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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2861:

  Low-load open-end funds

  A. never charge sales or redemption fees.
  B. never charge sales fees.
  C. charge sales fees of about 0.5 to 1% of NAV.
  D. charge sales fees of about 3% of NAV.
  E. charge sales fees of about 5 to 6% of NAV
  D. charge sales fees of about 3% of NAV.

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  Explanation

  Low-load open-end funds typically charge front-end sales fees in the 3% range (rather than 7 to 8%) when the fund is bought. These funds typically are used for bond funds or equity funds offered by management companies that also offer no- load funds.

• Question 2862:

  The second step of the three-step, top-down approach to valuation is to decide to allocate investment funds

  A. among corporations and types of securities.
  B. among industries.
  C. among industries and types of securities within those industries.
  D. among industries and corporations.
  B. among industries.

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  Explanation

  The second step of the three-step, top-down approach to valuation is the analysis of alternative industries, which attempts only to determine which industries will prosper, and which will fail (thereby determining investment strategy across industries). The security type decision is made in the first step, and the decision of individual firm investments is made in the third step.

• Question 2863:

  Which of the following is/are true?

  I. There are as many values above the median as below it.

  II. The sum of the differences between the observations in a sample and the median of the sample equals zero.

  III. The median is greatly affected by "outliers."

  IV.

  A sample has a unique median.

  A. II and IV
  B. I, II and IV
  C. I only
  D. II only
  E. I and IV
  F. III only
  G. IV only
  H. I, III and IV
  E. I and IV

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  Explanation

  By definition, there are as many values above the median as below it. Each sample has a unique median. (II) and (III) hold for the mean, not for the median.

• Question 2864:

  A decline in this ratio below 30 percent is bullish, above 50 percent is bearish.

  A. Mutual Fund Cash Positions
  B. Short Sales by Specialists
  C. Relative Trend
  D. Dow Theory
  E. Margin Debt
  F. Block Uptick-Downtick Ratio
  G. Odd-Lot, Short-Sales Theory
  H. Diffusion Index
  B. Short Sales by Specialists

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  Explanation

  The normal ratio of specialists' short sales to the total amount of short sales on the NYSE has become about 40 percent. Technicians view a decline in this ratio below 30 percent as a bullish sign because it means that specialists are attempting to minimize their participation in short sales. In contrast and increase in the proportion above 50 percent is a bearish sign.

• Question 2865:

  What is not a characteristic of a closed-end investment company?

  A. its stock trades on the regular secondary market
  B. the NAV is computed twice daily
  C. NAV is based on current market prices
  D. the NAV and market price are usually the same
  E. its market price is determined by supply and demand
  D. the NAV and market price are usually the same

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  Explanation

  The market price is determined by the relative supply and demand for the investment company stock in the public secondary market. When trading these shares an investor will pay or receive this market price plus or minus a commission. The market price has historically been 5 to 20 percent below the NAV.

• Question 2866:

  First National Bank currently does not have the legally required cash reserves on hand. The bank expects this situation will only last a day or two. In order to rectify the reserve problem, the bank treasurer borrows cash on the intra-bank loan market. The loan was actually granted by the Central Bank. This is the only action by the Central Bank that day. How has the Central Bank's actions impacted the demand curve for the purchase of intra-bank loans and the interest rate paid on those loans?

  A. Demand curve shifts upward, interest rate falls
  B. Demand curve shifts upward, interest rate increases
  C. Quantity demanded increases, interest rate falls
  D. Demand curve does not change, interest rate increases
  E. Quantity demanded decreases, interest rates rise
  A. Demand curve shifts upward, interest rate falls

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  Explanation

  When a bank lacks reserves it has essentially loaned too much money, i.e. it has put too much money into circulation. If the Central Bank lends money to the bank to cover the shortfall, then the cash from the excess loans can stay in

  circulation.

  If the reserve loan had come from another bank, then this would have simply transferred excess reserves from one bank to another. Since the Central Bank stepped in, banks with excess reserves will now choose to make more traditional

  loans and further expand the money supply.

  Remember that the borrower has sold a loan and the lender has bought a loan. Therefore, the Central Bank's actions have increased demand for intra-bank loans. This would cause the interest rate paid to fall.

• Question 2867:

  A firm had retained earnings of $100,000 at the beginning of the year. During the year, the firm had a net income of $55,000 and paid dividends worth $20,000. Then, the change in the firm's retained earnings equals ________.

  A. $155,000
  B. $35,000
  C. $55,000
  D. $135,000
  B. $35,000

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  Explanation

  Ending retained earnings = Beginning retained earnings + Net Income - Dividends paid. Hence, change in retained earnings = $55,000-$20,000 = $35,000.

• Question 2868:

  If the use of leverage is ________, the performance presented must include the effects of the leverage.

  A. discretionary
  B. mandatory
  C. nondiscretionary
  D. optional
  A. discretionary

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  Explanation

  If the use of leverage is nondiscretionary (i.e. mandated by the client), performance must be presented on an all-cash basis.

• Question 2869:

  Marcus Corporation currently sells 150,000 units a year at a price of $4. 00 a unit. Its variable costs are approximately 30 percent of sales, and its fixed costs amount to 50 percent of revenues at its current output level. Although fixed costs are based on revenues at the current output level, the cost level is fixed. What is Marcus's degree of operating leverage in sales dollars?

  A. 2. 2
  B. 3. 5
  C. 1.0
  D. 5. 0
  E. 4. 0
  B. 3. 5

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  Explanation

  Use the information provided and the formula for DOL in sales dollars: DOL(s) = [($150,000 x $4. 00)-180,000]/[($150,000 x $4. 00)-180,000-300,000] = 3. 5

• Question 2870:

  A hypothesis test is conducted at the .05 level of significance to test whether or not the population correlation is zero. If the sample consists of 25 observations and the correlation coefficient is 0.60, then what is the computed value of the test statistic?

  A. 1.96
  B. 3. 60
  C. 2. 94
  D. 2. 07
  E. None of these answers
  B. 3. 60

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  Explanation

  Using the t statistics, t = r* [sq. root of ((n-2)/(1-r_squared))]. t = r*[n-2/(1-r^2)]^0.5. So t = 0.6*[23/0.64]^0.5 = 3. 60.