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 4 to 4. 5% of NAV.
  D. almost always sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees are known as load open-end funds. The sales fee tends to be 4 to 4. 5% of NAV.
  E. sell their shares at their NAV. In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 7. 5 to 8.0% of NAV.
  B. sometimes sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees are known as load open-end funds. The sales fee tends can range from 3. 0 to 8.0% of NAV.

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  Explanation

  Some open-end funds charge sales fees for sales shares. The fees are typically 3. 0 to 8.0% of NAV. These load funds generally do not charge redemption fees. No-load funds sell shares at their NAV, but some of them have small redemption fees of about 0.5% of NAV.

• Question 1907:

  Which of the following is correct about a probability distribution?

  A. None of these answers
  B. Sum of the probabilities of all possible outcomes must equal 1
  C. Probability of each outcome must be between 0 and 1 inclusive
  D. Outcomes must be mutually exclusive
  E. All of these answers
  E. All of these answers

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  Explanation

  All describes properties of a probability distribution.

• Question 1908:

  The flow of money for the purpose of taking advantage of a covered interest differential is known as ________.

  A. an outright swap
  B. covered interest differential
  C. the swap rate
  D. covered interest arbitrage
  E. interest rate parity
  D. covered interest arbitrage

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  Explanation

  The flow of money for the purpose of taking advantage of a covered interest differential is known as covered interest arbitrage'

• Question 1909:

  Which of the following will most likely result in an increase in the per capita GDP of a country?

  A. an increase in population
  B. improvement in the average skill level of the labor force
  C. an increase in youthful workers as a proportion of the labor force
  D. an increase in the number of retired workers
  E. an increase in the GDP deflator
  B. improvement in the average skill level of the labor force

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  Explanation

  Education, training and skill enhancing experience can improve the quality of the labor force and expand the supply of human resources. Such a change causes the potential output of the country to increase so that it is possible to produce and sustain a larger rate of output (in nominal and per capita terms).

• Question 1910:

  What is the building's net income?

  A. $42,646.
  B. $49,307.
  C. $35,985.
  D. $29,324.
  C. $35,985.

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  Explanation

  52,919 x .68 = 35,985