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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2801:

  Given the following information on the annual operating results for ArtFrames, a producer of quality metal picture frames, calculate the degree of operating leverage (DOL) and the degree of financial leverage (DFL). Which of the following choices is closest to the correct answer? ArtFrameDOL and DFL are, respectively:

  A. 3. 00 and 1.50.
  B. 2. 20 and 1.06.
  C. 2. 20 and 1.08.
  D. 4. 53 and 1.19.
  C. 2. 20 and 1.08.

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  Explanation

  The calculations are as follows:

  

  1Variable costs = 0.45 * 3,500,000

  2Interest Expense = 0.09 * 750,000

  Second,calculate DOL:

  DOL = (Sales ?Variable Costs) / (Sales ?Variable Costs ?Fixed Costs)

  = (3,500,000 ?1,575,000) / (3,500,000 ?1,575,000 ?1,050,000) =2. 20

  Third,calculate DFL:

  DFL = EBIT / (EBIT ?I) = 875,000 / 807,500 =1.08.

• Question 2802:

  ________ permits funds to deduct as much as 1.25 percent of average net assets per year to cover distribution costs.

  A. The 12b-1 Act
  B. Rule 144a
  C. The New Funds plan
  D. The 12b-1 plan
  D. The 12b-1 plan

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  Explanation

  The 12b-1 plan permits funds to deduct as much as 1.25 percent of average net assets per year to cover distribution costs.

• Question 2803:

  If the marginal propensity to consume (MPC) is .75 or 3/4, what is the expenditure multiplier?

  A. 0.25
  B. 4. 0
  C. 3. 0
  D. 2. 0
  B. 4. 0

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  Explanation

  The expenditure multiplier is found according to the equation M= 1/(1-MPC). Thus, M = 1/(1-3/4) = 4.

• Question 2804:

  Float refers to:

  A. the number of days that a bank will allow a corporation to hold a negative balance in its checking account before charging fees for the negative balance.
  B. the companies bank balance in excess of its working capital needs.
  C. the receivable balance on the books of the corporation.
  D. checks issued but not yet paid by a bank.
  D. checks issued but not yet paid by a bank.

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  Explanation

  Companies, specifically those that are strapped for cash, will try and play the float by having a smaller balance in the bank than the level of outstanding checks that they have written. While it can certainly ease cash shortfalls, it can be troublesome when more checks clear than expected.

• Question 2805:

  Built-in features that tend to promote a budget deficit during a recession and a budget surplus during an inflationary boom are known as ________.

  A. automatic stabilizers
  B. counter-cyclical policies
  C. active budget deficits
  D. restrictive fiscal policies
  A. automatic stabilizers

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  Explanation

  Such built-in stabilizers exist independently of any policy change: tax revenues necessarily fall during a recession (as the economy contracts, there is less income to tax) and government expenditures necessarily rise (more individuals receive government transfers such as unemployment benefits or welfare payments). The converse is true for an inflationary environment: tax revenues are in excess of government expenditures creating a budget surplus. The consequence of these automatic reactions is that during a recession, the economy is stimulated by higher government spending and during inflation economic activity is reduced by smaller government spending.

• Question 2806:

  The lowest significance level at which the null hypothesis can be rejected is called the:

  A. F-statistic of the test.
  B. t-value of the test.
  C. p-value of the test.
  D. critical value of the test.
  E. none of these answers.
  C. p-value of the test.

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  Explanation

  The lowest significance level at which the null hypothesis can be rejected is called the p-value of the test. Thus, if the p-value is less than the significance level, the null hypothesis can be rejected at that significance level.

• Question 2807:

  A selected group of employees of Unique Buying Services is to be surveyed with respect to a new pension plan. In depth interviews are to be conducted with each employee selected in the sample. The employees are classified as follows.

  Classification Event Number of Employees Supervisors A 120 Maintenance B 50 Production C 1,460 Management D 302 Secretarial E 68

  What is the probability that the first person selected is classified as a maintenance employee?

  A. 0.025
  B. 0.50
  C. None of these answers
  D. 0.20
  E. 1.00
  A. 0.025

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  Explanation

  There are 2000 employees of which 50 are from maintenance. So 50/2000 = 0.025.

• Question 2808:

  Technical analysts may view a decline in credit balances as

  A. a bullish sign.
  B. a bearish sign.
  C. the result of low mutual fund cash positions.
  D. a sign indicating a short-term, transient bull market.
  B. a bearish sign.

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  Explanation

  A credit balance results when an investor sells stocks and deposits the proceeds with his broker. Technical analysts view a decline in credit balances as a decrease in a pool of potential buying power. For this reason, such a decline is viewed as a bearish sign.

• Question 2809:

  Bungling, Inc., is currently facing a lawsuit as a defendant. Its honest lawyers estimate that there is a 60-40 chance that Bungling will lose the lawsuit. The jury could award the plaintiff punitive damages ranging from $10,000 to $50,000. Bungling should

  A. not recognize any liability but disclose the details in footnotes.
  B. not do anything since the lawsuit is still not decided and considerable uncertainty exists.
  C. recognize a liability of $50,000 on its balance sheet as a conservative estimate.
  D. recognize a liability of $10,000 on its balance sheet.
  A. not recognize any liability but disclose the details in footnotes.

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  Explanation

  If considerable uncertainty exists in measurement of an asset or a liability arising from events like a lawsuit, disclosure must occur in footnotes. The disclosure includes the nature of the contingency and an estimate or a range of estimates about the possible losses.

• Question 2810:

  The weights of a sample of crates ready for shipment to Laos are (in kilograms): 103, 97, 101, 106 and 103. What is the mean deviation?

  A. 2. 4 kg
  B. 102. 0 kg
  C. 0 kg
  D. None of these answers
  E. 6. 9 kg
  A. 2. 4 kg

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  Explanation

  The mean is 102. The mean deviation is the absolute values of the deviation from the mean. (1 + 5 + 1 + 4 + 1)/5 = 12/5 = 2. 4