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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 311:

  At December 31, 1996, Davis Inc. awaits judgment on a lawsuit for a competitor's infringement of Davis' patent. Legal counsel believes it is probable that Davis will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Davis' 1996 financial statements?

  A. None of these answers.
  B. Neither in note disclosure nor by accrual.
  C. In note disclosure only.
  D. By accrual for the lowest amount of the range of possible awards.
  E. By accrual for the most likely award.
  C. In note disclosure only.

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  Explanation

  A loss contingency is recognized but not a gain contingency following the principle of conservatism. A gain contingency is only disclosed in the notes until the settlement is realized.

• Question 312:

  What quarterly payment is required beginning one period from today to pay off a $4,000 debt, if interest accrues at 8% per year, compounded quarterly, and the debt is to be retired in 5 years?

  A. $1,001.83
  B. $244. 63
  C. $848.63
  D. $407. 41
  E. $214. 29
  B. $244. 63

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  Explanation

  On the BAII Plus, press 20 N, 8 divide 4 = I/Y, 4000 PV, 0 FV, CPT PMT. On the HP12C, press 20 n, 8 ENTER 4 divide i, 4000 PV, 0 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 313:

  Which of the following would appear on the liability side of the balance sheet of a commercial bank?

  A. loans outstanding
  B. demand and other transaction deposits
  C. vault cash
  D. U.S. government securities
  B. demand and other transaction deposits

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  Explanation

  Demand and other transaction deposits constitute liabilities for commercial banks because they "owe" depositors the amount of their deposits. Outstanding loans represent assets for commercial banks because the borrower "owes" the bank the principal of the loan plus accrued interest.

• Question 314:

  No-load funds have traditionally been

  A. rare.
  B. distributed by a sales force.
  C. distributed by direct marketing.
  D. distributed by brokers.
  C. distributed by direct marketing.

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  Explanation

  No-load funds have traditionally been distributed by direct marketing because brokers had little incentive to sell them. Distribution has been done through mail, telephone, bank wire, or office of the fund. More recently, some no-load funds have developed agreements with some brokerage firms to sell the funds in return for a fee.

• Question 315:

  What can we say if the coefficient of determination is 0.94?

  A. Direction of relationship is positive
  B. 94% of total variation in one variable is explained by variation in another variable
  C. All of these answers are correct
  D. Strength of relationship is 0.94
  E. None of these answers is correct
  B. 94% of total variation in one variable is explained by variation in another variable

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  Explanation

  We cannot tell anything about the direction of the relationship from the coefficient of determination or r- squared.

• Question 316:

  The results of the regressions using 200 observation on a variable Y against X are as follows:

  Coefficient Standard error

  intercept 3. 62. 1

  slope 8.11.3

  R square = 49%

  If an observation on X indicates X = 5 the estimated value of Y would be ________.

  A. 44. 1
  B. none of these answers
  C. 26. 1
  D. 40.5
  A. 44. 1

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  Explanation

  From the information given, the regression equation is Y = 3. 6 + 8.1X + error term. The expected value of the error is zero. Hence, when X = 5, the estimated value of Y equals 3. 6 + 8.1*5 = 44. 1.

• Question 317:

  The major difference between venture capital and conventional financing is that A. the interest rate of venture capital is much higher than conventional financing.

  B. venture capital is more than investing, it builds companies.

  C. All of these answers are correct.

  D. None of these answers.

  E. venture capital will provide equity ownership, conventional financing will not.

  Correct Answer. B
  B

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  Explanation

  The difference between venture capital and conventional financing is that venture capital is more than investing and more than building personal wealth, it builds companies.

• Question 318:

  What impact will the amortization of an intangible asset over a longer than appropriate period have on a firm?

  A. It will result in higher than otherwise sales revenues.
  B. None of these answers.
  C. All of these answers.
  D. It will reduce a firm's current income tax liability.
  E. It will improve reported earnings.
  E. It will improve reported earnings.

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  Explanation

  Earnings, not revenues will be improved because amortizing an intangible asset over a longer than appropriate period reduces the annual amortization expense; this improves pre-tax and after-tax profits.

• Question 319:

  Which of the following statements about bond indexes and international asset indexes is FALSE?

  A. Global equity indexes were created to alleviate problems with local indexes (sample selection and weighting).
  B. Low correlation among monthly country indexes supports international diversification.
  C. Some of the reasons that a bond index is more difficult to create than an equity index are that the universe of bonds is less than the universe of stocks and it is difficult to price the bonds because of the lack of continuous trade data.
  D. Investment-grade bond indexes have a higher correlation than high-yield bond indexes.
  C. Some of the reasons that a bond index is more difficult to create than an equity index are that the universe of bonds is less than the universe of stocks and it is difficult to price the bonds because of the lack of continuous trade data.

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  Explanation

  This statement contains correct and incorrect points. A bond index is more difficult to create than an equity index because the universe of bonds is greater than the universe of stocks. The point about pricing difficulties is correct. The other statements are true.

• Question 320:

  Which of the following would be classified a cash inflow from investing activities?

  A. Cash paid to retire bonds
  B. Proceeds from issuing stock
  C. Cash paid for dividends
  D. Proceeds from selling investments in the equity securities of other companies
  D. Proceeds from selling investments in the equity securities of other companies

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  Explanation

  All other responses qualify as cash flows from financing activities.