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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2181:

  Affirmative action commitments by industrial organizations have led to an increase in the number of women in executive positions. Satellite Office Systems has vacancies for two executives, which it will fill from among four women and six men. What is the probability that two woman are selected?

  A. 3/5
  B. 8/15
  C. 3/4
  D. 2/15
  E. None of these answers
  D. 2/15

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  Explanation

  Probability of both positions being filled by women = 4/10*3/9 = 12/90.

• Question 2182:

  Which of the following is true?

  A. If the geometric return is zero, the arithmetic return must be negative.
  B. All of these answers are false.
  C. If the annual returns have zero volatility, the geometric return is equal to the arithmetic return.
  D. The geometric return is always less than the arithmetic return.
  C. If the annual returns have zero volatility, the geometric return is equal to the arithmetic return.

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  Explanation

  The mean and the geometric mean are equal when volatility in the rate of return is zero. For a non- zero volatility, the mean exceeds the geometric mean and the difference is larger the higher the volatility.

• Question 2183:

  Frank Holmes, CFA, is reviewing Martha Inc, a distributor. Holmes is interested in the company's European-style call option, which has a value of $5. 90. Currently, Martha's stock is trading at $33 per share and pays no dividend. The exercise price of both the call and put options is $30, with 80 days to expiration. The current risk-free rate is 5. 50%. Martha's put option sells for $2. 75. Calculate the synthetic call option value.

  A. $3. 35
  B. $5. 75
  C. $6. 10
  C. $6. 10

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  Explanation

• Question 2184:

  The sum of the squares of 1,200 observations equals 9,830. The sum of the observations equals 1,510. The population standard deviation of the observations equals ________.

  A. 4. 22
  B. 2. 57
  C. 5. 31
  D. 6. 61
  B. 2. 57

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  Explanation

  For N observations, it is easy to show that

  population variance*N = (sum of squares) - N*(mean^2)

  The mean equals 1,510/1,200 = 1.258. Hence, population variance = (9,830 - 1,200*1.258^2 )/1,200= 6. 608. The standard deviation then equals sqrt(6. 608) = 2. 57

  Note: You should be careful about the difference between population variance and sample variance. The formula for sample variance is:

  sample variance*(N-1) = (sum of squares) - N*(mean^2)

  You can expect an exam question which asks for population variance, with the choices given containing both the population and the sample variances or vice versa.

• Question 2185:

  The purpose of the Management Report is to:

  I. analyze favorable and unfavorable trends affecting the firm.

  II. reinforce senior management's responsibilities for the company's financial and internal control systems.

  III. review the firm's financial condition in light of short-term liquidity requirements and proposed investment activities.

  IV.

  emphasize the roles of management, directors and auditors in the preparation of financial statements.

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

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  Explanation

  I and III are part of Management's Discussion and Analysis (MDandA)

• Question 2186:

  Bill Turner, CFA, is short a futures contract on wheat. Turner entered into the futures position three months ago at a contract price of $50. The contract expiration is tomorrow. The settlement prices for the past four days (from oldest to most recent) were $56, $53, $49, and $52. If the settlement price on the expiration day is $57, which of the following best describes a method Turner is most likely to use to terminate his futures contract?

  A. Sell a futures contract for $57 and receive a mark-to-market profit of $5.
  B. Buy a futures contract for $57 and incur a mark-to-market loss of $5.
  C. Leave the contract open, deliver the wheat to the long, and receive a price of $57.
  B. Buy a futures contract for $57 and incur a mark-to-market loss of $5.

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  Explanation

• Question 2187:

  Given:

  Population 50 million Number in the labor force 30 million Number employed full time 20 million Number employed part time 8 million Number unemployed 2 million

  What is the unemployment rate of the economy?

  A. 10.0 percent
  B. 4. 0 percent
  C. 7. 1 percent
  D. 6. 7 percent
  D. 6. 7 percent

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  Explanation

  The unemployment rate is the number of unemployed people divided by the number of people in the labor force or: 2/20 = 6. 7%.

• Question 2188:

  Which one of the following would be classified as employed?

  A. an auto worker vacationing in Florida during a layoff at a General Motors plant due to an annual change-over in models
  B. a parent who works 50-60 hours per week caring for family members
  C. a 21-year-old full-time college student
  D. a 17-year-old high school student who works six hours per week as a route person for the local newspaper
  D. a 17-year-old high school student who works six hours per week as a route person for the local newspaper

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  Explanation

  A person who is not actively looking for a job is not a member of the labor force and therefore is not employed. An individual who is not a member of the formal market and works at home without wages is not a member of the formal labor force. An auto worker who is waiting to be re-hired or who was laid off is considered unemployed.

• Question 2189:

  An automatic machine inserts mixed vegetables into a plastic bag. Past experience revealed that some packages were underweight and some were overweight, but most of them had satisfactory weight.

  Weight % of Total Underweight 2. 5 Satisfactory 90.0 Overweight 7. 5

  What is the probability of selecting and finding that all three of them are overweight?

  A. 0.0004218
  B. 0.0000156
  C. 0.075
  D. 0.0000001
  E. None of these answers
  A. 0.0004218

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  Explanation

  P(all three overweight)=0.075*0.075*0.075 = 0.0004218.

• Question 2190:

  According to the AIMR PPS, composites must include new portfolios at the start of the next performance measurement period, ________, after the portfolio comes under management or according to reasonable and consistently applied firm guidelines.

  A. at least annually
  B. at least semi-annually
  C. at least quarterly
  D. at least monthly
  C. at least quarterly

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  Explanation

  Composites must include new portfolios at the start of the next performance measurement period (at least quarterly) after the portfolio comes under management or according to reasonable and consistently applied firm guidelines. This is a requirement for creation and maintenance of composites.