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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2921:

  While working abroad, United States citizen Elpida Costa purchases a foreign bond with an annual coupon of 10.0 percent for par. She holds the bond for one year and then sells it for 103. 6 before she leaves. During the year, the dollar

  depreciated 2. 0% relative to the foreign currency.

  Which of the following is closest to Costa's Total Dollar Return?

  A. 11.328%.
  B. 13. 600%.
  C. 15. 872%.
  D. 5. 672%.
  C. 15. 872%.

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  Explanation

  TheTotal Dollar Returnis calculated as follows:

  Step 1: Calculate the value change in the foreign currency:

  The dollardepreciated0.02, so the foreign currencyappreciatedby 0.02, or 2. 0%.

  Step 2: Use the Total Dollar return formula to calculate the return:

  R$= { [ 1+($coupon + VEND- VBEG)/ VBEG] * (1 + g) } - 1,

  WhereR$=Total dollar return,VEND= Bond value at end of period,VBEG =Bond value at end of period, andg= % change in thedollarvalue of the foreign currency.

  Here,R$= { [ 1+(10.0 + 103. 6 ?100.0)/100.0 ] * (1 + 0.02) } - 1

  = { [1.13600 ] * (1.02) } - 1

  = 0.15782, or15. 782%

• Question 2922:

  The par value of a common stock represents

  A. the estimated market value of the stock when it was issued.
  B. none of these answers.
  C. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings.
  D. the total value of the stock that must be entered in the issuing corporation's records.
  E. the amount that must be recorded on the issuing corporation's record as paid-in capital.
  C. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings.

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  Explanation

  Par value represents a stock's legal capital. It is an arbitrary value assigned to stock before it is issued. Par value represents a shareholder's liability ceiling because, as long as the par value has been paid in to the corporation, the shareholder obtains the benefits.

• Question 2923:

  Which of the following groups will have seniority in the event of bankruptcy of a company?

  A. all have same seniority
  B. preferred stockholders
  C. common stockholders
  D. debt holders
  D. debt holders

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  Explanation

  Debt holders are paid first.

• Question 2924:

  Which of the following is/are true about straight-line depreciation?

  I. With constant pre-depreciation income, it leads to an increasing rate of return over time.

  II. It ignores loss of productivity and increased maintenance costs over time.

  III.

  It leads to higher taxes in later years compared to accelerated depreciation methods.

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

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  Explanation

  With accelerated depreciation methods, the depreciation expense gets lower than that in the case of straight line depreciation, leading to higher taxes in the later years. One of the mathematical facts about straight-line and accelerated depreciation methods is that even when the pre-depreciation income stays constant, the rate of return steadily increases over time purely because of the decrease in asset value.

• Question 2925:

  In a period of falling prices, the inventory method that gives the lowest possible value for ending inventory is

  A. FIFO
  B. LIFO
  C. gross profit
  D. weighted average
  A. FIFO

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  Explanation

  The first-in-first-out (FIFO) method is based on the assumption that the costs of the first items acquired should be assigned to the first items sold, therefore ending inventory on hand is based on the most recent prices.

• Question 2926:

  What is the bond's yield to maturity (YTM)?

  A. 9.26%.
  B. 10.34%.
  C. 10.05%.
  D. 10.55%.
  B. 10.34%.

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  Explanation

  N = 28, PMT = 120, PV = -1150, FV = 1000, CPT I/Y.

• Question 2927:

  If a stock has an expected dividend payout ratio of 30 percent, a required rate of return of 10 percent and an expected growth rate for dividends of 5 percent, what is the P/E ratio?

  A. 12
  B. 6. 5
  C. None of these answers
  D. 10
  B. 6. 5

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  Explanation

  The price/earnings ratio can be computed by dividing the expected dividend payout ratio (dividends divided by earnings) by the required rate of return (k) minus the expected growth rate of dividends (g). In this case, P/E = .3/(.1-.05) = 6. 5

• Question 2928:

  If you deposit $100 a month, beginning next month, for 20 years into an account paying 8% per year, compounded monthly, how much is in your account after that last deposit?

  A. $2,131.88
  B. $58,902. 04
  C. $4,576. 20
  D. $61,549.18
  E. $24,000.00
  B. $58,902. 04

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  Explanation

  On the BAII Plus, press 240 N, 8 divide 12 = I/Y, 0 PV, 100 PMT, CPT FV. On the HP12C, press 240 n, 8 ENTER 12 divide i, 0 PV, 100 PMT, FV. On the BAII Plus, make sure the value of P/Y is set to 1. Note that the answer is displayed as a negative number.

• Question 2929:

  Which type of environment relates to the restrictions on use that apply to nearby properties?

  A. Socioeconomic
  B. Fiscal
  C. Legal
  D. Aesthetic
  C. Legal

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  Explanation

  Legal environment relates to the restrictions on use that apply to nearby properties.

• Question 2930:

  Michigan Mattress Company is considering the purchase of land and the construction of a new plant. The land, which would be bought immediately (at t = 0), has a cost of $100,000 and the building, which would be erected at the end of the first year (t = 1), would cost $500,000. It is estimated that the firm's after-tax cash flow will be increased by $100,000 starting at the end of the second year, and that this incremental flow would increase at a 10 percent rate annually over the next 10 years. What is the approximate payback period?

  A. 4 years
  B. 6 years
  C. 2 years
  D. 10 years
  E. 8 years
  B. 6 years

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  Explanation

  Payback = 5 + 135. 9/146. 41 = 5. 928 years = 6 years.