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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2211:

  Dividends-R-Us has just paid a cash dividend of $3. 10 per share. If the growth rate is expected to be 3% and the price of the stock is $12. 45, the expected return on the stock is:

  A. 24. 90%
  B. 28.65%
  C. 25. 65%
  D. 27. 90%
  B. 28.65%

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  Explanation

  In the usual notation, the Dividend Discount Model gives Po = D1/(k-g). In this case, g = 3%, D1 = Do*(1+g) = 3. 1 * 1.03 = $3. 193, Po = $12. 45. Therefore, k = 28.65%

• Question 2212:

  In describing competition within industries, five conditions have been identified that could affect the competitive structure and profits of an industry. Which of the following is not a condition identified by Reilly and Brown?

  A. Current rivalry
  B. Potential substitutes
  C. Bargaining power of buyers
  D. Threat of new entrants
  E. Bargaining power of suppliers
  F. Governmental regulations
  F. Governmental regulations

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  Explanation

  Once the competitive structure of an industry has been determined, the specific competitive strategy used by each firm in the industry should be determined and these strategies evaluated in terms of the overall competitive structure for the industry.

• Question 2213:

  Mark Blazewhich, an analyst with an investment advisory firm, changed the recommendation on Zomega, Inc.'s stock from hold to sell 10 days ago. This recommendation was published in the firm's newsletter that came out two days after this announcement. Blazewhich has just given his broker instructions to liquidate Blazewhich's personal holdings of Zomega. Blazewhich has:

  A. violated Standard IV (B.3) - Fair Dealing.
  B. violated Standard IV (B.7) - Disclosure of Conflicts to Clients and Prospects.
  C. violated Standard IV (B.4) - Priority of Transactions.
  D. not violated any standard of AIMR code.
  D. not violated any standard of AIMR code.

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  Explanation

  Because Blazewhich has allowed sufficient time for dissemination of the change in recommendation, he is free to carry out personal transactions. Also, since the recommendation is to sell the stock, there is no personal conflict in the situation. Note that it would be a violation of Standard IV (B.7) - Disclosure of Conflicts to Clients and Prospects - if the recommendation were to buy the stock and Crumpet had failed to reveal information about his personal holdings.

• Question 2214:

  A 95% confidence interval for a population parameter signifies which of the following?

  I. 95% of similarly constructed intervals will contain the population parameter.

  II. For a given sample size, 95% of the samples will have the sample statistic for the population parameter lie within the specified confidence interval around the actual population parameter.

  III.

  The confidence interval will correctly estimate the population parameter with a probability of 95%

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

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  Explanation

  Note that III is incorrect since the confidence interval is a range estimate and hence, cannot represent a point estimate of the population parameter itself.

• Question 2215:

  An organization purchased a computer on January 1, 1996 for $108,000. It was estimated to have a 4- year useful life and a salvage value of $18,000. The double-declining-balance method is to be used. The amount of depreciation to be reported for the year ending December 31, 1996 is ________.

  A. ($108,000 - 18,000) (25% X 2)
  B. ($108,000) (25% X 2)
  C. ($108,000 - 18,000) (25% X 1/2)
  D. ($108,000) (25%)
  E. ($108,000) (25% X 1/2)
  B. ($108,000) (25% X 2)

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  Explanation

  When using a declining-balance method, a constant rate is applied to the changing carrying value of the asset. The constant rate for the double-declining-balance method is twice the straight-line rate ((100% / 4 years) X 2)

• Question 2216:

  Standard III (A) is ________.

  A. Duty to Employer
  B. Disclosure of Conflicts to Employer
  C. Obligation to Inform Employer of Code and Standards
  D. Disclosure of Additional Compensation Arrangements
  E. None of these answers
  F. Responsibilities of Supervisors
  C. Obligation to Inform Employer of Code and Standards

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  Explanation

  Standard III (A) deals with the Obligation to Inform Employer of Code and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer. Standard III (D) deals with Disclosure of Additional Compensation Arrangements. Standard III (E) deals with Responsibilities of Supervisors.

• Question 2217:

  Mathematically, the marginal propensity to consume is

  A. income divided by consumption.
  B. additional consumption divided by additional income.
  C. consumption divided by income.
  D. additional income divided by additional consumption.
  B. additional consumption divided by additional income.

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  Explanation

  The marginal propensity to consume is found according to the following equation: MPC = total change in consumption / total change in income

• Question 2218:

  The current price of a $1,000 par value, 6-year, 4. 2% semiannual coupon bond is $958.97. The bond's PVBP is closest to:

  A. $0.50
  B. $4. 20
  C. $5. 01
  A. $0.50

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  Explanation

• Question 2219:

  A supervisor complies with Standard III (E) by establishing and enforcing ________ to prevent violations.

  A. legal requirements
  B. fiduciary duties
  C. none of these answers
  D. code of ethics
  E. compliance procedures
  E. compliance procedures

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  Explanation

  A supervisor complies with Standard III (E) by identifying situations in which legal violations or violations of the Code and Standards are likely to occur and establishing and enforcing compliance procedures to prevent such violations.

• Question 2220:

  Under what condition would a firm report marketable securities as a long-term asset?

  A. None of these answers.
  B. When funds are set aside for a specific long-term purpose such as plant expansion.
  C. When the value of a firm's investment in marketable securities is less than cost.
  D. All of these answers.
  E. When a firm maintains excess trading securities.
  B. When funds are set aside for a specific long-term purpose such as plant expansion.

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  Explanation

  A firm may maintain funds invested in marketable securities that are earmarked for plant expansion, sinking fund payments, or other long-term uses. In these situations many firms would report this portion of its cash, or cash equivalents as long-term because these invested funds are not available in the daily operation of the business.