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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 291:

  A firm has total assets of 5,320, net sales of 8,395, average receivables of 894, current assets of 2,393 and a current ratio of 1.2. Its average receivables collection period equals ________.

  A. 41.73 days
  B. 29.92 days
  C. 23. 19 days
  D. 38.87 days
  D. 38.87 days

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  Explanation

  This is measured by two ratios in slightly different ways:

  a.

  Receivables turnover ratio = Net annual sales/average receivables

  b.

  Average receivables collection period = 365/receivables turnover

  In this case, receivables turnover = 8,395/894 = 9.39. Therefore, average receivables collection period = 365/9.39 = 38.87 days. Notice that the collection period is measured in "days."

• Question 292:

  "An erratic monetary policy is the primary sources of business instability and inflation." This view is held by

  A. Monetarists.
  B. Keynesians.
  C. Classical economists.
  D. Neoclassical economists.
  A. Monetarists.

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  Explanation

  Monetarists believe that monetary policy has a powerful influence on the economy but also realize that there are lengthy and unpredictable time lags between the implementation of a monetary policy and the realization of its primary effects. Hence, an erratic monetary policy can lead to big instabilities in the economy.

• Question 293:

  Which of the following can be found in Standard II?

  A. Members shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation.
  B. Members must use the CFA designation in a dignified manner.
  C. Members shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists.
  D. Members shall maintain knowledge of AIMR's Code of Ethics.
  E. If members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates.
  B. Members must use the CFA designation in a dignified manner.

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  Explanation

  Standard II states that holders of the CFA designation may use it, but only in a dignified and judicious manner. The use of the designation may be accompanied by an accurate explanation of the requirements that have been met to obtain the designation.

• Question 294:

  What is the value of coupon and principal payments on a 10-year bond with coupon payments of $50 every six months (for a total of 20 payments), a principal payment of $8,000 in 10 years, and a required rate of return of 8%?

  A. Coupons: $938.48, Principal: $4932. 34
  B. Coupons: $743. 39, Principal: $5546. 50
  C. Coupons: $679.50, Principal: $3705. 60
  D. Coupons: $549.50, Principal: $2834. 65
  E. Not enough information
  C. Coupons: $679.50, Principal: $3705. 60

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  Explanation

  The value of coupon payments can be thought of as the value of an annuity with 20 periods, and with a rate of return of 4% (half of 8%) for each period. Using appendix C in the book by Reilly and Brown, the present value of the coupons is equal to 50 x 13. 59 = $679.50. Using the same appendix, the present value of the principal payment is equal to 8000 x 0.4632 = $3705. 60. Note that many textbooks recommend using the six-month interest rate and doubling the number of yearly periods in making this calculation. Using 4% for 20 periods, the value of the final payment is $8,000/(1.04^20) = $3,651.

• Question 295:

  A diffusion index is equal to

  A. the daily total of advancing stocks plus one-half the number of unchanged stocks, divided by the total number of stocks traded.
  B. the daily total of advancing stocks divided by the number of declining stocks.
  C. the daily total of advancing stocks plus one-half the number of unchanged stocks, divided by the number of declining stocks.
  D. the daily total of advancing stocks divided by the total number of stocks traded.
  A. the daily total of advancing stocks plus one-half the number of unchanged stocks, divided by the total number of stocks traded.

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  Explanation

  The diffusion index is an alternative specification of advance-decline series, and is used as an indicator of the direction of the market. If the index reaches up to levels of 56 to 60, the market is considered overbought. If it comes down to levels of 40 to 44, the market is considered over oversold.

• Question 296:

  What is the following table called?

  Ages Number of Ages 20 - 2916 30 - 3925 40 - 4951 50 - 5980 60 - 6920 70 - 798

  A. None of these answers
  B. Ogive
  C. Histogram
  D. Frequency distribution
  E. Frequency polygon
  D. Frequency distribution

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  Explanation

  The table above tallies the number of people within each age group. The tallies are then reported in the second column and form the frequency of occurrences in each group. By doing so for every age group, we have a distribution of the frequencies.

• Question 297:

  Keynesian analysis implies that

  A. flexible wages and prices will quickly direct a market economy to full employment.
  B. the federal budget should be balanced annually.
  C. fluctuations in aggregate demand are an important source of economic instability.
  D. fluctuations in the money supply are the major source of economic instability.
  C. fluctuations in aggregate demand are an important source of economic instability.

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  Explanation

  According to Keynes, the major source of business instability is fluctuations in aggregate demand. Thus, policies that effectively stabilize aggregate demand substantially reduce economic instability.

• Question 298:

  Bert wants to retire a millionaire. If he is 40 years old today and already has $40,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

  A. $703. 26
  B. $739.04
  C. $738.95
  D. $770.98
  E. $742. 77
  E. $742. 77

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  Explanation

  The total number of deposits will be 300 (25 years x 12 months/year). On the BAII Plus, press 300 N, 8 divide 12 = I/Y, 40000 PV, 1000000 +/- FV, CPT PMT. On the HP12C, press 300 n, 8 ENTER 12 divide i, 40000 PV, 1000000 CHS FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 299:

  One of the assumptions of technical analysis is that the market value of any good or service is determined solely by the interaction of ________.

  A. consumers and investors
  B. investment professionals and credit agencies
  C. supply and demand
  D. none of these answers
  C. supply and demand

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  Explanation

  Both technicians and non-technicians agree that, at any point in time, the price of a security (or good or service) is determined by the interaction of supply and demand for it. The four assumptions that support technical analysis are these:

  1. The market value of any good or service is determined solely by the interaction of supply and demand for it.

  2. Supply and demand are governed by numerous factors, both rational and irrational, including the economic variables relied upon by the fundamental analyst, as well as opinions, models and guesses. The market weights all of these factors continually and automatically.

  3. Disregarding minor fluctuations, the prices for individual securities and the overall value of the market tend to move in trends, which persist for appreciable lengths of time.

  4. Prevailing trends change in reaction to shifts in supply and demand relationships. These shifts, no matter why they occur, can be detected sooner or later in the action of the market itself.

• Question 300:

  Project A has an IRR of 12% and project B has an IRR of 9%. The crossover rate for these projects is 6. 9%. You use the NPV rule for making project selections. If both the projects have a cost of capital of 10.4% and the projects are

  independent with normal cash flows, you should:

  A. select neither A nor B.
  B. select project B.
  C. insufficient information.
  D. select project A.
  D. select project A.

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  Explanation

  Note that the crossover rate is unimportant here since the projects are independent, not mutually exclusive. Hence, you should select all projects with positive NPV. In this case, since A has an IRR greater than the cost of capital and it has normal cash flows, it has a positive NPV. Project B's IRR exceeds the cost of capital and hence has negative NPV. Therefore, you should select A and reject B.