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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 2981:

  "Rapid growth in the money supply is the primary cause of inflation. The time period between acceleration in the growth rate of the money supply and an acceleration in inflation is often lengthy (for example, from 12 to 36 months) and difficult to predict." These two statements are

  A. basic tenets of the Keynesian doctrine.
  B. normative economic statements.
  C. basic tenets of the Monetarist doctrine.
  D. internally inconsistent.
  C. basic tenets of the Monetarist doctrine.

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  Explanation

  Monetarists believe that monetary instability is the major cause of fluctuations in real GDP and rapid growth of the money supply is the major cause of inflation. Monetarists cite lengthy and unpredictable time lags between the implementation of a monetary policy change and the observation of its primary effects as a justification for not using discretionary monetary policy as a stabilization tool.

• Question 2982:

  The situation of monopoly is most closely affiliated with which of Porter's Five Forces of industry competition? Choose the best answer.

  A. Threat of substitute products
  B. None of these answers is correct.
  C. Rivalry among existing firms
  D. Bargaining power of buyers
  E. Threat of new entrants
  B. None of these answers is correct.

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  Explanation

  None of these answers is correct. The situation of monopoly is most closely associated with the bargaining power of suppliers. When there exists only one supplier of a product, that supplier possesses a great deal of influence over prices and

  delivery terms.

  Monopolies are thus discouraged and regulated in many instances.

  The bargaining power of buyers refers to the influence that customer's have on suppliers. This bargaining power is greatest in the situation of monopsony, which is characterized by only one buyer.

  While "rivalry among existing firms" is an appealing choice, it does not represent the best possible answer.

• Question 2983:

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

  A. gross profit
  B. FIFO
  C. LIFO
  D. weighted average
  B. 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 2984:

  Which of the following is the least accurate statement about the price-to-sales multiple?

  A. Price-to-sales is a poor valuation technique for growth companies.
  B. Sales growth drives all subsequent earnings and cash flows.
  C. Revenue has minimal accounting manipulation concerns relative to other numbers.
  A. Price-to-sales is a poor valuation technique for growth companies.

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  Explanation

• Question 2985:

  If a company estimates that its expected return on pension plan assets will increase to 9.5% from 9.0% this would be considered ________.

  A. an extraordinary gain
  B. a change in accounting estimate
  C. a prior period adjustment
  D. a change in accounting principle
  B. a change in accounting estimate

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  Explanation

  Such a change is a change in accounting estimate and disclosure is required of the effect on both net income and income before extraordinary items for the current period.

• Question 2986:

  Which of the following determine(s) the demand curve for a good?

  I. Disposable income.

  II. Price of the good demanded.

  III. Availability of substitutes.

  IV.

  Consumer tastes and preferences.

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

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  Explanation

  You should be careful about distinguishing between a movement of the demand curve and a movement along the demand curve. When the demand curve moves, the price for every quantity that may be demanded changes. Such a move can come about when people's disposable income changes. An increase in income moves the demand curve to the right, since for every given price, the quantity demanded is higher at higher incomes. Similarly, an increase in the availability of substitutes moves the demand curve to the left, since for every given price, the quantity demanded is now lower. Further, as the consumers' tastes and preferences evolve over time, so will the demand curve for a good. However, a simple change in the price of the good demanded will only lead to an adjustment in the quantity demanded, without moving the demand curve. After all, that is the definition of a demand curve!

• Question 2987:

  Management fees for open-end mutual funds tend to be

  A. about 0.5 to 1.5% of NAV. The management fees tend to be larger for large funds than for small funds because of the quickly increasing bureaucratic costs associated with larger funds. This has encouraged the existence of thousands of small mutual funds.
  B. about 1 to 2% of net asset value (NAV). The management fees are on a sliding percentage scale that increases with the size of the fund.
  C. about 1 to 1.5% of NAV. The management fees tend to be larger for large funds than for small funds because of the quickly increasing bureaucratic costs associated with larger funds. This has encouraged the existence of thousands of small mutual funds.
  D. about 0.4 to 1.2% of NAV. The management fees tend to be smaller for large funds than for small funds because of the substantial economies of scale that exist in managing financial assets.
  E. about 0.25 to 1% of NAV. The management fees are on a sliding percentage scale that decline with the size of the fund.
  E. about 0.25 to 1% of NAV. The management fees are on a sliding percentage scale that decline with the size of the fund.

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  Explanation

  Most management fees decline with the size of a fund. For example, a fund with assets of $500 million might charge management fees of 1%, a fund with assets of $1 billion might charge 0.75%, and a fund with assets of $6 billion might charge 0.25%.

• Question 2988:

  An increase in the long-run aggregate supply curve indicates that

  A. unemployment has increased.
  B. employment has increased.
  C. natural unemployment has increased.
  D. potential real GDP has increased.
  D. potential real GDP has increased.

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  Explanation

  Short run increases in aggregate supply do not shift the long run potential of the economy; only increases in the long run aggregate supply curve will effectively increase potential GDP. Short run aggregate supply may exceed the long run potential of the economy but only temporarily.

• Question 2989:

  Open-end investment companies

  A. will repurchase shares at their NAVs.
  B. do not typically sell shares after their initial public offerings.
  C. have shares that tend to be priced at a discount to their NAVs.
  D. do not typically repurchase shares.
  A. will repurchase shares at their NAVs.

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  Explanation

  Open-end investment companies (also known as mutual funds) continue to sell and repurchase shares after their initial public offerings. They do so at the current NAVs, sometimes with sales or redemption fees.

• Question 2990:

  Which of the following would not be considered an intangible asset?

  A. Customer lists
  B. All of these answers represent intangible assets
  C. Mineral rights
  D. Patents, copyrights, and trademarks
  E. Goodwill
  C. Mineral rights

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  Explanation

  Intangibles represent rights, privileges, and benefits of possession. Two common characteristics are high uncertainty regarding future benefits and lack of physical existence. All of the above are examples thatmeet this definition except mineral rights which are not an intangible but a natural resource that has physical properties.