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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2701:

  Each of the following statements regarding the optimal portfolio is true except:

  A. is the efficient portfolio that has the highest utility for a given investor.
  B. lies at the point of tangency between the efficient frontier and the investor's indifference curve.
  C. is the portfolio that gives the investor the maximum level of return.
  D. will be fully diversified.
  C. is the portfolio that gives the investor the maximum level of return.

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  Explanation

  C is wrong because it does not specify the fact that risk must also be considered.

• Question 2702:

  Shannon Industries is considering a project, which has the following cash flows: Time Cash Flow 0? 1$2,000 23,000 33,000 41,500 The project has a payback of 2. 5 years. The firm's cost of capital is 12 percent. What is the project's net present value NPV?

  A. $3,765. 91
  B. $765. 91
  C. $577. 68
  D. $1,049.80
  E. $2,761.32
  B. $765. 91

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  Explanation

  First, find the missing t = 0 cash flow. If payback = 2. 5 years, this implies t = 0 cash flow must be - $2,000 - $3,000 + (0.5) $3,000 = -$6,500. Enter the cash flows and the firm's cost of capital of 12%, then NPV = $765. 91.

• Question 2703:

  Most studies

  A. weakly support technical analysis.
  B. strongly support technical analysis.
  C. have not supported technical analysis.
  D. have drawn mixed results with regard to technical analysis.
  C. have not supported technical analysis.

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  Explanation

  The vast majority of studies have found that prices do not move in trends based on statistical tests of autocorrelation, runs, and trading rules. But many trading rules have not yet been tested.

• Question 2704:

  Regarding financial accounting for public companies, the role of the SEC as currently practiced is to

  A. make rules and regulations regarding filings with the SEC but not to regulate annual or quarterly reports to shareholders.
  B. develop and promulgate most generally accepted accounting principles.
  C. make rules and regulations pertaining more to disclosure of financial information than to the establishment of accounting recognition and measurement principles.
  D. none of these answers.
  E. regulate financial disclosures for corporate, state, and municipal reporting.
  C. make rules and regulations pertaining more to disclosure of financial information than to the establishment of accounting recognition and measurement principles.

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  Explanation

  The SEC has authority to regulate external financial reporting. However, its role is to promote disclosure rather than to exercise its power to establish accounting recognition and measurement principles. Its objective is to allow the accounting profession (through FASB) to establish accounting principles.

• Question 2705:

  What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$6,000>, Year 1: $4,000, Year 2: $3,000, Year 3: $2,000, Year 4: $1,000 (Note that the <> are used to indicate a negative number).

  A. 25. 55%
  B. 27. 12%
  C. 24. 61%
  D. 31.38%
  E. 33. 74%
  D. 31.38%

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  Explanation

  On the BAII Plus, press CF 2nd CLRWork 6000 +/- ENTER DownArrow 4000 ENTER DownArrow DownArrow 3000 ENTER DownArrow DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press Irr CPT. On the HP12C, press these keys: 6000 CHS BlueShift CFo 4000 BlueShift CFj 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press YellowShift Irr. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 2706:

  Martin Corporation's common stock is currently selling for $50 per share. The current dividend is $2. 00 per share. If dividends are expected to grow at 6 percent per year and if flotation costs are 10 percent, then what is the firm's cost of retained earnings and what is its cost of new common stock?

  A. 10.71%; 10.24%
  B. 10.24%; 10.71%
  C. 11.38%; 10.71%
  D. 10.24%; 11.38%
  E. 9.31%; 9.86%
  B. 10.24%; 10.71%

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  Explanation

  Cost of retained earnings: k(s) = $2. 12/$50 + 0.06 = 10.24%. Cost of new common equity: k(e) = $2. 12/($50(1-.10)) + 0.06 = 10.71%.

• Question 2707:

  When creating composites, ________ returns must not be mixed with asset-plus-cash returns.

  A. model
  B. portfolio
  C. cash
  D. performance
  E. asset-only
  E. asset-only

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  Explanation

  To be in compliance with the PPS, a firm creating a composite must meet this requirement.

• Question 2708:

  If the moving average of past stock prices has been above the current price, this indicates

  A. that the stock price has been declining.
  B. that the stock price has been increasing.
  C. an approaching market peak.
  D. probable market instability.
  A. that the stock price has been declining.

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  Explanation

  A 50-day moving average, for example, would be equal to the average stock price for the past 50 days. In order for this average to be consistently above the current price, the current price must be going through a general decline that is dragging it below the moving average, which takes longer to adjust to falling prices.

• Question 2709:

  Misrepresentation of performance is prohibited by section ________ of the Standards of Professional Conduct.

  A. III (A)
  B. II (E)
  C. III (F)
  D. IV (E)
  E. V (B)
  E. V (B)

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  Explanation

  Standard V (B) states "Members shall not make any statements, orally or in writing, that misrepresent the investment performance that they or their firm have accomplished or can reasonably be expected to achieve."

• Question 2710:

  In a stratified random sampling method,

  A. a sample is selected by randomly generating an integer, N, and selecting every Nth member of the population.
  B. a sample is selected by first dividing the population into groups and then selecting members from each group.
  C. a sample is selected by drawing numbers from a normal probability distribution.
  D. a sample selected such that every member of the population has the same chance of being selected.
  B. a sample is selected by first dividing the population into groups and then selecting members from each group.

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  Explanation

  The population is divided into strata or subcategories and a sample is randomly selected from each strata.