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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2441:

  Which of the following can be found in Standard V?

  A. Members shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.
  B. Members shall maintain knowledge of AIMR's Code of Ethics.
  C. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates.
  D. Members must use the CFA designation in a dignified manner.
  E. Members shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists.
  C. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates.

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  Explanation

  Standard V details: "Prohibition against use of material nonpublic information. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates."

• Question 2442:

  Which one of the following is referred to as the population mean?

  A. Sample
  B. X-Bar
  C. The Greek letter "Mu"
  D. Statistic
  E. None of these answers
  C. The Greek letter "Mu"

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  Explanation

  The normal symbol for the population mean is the Greek letter "Mu."

• Question 2443:

  An investor believes Stock M will rise from a current price of $20 per share to a price of $26 per share over the next year. The following information pertains: Should the investor purchase the stock?

  A. No, because it is undervalued.
  B. Yes, because it is overvalued.
  C. No, because it is overvalued.
  D. Yes, because it is undervalued.
  C. No, because it is overvalued.

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  Explanation

  Expected return of Stock M = 8 + 1.7(16 - 8) = 21.6. Estimated return of Stock M = 26 - 20/20 = 30%. Since the estimated return is greater than the expected return, the investor should purchase the stock.

• Question 2444:

  How much must you deposit today if you wish to have $60,000 in 10 years, assuming that interest accumulates at 10%, compounded annually?

  A. $20,153. 37
  B. $21,500.00
  C. $9,143. 39
  D. $26,474. 73
  E. $23,132. 60
  E. $23,132. 60

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  Explanation

  On the BAII Plus, press 10 N, 10 I/Y, 0 PMT, 60000 FV, CPT PV. On the HP12C, press 10 n, 10 i, 0 PMT, 60000 FV, PV. Note that the answer is displayed as a negative number.

• Question 2445:

  Which of the following statements is true?

  A. Recognition is concerned with recognizing a liability from a current cash receipt.
  B. The Accrual process would reduce an asset that is recorded as a result of a cash payment.
  C. Realization is the process of converting non-cash resources and rights into money.
  D. All of these are true.
  E. Allocation is the process of formally recording or incorporating an item in the financial statements of an entity.
  C. Realization is the process of converting non-cash resources and rights into money.

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  Explanation

  Realization is the process of converting non-cash resources and rights into money and is most precisely used in accounting and financial reporting to refer to sales of assets for cash or claims to cash.

• Question 2446:

  The direction of change approach to estimating an earnings multiplier involves

  A. inferring the direction of change in the multiplier based on derivations of the specific estimates for its ten major components.
  B. inferring the direction of change in the multiplier based on predictions for changes in its three major components.
  C. inferring the direction of change in the multiplier based on derivations of specific estimates for its three major components.
  D. inferring the direction of change in the multiplier based on predictions for change in its ten major components.
  B. inferring the direction of change in the multiplier based on predictions for changes in its three major components.

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  Explanation

  The direction of change approach begins with the current earnings multiplier and estimates the direction and extent of change for the dividend payout ratio and the variables that influence the required rate of return and the growth rate of dividends and earnings.

• Question 2447:

  A portfolio manager with an independent money management firm has been examining a stock market series and is trying to determine an appropriate EPS figure for the series. In her research, this portfolio manager has determined the following information:

  1. Regressing sales for the series against Nominal GDP, the sales figure for the index has been estimated at: $19.85.

  2.

  Analyzing capacity utilization rates, foreign competition, rates of inflation and unit labor costs, the operating profit margin for the series has been determined to be 31%.

  3.

  Creating a time series based upon inputs such as levels of capital expenditures and PPandE turnover, next year's depreciation-per-share has been determined to be: $1.18.

  4.

  Creating a time series based upon levels of debt outstanding and prevailing debt yields, the interest expense for next year is determined to be: $0.61 per share.

  5.

  Coordinating his research with a legislative consultant, the corporate tax rate for this series has been estimated at: 34. 77%. Using this information, what is the EPS figure for this stock market series?

  A. None of these answers is correct.
  B. $2. 85
  C. $2. 46
  D. $4. 03
  E. The answer cannot be determined from the information provided. * $1.52
  B. $2. 85

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  Explanation

  All of the necessary information has been provided in this example. To determine the EPS for a stock market series, the following steps are necessary:

  Step 1: Estimate sales-per-share for the series: Step 2: Estimate operating profit margin for the series Step 3: Estimate the depreciation-per-share for next year Step 4: Estimate the interest expense-per-share for the next year Step 5: Estimate next year's corporate tax rate

  Once these five steps have been completed, the calculation of EPS for a stock market series is found by the following:

  EPS = [(Sales per share * Operating profit margin) - Depreciation-per-share - Interest Expense] * (1 - Corporate Tax Rate)

  The calculation of EPS for this stock market series is shown as follows: EPS = [($19.85 * 0.31) - $1.18 - $0.61] * (1 - 0.3477) = $2. 85

• Question 2448:

  According to the AIMR-PPS, plan sponsors, consultants and software vendors

  A. are exempt from any of the Standards.
  B. are directly responsible for ensuring the companies they employ are in compliance with the Standards.
  C. are held accountable to the Standards in the same way as AIMR Members, Charterholders and Candidates.
  D. cannot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance.
  D. cannot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance.

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  Explanation

  Plan sponsors, consultants and software vendors cannot make a claim of compliance unless these entities actually manage the assets for which they are making the claim of compliance. These groups can claim to endorse the Standards and/ or require that the investment management firms they employ, from which they solicit information, or to which they sell be in compliance with the Standards.

• Question 2449:

  Which of the following revenue recognition methods would generally be considered the most conservative?

  A. order receipt method
  B. installment method
  C. completion of production
  D. cost recovery method
  D. cost recovery method

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  Explanation

  Revenue is generally recognized when it is realizable and earned.

• Question 2450:

  Al the end of the last 12-month period, Romano s Italian Foods had net income and ending equity for the company of $16. 68 million and $115 million, respectively. Romano's declared a $7. 5 million dividend for the year. Using internally generated funds, Romano's can grow its equity by approximately:

  A. 8.0% per year.
  B. 10.0% per year.
  C. 14. 5% per year.
  A. 8.0% per year.

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  Explanation