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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3041:

  Frictional unemployment means

  A. there is a decline in the demand for labor in the aggregate, due to recessionary tendencies in the economy.
  B. there are not enough jobs to go around.
  C. jobs are plentiful but workers scarce.
  D. imperfect information prevents qualified workers from matching up with the available jobs.
  D. imperfect information prevents qualified workers from matching up with the available jobs.

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  Explanation

  Frictional unemployment refers to unemployment due to constant changes in the economy that prevent qualified unemployed workers from being immediately matched up with existing job openings. It results from the scarcity of information and the search activities of both employers and employees for information that will help them make better employment choices.

• Question 3042:

  If the debit balances in brokerage accounts increase, the smart money technicians interpret it as:

  A. none of these answers.
  B. a bullish signal.
  C. a hold signal.
  D. a bearish signal.
  B. a bullish signal.

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  Explanation

  Debit balances in brokerage accounts represent margin debt i.e. borrowings by investors from the brokerages for investment in the market. Smart money technicians consider margin investors as a group of astute investors and hence interpret large leveraged investments as a bullish signal. Therefore, an large increase in the debit balances is considered a bullish sign while a decline is considered a bearish sign.

• Question 3043:

  ________ policy may be used by government officials to deliberately generate a budget deficit.

  A. Discretionary fiscal
  B. Active fiscal
  C. Discretionary monetary
  D. Active monetary
  A. Discretionary fiscal

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  Explanation

  Discretionary fiscal policy is defined as policymakers instituting deliberate changes in tax laws or spending on government programs that are designed to generate a budget deficit. Deficits emanating from this source are referred to as active budget deficits.

• Question 3044:

  The support level of a stock is the price at which the technician expects:

  A. a substantial supply of the stock.
  B. the stock price to break out of the rising trend channel.
  C. a substantial demand for the stock.
  D. a stable trading volume.
  C. a substantial demand for the stock.

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  Explanation

  The support level can be thought of as a temporary floor on the stock price in the sense that if the price falls below this level, additional demand will shore up the price.

• Question 3045:

  Merryweather, a manufacturer of summer casual wear, has a return on equity of about 10.6%. It typically pays out about 27% of its earnings as dividends. The firm's stock has a beta of +0.23. The market has an expected return of 16. 2% and the prevailing risk-free rate is 6. 9%. Merryweather recently announced that last year's EPS was $4. 3 per share. Given these data, Merryweather's share price should be:

  A. $91.19
  B. $84. 84
  C. $96. 07
  D. $78.29
  C. $96. 07

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  Explanation

  The dividend growth rate, g = ROE*(1-payout ratio) = 0.106*(1-0.27) = 7. 738%.

  The dividend this year was 4. 3*0.27 = $1.16. Therefore, expected dividend next year = D1 = (1+g)*Do = 1.07738*1.16 = $1.25.

  The required rate of return on the stock can be found using CAPM, which gives Rstock = Rf + beta*(Rm - Rf) = 6. 9% + 0.23*(16. 2% - 6. 9%) = 9.039%.

  Therefore, Po = D1/(k-g) = 1.25/(9.039% - 7. 738%) = $96. 07.

• Question 3046:

  A project with normal (or conventional) cash flows has a single IRR of 10%. If a project's hurdle rate is 8%, the project NPV:

  A. is positive.
  B. could be all of these answers.
  C. equals zero.
  D. is negative.
  A. is positive.

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  Explanation

  "Normal cash flows" implies that there is an up front cost when the project is set up but all cash flows after that are cash inflows. For normal cash flows, the NPV is positive for discount rates lower than the IRR and negative for discount rates higher than the IRR. Since the project's hurdle rate is less than the IRR, the project's NPV is positive. Note: if there are cash outflows after the project is put into operation, one can get multiple IRRs.

• Question 3047:

  Companies reporting consolidated cash flows using the direct method must report all of the following cash receipts except for:

  A. other operating cash receipts, if any.
  B. cash from customers, including lessees, licensees and similar.
  C. repayments of funds from foreign subsidiaries.
  D. interest and dividend payments received.
  C. repayments of funds from foreign subsidiaries.

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  Explanation

  Subsidiaries are part of the same company. Since the cash flows are consolidated there is no effect on the statement for repayments of funds from foreign subsidiaries.

• Question 3048:

  Name the type of fee charged by a fund when it is sold if is held for less than a specified time period?

  A. 12b-1
  B. no-load
  C. deferred sales load
  D. management fees
  E. commissions
  F. low-load
  C. deferred sales load

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  Explanation

  Also known as back-end charges when the fund is sold as opposed to front-end charges when the fund is purchased.

• Question 3049:

  Young, a portfolio manager with Northside Bank, has just been given investment authority for a newly acquired pension account. Client objectives have not yet been established. On the day the account is received, $2 million in bonds, representing 4 percent of the portfolio, mature. Which of the following is Young's best course of action on that day?

  A. Invest the proceeds in cash equivalents until a meeting can be arranged to establish fund objectives.
  B. Contact the client's former investment advisor and take investment action based on previously used guidelines.
  C. Invest the proceeds in accordance with the bank's current asset allocation strategy.
  D. Make no decision until client objectives have been established.
  A. Invest the proceeds in cash equivalents until a meeting can be arranged to establish fund objectives.

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  Explanation

  This question relates to Standard IV (B.2), Portfolio Investment Recommendations and Actions. This standard requires that members make a reasonable inquiry into a client's financial situation, investment experience and investment objectives prior to making any investment recommendation. To rely on outdated investment guidelines, or firmwide strategies, or to hold the funds, would be inappropriate because it might violate a member's duty to safeguard client's interests. The best course of action is to invest in cash equivalents until a meeting can be arranged to establish fund objectives, because it adequately protects the client's interest until investment objectives are established.

• Question 3050:

  A cumulative frequency distribution on days absent during a calendar year by employees of a manufacturing company is shown below. Days Absent Cumulative Number of Employees 0 - 260 3 - 531 6 - 814 9 - 116 12 - 142 How many employees were absent more than five days?

  A. 14
  B. 8
  C. None of these answers
  D. 22
  E. 31
  A. 14

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  Explanation

  The cumulative number for class 6-8 will give us the number of people absent more than five days; 14.