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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2671:

  If you deposit $1,400 today into a savings account paying 8% per year, compounded semiannually, how much is in your account in 5 years?

  A. $2,072. 34
  B. $1,587. 85
  C. $2,487. 15
  D. $1,330.55
  E. $1,857. 58
  A. $2,072. 34

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  Explanation

  On the BAII Plus, press 10 N, 8 divide 2 = I/Y, 1400 PV, 0 PMT, CPT FV. On the HP12C, press 10 n, 8 ENTER 2 divide i, 1400 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/ Y value set to 1.

• Question 2672:

  Which of the following factors would affect the authenticity of a firm's receivables?

  A. Industry practices
  B. All of these answers
  C. A firm's policy for returns and allowances
  D. None of these answers
  E. A firm's credit policy
  B. All of these answers

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  Explanation

  Current industry practices will provide clues as to the collectibility of receivables; e.g., a rapidly deteriorating industry could cause a large percentage of receivables to be uncollectible. A firm could extend credit very liberally, in which case the quality of the receivables would be suspect. Additionally, a liberal policy for returns and allowances might cause the value reported on a firm's balance sheet to be overstated.

• Question 2673:

  "Prohibited transactions" are discussed in Standard IV (B.4), Priority of Transactions. Which of the following is NOT suggested as a prohibited transaction for investment personnel?

  A. equity-based IPOs
  B. private placements
  C. equity securities
  D. none of these answers
  E. municipal bonds
  E. municipal bonds

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  Explanation

  Under the compliance procedures for Standard IV (B.4), members and their firms should clearly define prohibited transactions so that employees completely understand their obligations to clients and their employer. Participation by investment personnel in equity or equity-based IPOs should be restricted. Members' firms should, for example, impose strict limits on investment personnel acquiring securities in private placements. Managers should not be prevented, however, from purchasing government issues, such as municipal bonds and/or other government securities.

• Question 2674:

  An individual investor approaches you and asks, "If I were to purchase a fund with a load of 6 percent, and I used $6,200 to purchase the fund, what dollar amount would the shares purchased be?"

  A. $6,200.
  B. $5,828.
  C. $6,572.
  D. $372.
  B. $5,828.

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  Explanation

  6,200 x .94 = 5,828

• Question 2675:

  Of the choices listed, which is an important difference between the assumptions underlying technical and fundamental analysis? Choose the best answer.

  A. Technical analysis is reliant on financial statements, whereas fundamental analysis is not heavily reliant on financial statements.
  B. All of these answers represent important differences between fundamental and technical analysis.
  C. None of these answers is correct.
  D. Technical analysis can be applied to any financial market or security, whereas fundamental analysis is limited primarily to the equity markets.
  E. Technical analysis assumes that securities prices move in identifiable patterns, whereas fundamental analysts believe that past price data cannot be used to predict future price movements.
  E. Technical analysis assumes that securities prices move in identifiable patterns, whereas fundamental analysts believe that past price data cannot be used to predict future price movements.

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  Explanation

  Of all the differences between technical analysis and fundamental analysis, perhaps the most important is the fact that technical analysis assumes that securities markets are not weak form efficient, whereas fundamental analysis assumes that the Weak Form of the EMH is correct. Technical analysts assume that securities markets will "price-in" relevant information gradually, and that securities prices follow observable trends and patterns. Fundamental analysts, on the other hand, generally assume that past price information cannot be used to predict movements in securities prices.

• Question 2676:

  Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

  A. Supervisors
  B. Employers
  C. Employees
  D. the Investing Public
  E. None of these answers
  D. the Investing Public

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  Explanation

  Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to the Investing Public.

• Question 2677:

  Which of the following would be considered non-activist monetary policy?

  A. The government allows tax revenues to rise and fall with the business cycle, while keeping spending constant.
  B. The Central Bank acts to smooth the business cycle.
  C. The Central Bank attempts to keep inflation at a minimum, ignoring unemployment.
  D. The Central Bank prints new currency each year in order to increase the money supply by 3%.
  E. The Central Bank targets short-term interest rates.
  D. The Central Bank prints new currency each year in order to increase the money supply by 3%.

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  Explanation

  An activist monetary policy involves a changing policy in reaction to economic events. A classic example of non-activist policy would be one that increases the money supply by a certain amount each year.

• Question 2678:

  In reference to AIMR-PPS, which of the following is/are true?

  I. If the valuation of an investment asset is not based on current market value, it should not be included in total assets to which PPS are being applied.

  II. Composites cannot not be presented as being in compliance unless all the firm'squalifying portfolios are accounted for in at least one composite defined according tosimilar strategy or investment objective.

  III.

  A subsidiary may claim to be in compliance with the PPS even if the parent firm is not.

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

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  Explanation

  Assets to which AIMR-PPS cannot be applied are not to be considered while considering compliance. For example, investment instruments like the GIC whose valuation is not based on market conditions, must be excluded.

• Question 2679:

  An investor had purchased 66 shares of firm X on January 1, at a price of $236 per share. On May 16th, the stock underwent a 2-for-1 split. On December 31, the stock price stood at $156. If the investor realized a return of 35% during the year, his total dividend income during the year was:

  A. $435. 60
  B. $250.80
  C. $501.60
  D. $156. 00
  A. $435. 60

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  Explanation

  If the stock had not undergone the split, the year-end price would be 156 * 2 = $312, assuming no informational effects conveyed by the split. The per share income on each stock has been given to be 236 * 0.35 = $82. 60. Of this, $(312-236) = $76 is in capital gains. Thus, dividend income per share equals $(82. 6-76) = $6. 6. Since the investor held 66 of the original shares, his dividend income equals $6. 6 * 66 = $435. 6.

• Question 2680:

  Assume the following information about a common stock:

  Price per share: $90.35 Last dividend per share: $1.50 Required return: 15% per year Expected growth rate: 12% per year What is the value of this common stock?

  A. None of these answers is correct.
  B. The answer cannot be determined from the information provided.
  C. $79
  D. $50
  E. $44
  F. $56
  F. $56

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  Explanation

  To determine the value of a common stock using the Infinite Period Dividend Discount Model, use the following equation:

  {V = [d1 / (k - g)]}

  Where: V = the value of the common stock at t0, d1 = the annual dividend at t1 (which is found by multiplying d0 by (1 + g), k = the investor's required rate of return, and g = the anticipated annual growth rate.

  In this example, all of the necessary information has been provided, and incorporating this information into the Infinite Period DDM will lead to the following:

  {V = [($1.50 * 1.12) / (0.15 - 0.12] = $56}

  This value is significantly less than the price of the shares in the open market. While at first it may be appealing to assume that the common stock is overvalued, this may be a dangerous assumption. Equally likely is the possibility that the Infinite Period DDM is not the ideal valuation model for this common stock. Perhaps the price of this common stock is reflecting other sources of potential cash flows, ratherthan the summation of the present value of future dividends. This is an important point to consider, and one with which you should become familiar.