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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3111:

  Which of the following is not involved in the estimation of the earnings per share (EPS) for a stock market series?

  A. Estimation of sales per share
  B. Estimation of next year's interest expense
  C. Estimation of next year's operating profit margin
  D. Estimation of next year's corporate tax rate
  E. All of these choices are involved in the estimation of EPS for a stock market series.
  F. Estimation of next year's depreciation per share
  E. All of these choices are involved in the estimation of EPS for a stock market series.

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  Explanation

  All of the choices listed are used in the estimation of EPS for a stock market series. Further, the estimation of EPS for a stock market series involves these five processes exclusively.

• Question 3112:

  Volume considerations are

  A. largely irrelevant to technical analysts.
  B. the primary tool of technical analysts.
  C. important to technical analysts.
  D. not had by technical analysts.
  C. important to technical analysts.

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  Explanation

  Most technical trading rules consider both stock price and volume movements. The volume of trading is an important, yet not dominant, variable in technical analysis.

• Question 3113:

  Which of the following is/are true about claims of compliance with the AIMR-PPS?

  I. If a firm is only in partial compliance with PPS, it must use a disclaimer specifying the exact areas of non-compliance.

  II. If the calculation methodology used by a firm follow standard industry practice, it is allowed to claim that the methodology is in compliance with the AIMR-PPS.

  III.

  If a member misuses the claim of compliance with the PPS, AIMR can publicly censure him, suspend his membership and revoke his CFA charter.

  A. I, II and III
  B. none of them
  C. III only
  D. I and III only
  C. III only

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  Explanation

  A firm cannot claim partial compliance with the PPS. It is either fully compliant or non-compliant. Further, statements referring to the calculation methodologies being in accordance with the PPS are explicitly prohibited; the PPS are mainly presentation standards, not measurement standards. Violations are punishable by public censure, membership suspension and revocation of CFA charter.

• Question 3114:

  If you deposit $6,000 into an account paying 4% per year, compounded semiannually, how much do you have in the account in 20 years?

  A. $13,248.24
  B. $12,667. 70
  C. $14,667. 76
  D. $7,403. 52
  E. $12,204. 65
  A. $13,248.24

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  Explanation

  On the BAII Plus, press 40 N, 4 divide 2 = I/Y, 6000 PV, 0 PMT, CPT FV. On the HP12C, press 40 n, 4 ENTER 2 divide i, 6000 PV, 0 PMT, FV. 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 3115:

  What is the Net Present Value of this series of annual cash flows at an interest rate of 14% per year: Year 0: <$4,000>, Year 1: $2,000, Year 2: $0, Year 3: $0, Year 4 to indicate a negative number).

  A. $214. 37
  C. $122. 71
  D. $1.21
  C. $122. 71

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  Explanation

  On the BAII Plus, press CF 2nd CLRWork 4000 +/- ENTER DownArrow 2000 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 14 ENTER DownArrow CPT. On the HP12C, press these keys: 4000 CHS BlueShift CFo 2000 BlueShift CFj 0 BlueShift CFj 0 BlueShift CFj 4000 BlueShift CFj. Then press 14 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3116:

  The industry growth rate is a function of the

  A. return on equity multiplied by profit margin.
  B. earnings per share multiplied by the retention rate.
  C. payout ratio multiplied by the return on total assets.
  D. required rate of return multiplied by the return on equity.
  E. retention rate multiplied by the return on equity.
  E. retention rate multiplied by the return on equity.

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  Explanation

  The growth rate is a function of the retention rate multiplied by the return on equity.

• Question 3117:

  How many quarters will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 6% per year, compounded quarterly?

  A. 22. 15
  B. 11.90
  C. 41.12
  D. 51.52
  E. 46. 56
  E. 46. 56

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  Explanation

  On the BAII Plus, press 1000 PV, 2000 +/- FV, 0 PMT, 6 divided by 4 = I/Y, then CPT N. On the HP12C, press 1000 PV, 2000 CHS FV, 0 PMT, 6 ENTER 4 divide i, then press n. HP12C answer is shown as 47. Answer should be in quarters, not years. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3118:

  An economy is currently in a state of equilibrium, at full employment. If a sudden supply shock were to decrease aggregate supply, which of the following effects will occur in the short run?

  I. Real interest rates will increase.

  II. Prices will rise.

  III. Aggregate demand will remain unaffected.

  IV.

  The SRAS will shift to the left.

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

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  Explanation

  The decrease in the aggregate supply curve will be represented by a movement of the short-run supply curve to the left. In the short run, this will cause an increase in prices since the demand curve does not move. Aggregate demand will fall, unemployment will rise above the natural rate and aggregate output will fall. The total disposable income in the economy will decrease and consumers will liquidate part of their savings to maintain stable consumption. This will decrease the supply of loanable funds, raising interest rates in the short run.

• Question 3119:

  Seasons, Inc. has just decided to issue 1 million shares of new equity. The firm has had a steady dividend growth of 3% and is expected to continue along this path, having just paid a $3. 23 per share dividend. The flotation costs for the new equity amount to 2. 2% of the total capital raised and the firm receives $31.4 million before flotation costs, calculate the cost of external equity.

  A. 13. 52%
  B. 14. 19%
  C. 13. 23%
  D. 13. 83%
  D. 13. 83%

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  Explanation

  IF F is the percentage flotation cost and P is the amount of new equity raised per new share, then Ke = D1/[P(1-F)] + g, where Ke is the cost of external equity. Here, g = 3%, D1 = 3. 23*(1+3%) = $3. 32, P = $31.4 and F = 2. 2%. Therefore, Ke = 3. 32/(31.4*(1-0.022)) + 3% = 13. 83%.

• Question 3120:

  In a purely floating exchange rate economy, a shift toward a more expansionary fiscal policy will move the capital account toward a ________. The current account will move toward a ________.

  A. surplus, surplus too
  B. surplus, deficit
  C. deficit, surplus
  D. deficit, deficit too
  B. surplus, deficit

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  Explanation

  An expansionary fiscal policy serves to raise interest rates and increase capital inflow. This moves the capital account toward a surplus. Since the changes in the capital and current accounts must balance out in a purely floating exchange rate economy, the current account moves toward a deficit.