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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 21:

  Which standard deals with the Prohibition against Use of Material Nonpublic Information?

  A. III
  B. III (B.4)
  C. IV (B.4)
  D. IV (B.5)
  E. V (A)
  F. III (B.2)
  E. V (A)

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  Explanation

  Standard V (A) - Prohibition against Use of Material Nonpublic Information, states that "members who possess material nonpublic information related to the value of a security shall not trade in that security if such trading would breach a duty or if the information was misappropriated or relates to a tender offer."

• Question 22:

  Standard V (B) addresses any practice that would lead to misrepresentation of a member's record, whether the practice involves performance ________ or performance ________.

  A. presentation; measurement
  B. none of these answers
  C. presentation; benchmarking
  D. assessment; benchmarking
  E. measurement; assessment
  F. assessment; presentation
  G. benchmarking; measurement
  A. presentation; measurement

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  Explanation

  Standard V (B) addresses any practice that would lead to misrepresentation of a member's record, whether the practice involves performance presentation or performance measurement.

• Question 23:

  Which of the following is NOT one of the goals of AIMR-PPS?

  A. Enforce a single standard on the various performance presentations through a mandatory adoption of the PPS.
  B. None of these answers.
  C. Bolster the notion of self-regulation and enhance the professionalism in the industry.
  D. Improve the service offered to investment management clients.
  A. Enforce a single standard on the various performance presentations through a mandatory adoption of the PPS.

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  Explanation

  The PPS are voluntary standards and are not necessarily binding on AIMR members. AIMR, of course, encourages adoption of these standards. The Standards have been designed to meet the following four goals: - achieve greater uniformity and compatibility amongst the various performance presentations; - improve the service offered to investment management clients; - enhance the professionalism in the industry; - bolster the notion of self-regulation.

• Question 24:

  The modified IRR (MIRR) is normally ________.

  A. all of these answers are correct
  B. none of these answers are correct
  C. greater than the regular IRR if IRR > k
  D. equal to the regular IRR if IRR < k
  E. less than the regular IRR if IRR > k
  E. less than the regular IRR if IRR > k

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  Explanation

  MIRR assumes that cash flows from all projects are reinvested at the cost of capital, while the regular IRR assumes that the cash flows from each project are reinvested at the project's own IRR. Therefore the IRR will be greater than the MIRR if the IRR is greater than the cost of capital.

• Question 25:

  New Gestalt, Inc., a software firm had a net income of 1.7 million last year. It has 200,000 common shares and 300,000 convertible bonds with face value of 100 outstanding. The convertible bonds carry a coupon of 4% and can be converted one-for-one. The average stock price last year was 39 and the maximum price was 57. The effective interest rate on the convertible debt is 8%. New Gestalt issued 100,000 preferred shares with face value 100 and a coupon of 5% on March 31st of last year. Assume the convertible bonds are dilutive and that New Gestalt faces a 30% tax rate. Given the above, if New Gestalt had 300,000 warrants with a strike of 36 outstanding instead of the convertible bonds, its Diluted EPS would equal ________.

  A. 5. 94
  B. 5. 24
  C. 6. 62
  D. 4. 91
  A. 5. 94

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  Explanation

  For Diluted EPS with warrants, numerator = net income - preferred dividends = 1.7 million - 375,000 = 1,325,000. Using the Treasury stock method, the additional shares due to warrant exercise = 300,000*(1 - 36/39) = 23,077. Total number of shares used in Diluted EPS = 200,000 + 23,077 = 223,077. Therefore, Diluted EPS = 1,325,000/223,077 = 5. 94.

• Question 26:

  The Altman Company has a debt ratio of 33. 33 percent, and it needs to raise $100,000 to expand. Management feels that an optimal debt ratio would be 16. 67 percent. Sales are currently $750,000, and the total assets turnover is 7. 5. How should the expansion be financed so as to produce the desired debt ratio?

  A. Finance 20 percent debt, 80 percent equity.
  B. Finance 40 percent debt, 60 percent equity.
  C. Finance it all with debt.
  D. Finance 50 percent debt, 50 percent equity.
  E. Finance it all with equity.
  E. Finance it all with equity.

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  Explanation

  Old debt ratio = 0.3333; New debt ratio = 0.1667.

  $750,000/TA= 7. 5.

  TA = $100,000.

  Debt = 0.3333($100,000) = $33,330.

  New TA = $100,000 + $100,000 = $200,000.

  New Debt = $200,000(0.1667) = $33,340.

  Altman's current debt of $33,330 represents approximately 16. 67% of total assets following the expansion, thus the firm should finance with 100 percent equity.

• Question 27:

  In an investigation of Clay Industries, Marcus Litton, a financial analyst, has determined the following information: Sales: $300,000,000 Fixed costs: $100,000,000 Variable costs: $115,200,000 Interest expense: $1,800,000 Tax rate: 35% Weighted Average Cost of Capital: 10.15% Beta coefficient: 0.80 Common shares outstanding: 10,000,000 Mr. Litton has asked for your assistance in determining the earnings per share (EPS) of Clay Industries. Using this information, which of the following answers correctly illustrates this EPS calculation?

  A. $2. 91
  B. $6. 17
  C. $6. 80
  D. The EPS figure cannot be completely determined from the information provided.
  E. $4. 90
  F. $5. 40
  F. $5. 40

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  Explanation

  The EPS figure is perhaps the single most popular term in the field of conventional equity investments. Any glance into financial media and business periodicals will undoubtedly uncover numerous instances in which the EPS figure is cited. While quite popular and useful, many individuals do not understand the mechanics behind the EPS calculation, and an investigation into the components of EPS is a valuable learning experience. The EPS calculation is found by the following equation: {EPS = [(Sales - Fixed Costs - Variable Costs - Interest Expense)(1 - Tax Rate)] / [# of Common Shares Outstanding]} Additionally, the EPS figure can be found by: {EPS = [(EBIT - Interest Expense)(1 - Tax Rate) / # of Common Shares Outstanding]} Incorporating the given information into the first EPS equation will yield the following: {EPS = {[($300,000,000 - $100,000,000 - $115,200,000 - $1,800,000)(1 - 0.35)] / 10,000,000]} = $5. 40.

• Question 28:

  What is your monthly payment, beginning next month, on a $19,000 loan, if you pay it off over 48 months and the interest rate is 5. 9% per year, compounded monthly?

  A. $398.68
  B. $1,411.86
  C. $448.60
  D. $397. 26
  E. $445. 34
  E. $445. 34

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  Explanation

  On the BAII Plus, press 48 N, 5. 9 divide 12 = I/Y, 19000 PV, 0 FV, CPT PMT. On the HP12c, press 48 n, 5. 9 ENTER 12 divide i, 19000 PV, 0 FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 29:

  If you owe $4,500 today and will repay it with 8 annual payments of $900, beginning next year, what is the interest rate per year, compounded annually, that you are paying?

  A. 10.41%
  B. 19.80%
  C. 11.81%
  D. 4. 4%
  E. 14. 4%
  C. 11.81%

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  Explanation

  On the BAII Plus, press 8 N, 4500 PV, 900 +/- PMT, 0 FV, CPT I/Y. On the HP12C, press 8 n, 4500 PV, 900 CHS PMT, 0 FV, i. Note that the PMT must be entered with a sign that is opposite that given the PV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 30:

  Assume the following information about a publicly traded automobile manufacturer:

  Revenue: $16,000,000 Cash flow: $1,700,000 Net worth per share: $14. 55 Current stock price: $30.25 per share Number of common shares outstanding: 1,300,000

  Using this information, what are the price-to-sales, price-to-book, and price-to-cash flow ratios, respectively?

  A. The answer cannot entirely be calculated from the information provided.
  B. None of these answers is correct.
  C. 1.18, 2. 08, 23. 13
  D. 2. 46, 0.48, 23. 21
  E. 2. 46, 2. 08, 23. 13
  F. 1.18, 2. 08, 23. 13
  E. 2. 46, 2. 08, 23. 13

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  Explanation

  To calculate the price-to-sales ratio, divide the market price of a common stock by its sales-per share figure. The equation for the price-to-sales ratio is as follows:

  Price-to-sales ratio = [P0 / sales per share].

  Incorporating the given information into this equation will yield the following:

  Price-to-sales ratio = [$30.25 / ($16,000,000 / 1,300,000)] = 2. 4578

  The calculation of the price-to-book ratio involves dividing the market price of a common stock by its net worth per share. The equation for the price-to-book ratio is as follows:

  Price-to-book ratio = [P0 / net worth per share].

  Where: net worth per share = (total assets - total liabilities) / # of common shares outstanding.

  In this example, the net worth figure has been converted to a per-share basis, and the calculation of the price-to-book ratio is straightforward:

  Price-to-book ratio = ($30.35 / $14. 55) = 2. 0859

  The calculation of the price-to-cash flow ratio involves dividing the market price of a common stock by the cash-flow-per-share figure. The calculation of the price-to-cash flow ratio is as follows:

  Price-to-cash flow = (P0 / cash flow per share)

  Incorporating the given information into this equation will yield the following:

  Price-to-cash flow = [$30.35 / (1,700,000 / 1,300,000)] = 23. 132