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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2951:

  Extraordinary items are presented on the income statement:

  A. net of taxes, separate from income from continuing operations.
  B. in the footnotes, with the required disclosures.
  C. as part of income from continuing operations, before taxes.
  D. none of these answers.
  A. net of taxes, separate from income from continuing operations.

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  Explanation

  The present GAAP applied to extraordinary items is a refined form of the "Current Operating Performance." It mandates that income effects of extraordinary items are to be separately disclosed net of taxes after the presentation of the net income from continuing operations.

• Question 2952:

  An investor holds a long position in a futures contract on the SandP 500 Index. The futures contract has a term of three months, requires 10% margin, and has a futures price of 1,574. The investor posted $37,500 into the margin account at contract initiation. After the contract initiation, the futures price on the index experienced infrequent but dramatic drops. Two days ago, the investor received a margin call and was required to post an additional $17,500 to the margin account. Which of the following is most likely the maintenance margin on the contract?

  A. $17,500.
  B. $18,750.
  C. $22,500.
  C. $22,500.

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  Explanation

• Question 2953:

  Which of the following is/are true about open-ended funds?

  I. Shares of the fund trade on an exchange.

  II. Shares of the fund can be redeemed at NAV, with or without redemption fees.

  III.

  It issues shares as and when demanded by investors bringing in additional funds.

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

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  Explanation

  Open ended funds are mutual funds which buy and sell shares as and when demanded by investors. These funds may or may not have sales and redemption charges.

• Question 2954:

  An investor buys a 25-year, 10 percent annual pay bond for $900 planning to sell the bond in 5 years when he estimates yields will be 9 percent. What is the estimate of the future price of this bond?

  A. $964.
  B. $1,000.
  C. $1,122.
  D. $1,091.
  D. $1,091.

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  Explanation

  This is a Present Value problem 5 years in the future. Input into your calculator:

  N = 20, PMT = 100, FV = 1000, I/Y = 9CPT PV = 1,091.28The $900 purchase price is a distracter for this problem.

• Question 2955:

  Which of the following best highlights a company's financial condition and overview of the results of operations?

  A. The security and exchange commissions 401-k report
  B. The auditor report
  C. The statement of cash flows
  D. None of these answers
  E. Management's discussion and analysis
  E. Management's discussion and analysis

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  Explanation

  Management's discussion and analysis provide a great deal of detail regarding the company's financial condition, the results of operations, favorable, or unfavorable trends, and significant events that have affected or will affect a firm.

• Question 2956:

  Contrary-opinion rule technical analysts would consider

  A. a high AMEX volume to NYSE volume ratio to be a sign that the market is approaching a trough. This ratio is a measure of investor confidence in the economy. A high value indicates that investors have enough confidence to invest in the relatively volatile AMEX. Recovering confidence indicates the approach of a market trough.
  B. a high AMEX volume to NYSE volume ratio to be a sign that the market is overbought. This ratio is a measure of speculative trading activity. A high value indicates a high level of speculation, which itself is thought to indicate a market peak.
  C. a high NASDAQ volume to NYSE volume ratio to be a sign that the market is overbought. This ratio is a measure of speculative trading activity. A high value indicates a high level of speculation, which itself is thought to indicate a market peak.
  D. a high NASDAQ volume to NYSE volume ratio to be a sign that the market is approaching a trough. This ratio is a measure of investor confidence in the economy. A high value indicates that investors have enough confidence to invest in the relatively volatile NASDAQ. Recovering confidence indicates the approach of a market trough.
  C. a high NASDAQ volume to NYSE volume ratio to be a sign that the market is overbought. This ratio is a measure of speculative trading activity. A high value indicates a high level of speculation, which itself is thought to indicate a market peak.

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  Explanation

  Prior to the 1970s, the measure of speculative activity was typically the ratio of AMEX volume to NYSE volume. But because of the decline in importance of the AMEX, this ratio is no longer a useful measure. The new measure of speculative activity is the ratio of NASDAQ volume to NYSE volume. A high ratio is indicative of a high level of speculative activity, which is believed by contrary-opinion rule technical analysts to be a sign of an overbought market, and of an approaching market peak.

• Question 2957:

  If you buy an item for $1,500 and agree to pay for it with 36 monthly payments of $55. 50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

  A. 24. 92%
  B. 16. 53%
  C. 18.84%
  D. 11.15%
  E. 19.68%
  E. 19.68%

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  Explanation

  The interest rate returned by the calculator will be the periodic interest rate. It must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 36 N, 1500 PV, 55. 50 +/- PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 36 n, 1500 PV, 55. 50 CHS PMT, 0 FV, i. Then press 12 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.

• Question 2958:

  If your estate were to receive $100 a year, beginning next year, for 100 years, what is the equivalent single amount today that this series of cash flows is equal to, assuming interest is 5% per year, compounded annually?

  A. $11,302. 37
  B. $10,000.00
  C. $2,041.54
  D. $58.42
  E. $1,984. 79
  E. $1,984. 79

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  Explanation

  On the BAII Plus, press 100 N, 5 I/Y, 100 PMT, 0 FV, CPT PV. On the HP12C, press 100 n, 5 i, 100 PMT, 0 FV, PV. Note that the answer will be displayed as a negative number. As a side note, continuing the $100 payments for 10,000 years only increases the PV today by a little over $15. This is because the $100 payments beyond 100 years from now would add very little to the PV today. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 2959:

  Which of the following characteristics is not necessary for the NPV and MIRR calculations to consistently produce similar results?

  A. Projects must have cash flows
  B. Projects must have equal lifespans
  C. Project must be of equal scale
  D. Projects must be of equal size
  E. Projects must be independent
  E. Projects must be independent

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  Explanation

  When examining mutually-exclusive projects with normal cash flows, the MIRR and NPV methods will ALWAYS produce similar results as long as the projects being examined are equal in size and have the same life. It is not necessary for projects to be independent in order for the NPV and MIRR methods to produce similar results.

• Question 2960:

  Sweetwater and Associates write weekend trip insurance at a very nominal charge. Records show that the probability that a motorist will have an accident during the weekend and file a claim is 0.0005. Suppose they wrote 400 policies for the coming weekend, what is the probability that exactly two claims will be filed?

  A. 0.0164
  B. 0.0001
  C. 0.8187
  D. 0.2500
  E. None of these answers
  A. 0.0164

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  Explanation

  This is a binomial probability. The probability of getting r successes out of n trials where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p) is given by: n!(p^r)[q^(n-r)]/r!(n-r)!. Here n = 400, r = 2,p = 0.0005 and q = 0.9995. Therefore we have 400!(0.0005^2)(0.9995^398)/2!398! = 0.0164.