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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3161:

  How much must you deposit today if you wish to have $50,000 in 20 years, assuming that interest accumulates at 6% per year, compounded annually?

  A. $2,500.00
  B. $160,356. 77
  C. $12,299.08
  D. $16,604. 73
  E. $15,590.24
  E. $15,590.24

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  Explanation

  On the BAII Plus, press 20 N, 6 I/Y, 0 PMT, 50000 FV, CPT PV. On the HP12C, press 20 n, 6 i, 0 PMT, 50000 FV, PV. Note that the answer is displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3162:

  To fulfill the duty to inform their employer that they must follow AIMR's Code and Standard, members must:

  A. inform their immediate supervisor in writing.
  B. inform their immediate supervisor either orally or in writing.
  C. inform the firm's chief executive officer in writing.
  D. inform the firm's chief executive officer either orally or in writing.
  A. inform their immediate supervisor in writing.

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  Explanation

  This question relates to a member's duty to inform his/her employer of the Code and Standards. The proper method to do so is in writing and through the member's direct supervisor.

• Question 3163:

  Accounting Standards are best described as

  A. the state-of-the-art presentation of the science of accounting.
  B. presentation standards mandated by the Securities and Exchange Commission.
  C. the result of a political process among groups with diverse interests.
  D. measuring the quality of stewardship.
  C. the result of a political process among groups with diverse interests.

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  Explanation

  Accounting standards have been through a long development process and are subject to continual innovation, modification, and change. Currently, the Financial Accounting Standards Board (FASB), composed of seven full-time paid members, functions as the standard-setting body of the accounting profession.

• Question 3164:

  Which of the following is/are differences between depreciation and depletion?

  I. Depletion can be applied only to natural resources while depreciation can be applied to most production resources.

  II. The amount of depletion depends upon total production but the amount of depreciation need not be so dependent.

  III.

  Depreciation expenses conform with accrual accounting while depletion expenses conform with cost recovery accounting.

  A. II and III
  B. I and II
  C. I, II and III
  D. none of these answers
  B. I and II

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  Explanation

  Depletion expenses also conform with accrual accounting.

• Question 3165:

  ________ financing is used for product development and initial marketing for firms in business under one year and has not sold their product commercially.

  A. Seed
  B. First-stage
  C. Start-up
  D. Third-stage
  E. Second-stage
  C. Start-up

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  Explanation

  There are three early stages of financing:

  1. Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research.

  2.

  Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially.

  3.

  First-stage financing. This is capital provided to initiate commercial manufacturing and sales.

• Question 3166:

  Coleman Industries' stock is currently trading in the market for a price of $21. Three months ago, Myong Packard wrote a 6-month put option on 100 shares of Coleman stock for a premium of $3. The exercise price on the put option is equal to S25. The put option is now trading in the market for $5. 25. Determine the moneyness of the put option.

  A. Out-of-the money.
  B. In-the-money.
  C. At-the-money.
  B. In-the-money.

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  Explanation

• Question 3167:

  Book value of a company is equal to all of the following except

  A. the amount resulting if the company were to liquidate at amounts reported on the balance sheet.
  B. total assets reduced by claims against them.
  C. the market value of the net assets.
  D. net asset value.
  C. the market value of the net assets.

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  Explanation

  The book value of a company is its value based on the balance sheet. The balance sheet is historical and after day 1 of operations the book value of a company is almost never equal to the market value of the company.

• Question 3168:

  Assume the following information for the common stock of Clay Industries, a large industrial firm:

  Required rate of return on equity: 14. 5% per year Expected growth rate: 12. 50% per year Dividend at t0: $0.70

  Assuming that the growth rate will remain constant, what is the projected value of Clay Industries common stock?

  A. $39.38
  B. None of these answers
  C. $32. 78
  D. The answer cannot be calculated from the information provided
  E. $30.76
  F. $35. 34
  A. $39.38

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  Explanation

  In this example, the growth rate of dividends is assumed to remain stable, allowing the use of the Gordon Model. The Gordon Model is also known as the "constant growth dividend discount model" and takes the following form: P0 = [D1 / (r - g)]

  Where P0 = the price of common stock X at time 0 D1 = the expected dividend at t1 r = the required rate of return on equity investments and g = the expected growth rate of dividends.

  Since the dividend at t1 is not provided, we must calculate it manually by multiplying the dividend at t0 by (1 + g). This will produce an answer of $0.7875 at t1. Now that the dividend at t1 has been determined, the given information can be put into the equation provided, leading to the following series of calculations:

  P0 = [$0.7875 / (.145 - .125)] = $39.38.

  When using the Gordon model, remember that the required rate of return "r" must be greater than the expected growth rate "g." Otherwise, this equation will produce a nonsensical answer.

• Question 3169:

  When presenting the components of total return for a real estate portfolio, the recognition of income at ________ level, rather than at the operating level, is preferred.

  A. risk
  B. purchase
  C. realized
  D. investment
  E. composite
  D. investment

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  Explanation

  This is recommended under the AIMR-PPS for presenting investment performance results.

• Question 3170:

  As the head of a trading desk at a major bank, it is your job to evaluate whether the superior performance of a trader is due to skill or luck. To test this, you set up the following hypothesis:

  Ho: Expected excess returns = 0

  H1: Expected excess returns > 0

  The excess returns are returns adjusted for risk using a proprietary factor model. In this set-up, which of the following is/are true?

  I. You must employ a one-tailed test.

  II. H1 is a directional alternative.

  III.

  Your critical z-statistics will be larger than the z-statistics in the case where the alternative is specified as H1: Excess returns are non-zero.

  A. I only
  B. II and III
  C. I and III
  D. I and II
  E. III only
  F. II only
  G. I, II and III
  D. I and II

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  Explanation

  The alternative hypothesis, H1, does not assign a specific value to the expected excess return but specifies a directional region. Since it specifies the region to the right of 0 as an alternative, he must employ a right-tailed test i.e. a one-sided test. Note that the critical z-statistics in one-tailed regressions are always lower than the z-statistics in the corresponding two-tailed test.