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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2081:

  Each month, the Bureau of Labor Statistics calculates unemployment by

  A. making projections based on census data.
  B. surveying large business and government employers.
  C. surveying all workers in the economy.
  D. surveying a random sample of households.
  D. surveying a random sample of households.

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  Explanation

  The BLS does not contact each person in the U.S. to determine his or her employment status. Instead, it randomly samples 59,500 households drawn from 729 locations in the U.S. The survey is designed to reflect geographic and demographic groups in proportion to their representation in the nation as a whole.

• Question 2082:

  A stock's expected return is estimated by estimating its future value. These future values are derived by:

  A. predicting the stock's beta
  B. predicting the stock's earnings per share and dividend-payout ratio
  C. predicting the stock's earnings per share and expected earnings multiplier
  D. predicting the stock's earnings per share and rate of growth
  C. predicting the stock's earnings per share and expected earnings multiplier

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  Explanation

  A stock's expected return is estimated by estimating its future value. These future values are derived by predicting the stock's earnings per share and expected earnings multiplier. The earnings per share is a function of the sales forecast and the estimated profit margin while the earnings multiplier is a function of the estimated P/E ratio (based on industry and market comparisons) or the estimated dividend-payout ratio, the required rate of return and the rate of growth.

• Question 2083:

  The date on which if you are listed by the company as an owner, you will receive a dividend is known as the:

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

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  Explanation

  The "Holder-of-Record Date" is the date on which if you are listed by the company as an owner, you will receive the dividend.

• Question 2084:

  Which of the following correctly lists the two techniques for estimating the earnings multiplier for an industry? Choose the best answer.

  A. Residual earnings method and the arbitrage pricing theory
  B. None of these answers is completely correct
  C. Macroanalysis and microanalysis
  D. The time series method and regression analysis
  E. The industry life cycle method and the free-cash flow method
  F. The top-down approach and the bottom-up approach
  C. Macroanalysis and microanalysis

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  Explanation

  There is two common methods for estimating the earnings multiplier for an industry - macroanalysis and microanalysis. Macroanalysis involves an examination of the relationship between the earnings multiplier for an industry and the

  earnings multiplier for the market. Microanalysis involves an estimation of the specific variables that influence the earnings multiplier, including the required rate of return, the estimated growth rate, and the dividend payout ratio. While the top

  down and bottom up method are similar to macroanalysis and microanalysis, respectively, they do not represent the best possible answer.

  Specifically, the top-down and bottom up approaches are typically used to identify investment opportunities, not for the estimation of an industry earnings multiplier.

• Question 2085:

  Which of the following is/are advantages of accelerated methods of depreciation?

  I. They implicitly recognize the loss of productivity and increased maintenance costs over time.

  II. They allow deferral of taxes compared to the straight-line method, thus making more cash available for current operations.

  III.

  The lower depreciation charges in later years compensate for the greater uncertainty in future revenues.

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

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  Explanation

  All three responses are correct as advantages of accelerated methods of depreciation.

• Question 2086:

  Which of the following could cause a firm's equity position to be weaker than is reflected in the balance sheet.

  A. All of these answers.
  B. Holding held-to-maturity securities in a portfolio with non-amortized discounts.
  C. Holding available-for-sale securities in a portfolio that have unrealized losses.
  D. None of these answers.
  E. Holding trading securities in a portfolio with unrealized gains.
  C. Holding available-for-sale securities in a portfolio that have unrealized losses.

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  Explanation

  Evaluating available-for-sale securities in a portfolio can be challenging to the analyst. A firm might hold a variety of securities in a portfolio for which the unrealized gains of one or more securities offsets the unrealized losses of other securities. While these values offset each other, the security that has an unrealized loss might be a high-grade investment that is not subject to much fluctuation. On the contrary, the securities that have unrealized gains might be highly volatile securities that were at all time highs at the close of the firm's fiscal period but will these gains be sustainable? It is conceivable then that the firm's equity position might be a bit weaker that the balance sheet suggests.

• Question 2087:

  What should an analyst look for when evaluating a firm's cash and cash equivalent position that would cause the firm's cash position to be less liquid?

  A. The amount of stock dividends required during the coming year.
  B. None of these answers.
  C. All of these answers.
  D. Potential limitations on the use of cash such as restricted balances.
  E. The amount of deposit collection float.
  D. Potential limitations on the use of cash such as restricted balances.

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  Explanation

  Companies may have restrictions place upon the disposition of the cash position. For example, a firm may maintain cash equivalents that are earmarked for plant expansion, sinking fund payments, or legally restricted compensation balance requirements. A careful review of the firm's operations must be undertaken to uncover any cash or cash equivalents that are restricted from use in the general operation of the business.

• Question 2088:

  In an open economy, the market demand for domestic products is

  A. overstated by the horizontal sum of the domestic and foreign demand.
  B. the horizontal sum of domestic and foreign demand.
  C. understated by the horizontal sum of the domestic and foreign demand.
  D. the vertical sum of domestic and foreign demand.
  B. the horizontal sum of domestic and foreign demand.

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  Explanation

  The domestic producer can supply both the domestic consumer and consumers abroad. Thus, market demand, which is the addition of domestic and foreign demand, can be determined by finding the domestic demand (at the intersection of the domestic demand curve with the international price) and adding it to foreign demand (found in the same way with the demand curve for foreigners).

• Question 2089:

  What disadvantage(s) are there of the mean deviation?

  A. None of these answers.
  B. It is based on only two observations.
  C. It is based on deviations from the mean.
  D. All of these answers.
  E. It uses absolute values, which are difficult to manipulate.
  E. It uses absolute values, which are difficult to manipulate.

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  Explanation

  Using absolute values can cause problems since they are difficult to work with.

• Question 2090:

  You are faced with a counting problem in which you must choose k objects from n total objects. The order of choosing does not matter. The counting method you should use is:

  A. None of these answers is correct.
  B. The binomial formula.
  C. The multinomial formula.
  D. The multiplication rule.
  B. The binomial formula.

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  Explanation

  The combination, or binomial formula, gives the number of ways that k objects can be chosen from n items, without regard to the order of choosing. The formula is n_C_k = (n choose k) = n! / [k! *(n-k)!].