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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2591:

  Which of the following can be found in Standard II?

  A. Members shall not knowingly participate or assist in any violation of laws, rules, or regulations.
  B. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.
  C. Members shall deliver a copy of the Code to their employer.
  D. Members shall not misrepresent investment performance.
  E. Members shall exercise diligence and thoroughness in making investment recommendations or in taking investment actions.
  B. Members shall not participate in any professional conduct involving dishonesty, fraud, deceit, etc.

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  Explanation

  Standard II states that members shall: "Not participate in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on their honesty, trustworthiness or professional competence."

• Question 2592:

  Which would have the most impact on an economy?

  A. The increasing amount of older people.
  B. The trend of less manufacturing jobs and more service industries.
  C. More disparity between the rich and poor.
  D. Population shifts to the Sun Belt, away from the Northeast.
  E. None of these answers.
  F. All of these answers are correct.
  F. All of these answers are correct.

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  Explanation

  All of these important demographic and social changes have profound affects on the economy.

• Question 2593:

  Changes in unit labor costs

  A. are the results of three factors: changes in wages per hour, changes in hours worked, and changes in worker productivity. Increased wages and hours worked increase unit labor costs, while increased productivity decreases unit labor costs. One would expect a logarithmically negative relationship between unit labor costs and the aggregate profit margin.
  B. are the results of three factors: changes in wages per hour, changes in hours worked, and changes in worker productivity. Increased wages, hours worked, and productivity all increase unit labor costs. One would expect a bell-shaped relationship between unit labor costs and the aggregate profit margin.
  C. are the results of two factors: changes in wages per hour, and changes in worker productivity. Increased wages increase unit labor costs, while increased productivity decreases unit labor costs. One would expect a negative relationship between unit labor costs and the aggregate profit margin.
  D. are the results of two factors: changes in wages per hour, and changes in worker productivity. Increased wages increase unit labor costs, while increased productivity decreases unit labor costs. One would expect a negative relationship between unit labor costs and the aggregate profit margin.
  C. are the results of two factors: changes in wages per hour, and changes in worker productivity. Increased wages increase unit labor costs, while increased productivity decreases unit labor costs. One would expect a negative relationship between unit labor costs and the aggregate profit margin.

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  Explanation

  Increases in the hourly wage increase unit labor costs, while productivity growth decreases unit labor costs. Because unit labor costs are a major variable cost of a firm, one would expect a negative relationship between unit labor costs and the aggregate profit margin.

• Question 2594:

  Suppose you need $800 in 20 months. How much must you deposit today, if the deposit will earn interest at 8% per year, compounded monthly?

  A. $607. 27
  B. $700.45
  C. $1,330.48
  D. $949.93
  E. $571.06
  B. $700.45

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  Explanation

  On the BAII Plus, press 20 N, 8 divide 12 = I/Y, 0 PMT, 800 FV, CPT PV. On the HP12C, press 20 n, 8 ENTER 12 divide i, 0 PMT, 800 FV, PV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 2595:

  A study of a company's practice regarding the payment of invoices revealed that on the average an invoice was paid 20 days after it was received. The standard deviation equaled five days. Assuming that the distribution is normal, what percent of the invoices were paid within 15 days of receipt?

  A. 37. 91%
  B. 86. 74%
  C. 15. 87%
  D. 34. 13%
  E. None of these answers
  C. 15. 87%

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  Explanation

  z = (x-u)/sigma = 15 - 20/5 = -1.0. z = 1 is 0.3413. 1.0 - 0.8413 = 0.1587.

• Question 2596:

  Liliana works for Bear Funds, a brokerage firm. Bear has a policy of not allowing its employees to trade in securities in which it has large holdings. A list of such securities is circulated on a daily basis to the employees. Liliana knows of this restriction. However, a few days ago, she happened to purchase a few shares of a firm that are on Bear's restricted list. The total value of the purchase was less than $500. Liliana should

  A. none of these answers.
  B. report the transaction to the compliance department and see how best to unwind the transaction.
  C. inform her immediate supervisor about it and accept any sanctions.
  D. not do anything, because the activity is of negligible size.
  B. report the transaction to the compliance department and see how best to unwind the transaction.

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  Explanation

  Standard III (C) - Disclosure of Conflicts to Employer.

• Question 2597:

  From the information below, select the optimal capital structure for Minnow Entertainment Company.

  A. Debt = 80%; Equity = 20%; EPS = $3. 42; Stock price = $30.40.
  B. Debt = 60%; Equity = 40%; EPS = $3. 18; Stock price = $31.20.
  C. Debt = 70%; Equity = 30%; EPS = $3. 31; Stock price = $30.00.
  D. Debt = 50%; Equity = 50%; EPS = $3. 05; Stock price = $28.90.
  E. Debt = 40%; Equity = 60%; EPS = $2. 95; Stock price = $26. 50.
  B. Debt = 60%; Equity = 40%; EPS = $3. 18; Stock price = $31.20.

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  Explanation

  Since the optimal capital structure is the one that maximizes the price of the firm's stock, and minimizes the firm's WACC, this would be the optimal capital structure.

• Question 2598:

  Which of the following affect the required rate of return on a stock?

  A. All of these can affect the required rate of return.
  B. Changes in the rate of inflation
  C. Changes in the exchange rate
  D. Changes in the real risk-free rate
  E. Changes in the risk premium
  A. All of these can affect the required rate of return.

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  Explanation

  The required rate of return is equal to the nominal risk-free rate (a function of the real risk-free rate and the rate of inflation) plus the risk premium. Changes in the exchange rate usually are included in the risk premium.

• Question 2599:

  An analyst stated that the purpose of a collateralized mortgage obligation is to redistribute prepayment risk among investors with different risk tolerances while at the same time reducing total prepayment risk for all tranches in the structure. The analyst's statement is correct:

  A. only with respect to redistribution of risk
  B. only with respect to reducing total prepayment risk
  C. with respect to both redistribution of risk and reducing total prepayment risk
  A. only with respect to redistribution of risk

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  Explanation

• Question 2600:

  A firm's financial audit ensures all of the following EXCEPT:

  A. The company is managing its risks within the guidelines specified in its charter.
  B. There are adequate controls and checks in place in its accounting systems.
  C. There are no material errors or omissions in its financial reports.
  D. The management is not misstating its performance.
  A. The company is managing its risks within the guidelines specified in its charter.

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  Explanation

  It is not a financial audit function to check on the reasonableness of the risks undertaken by the institution.