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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3191:

  The sampling distribution of the sampling mean is:

  A. the distribution of the means of all possible samples of a given size from a given population.
  B. the distribution of all possible samples of a given population.
  C. the distribution of all possible means of a given population.
  D. the distribution of the means of all possible samples of a given population.
  A. the distribution of the means of all possible samples of a given size from a given population.

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  Explanation

  The sampling distribution of the sample means is a probability distribution of all possible sample means of a specific sample size.

• Question 3192:

  Roger Templeton, an analyst for Bridgetown Capital Management, is studying past market data to identify risk factors that produce anomalous returns. He tests monthly data on each of 60 financial and economic variables over a 15-year period to find which ones are related to stock index returns. Based on this research, Templeton identifies three variables that show statistically significant relationships with equity returns. He presents his results to Bridgetown's managers and recommends implementing a trading program based on changes in these three variables. What is the most likely reason why Bridgetown's management should be skeptical of the anomalies Templeton has identified? The results suffer from:

  A. data mining bias
  B. survivorship bias
  C. small sample bias
  A. data mining bias

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  Explanation

• Question 3193:

  Under ERISA, fiduciaries must:

  -act solely in the interest of and for the exclusive purpose of benefiting, the plan participants and beneficiaries;

  -act with the ________, prudence and diligence of a prudent person acting in like capacity;

  -diversify the plan's investments to protect it from the risk of substantial loss;

  -act in accordance with the provisions of the plan documents to the extent that the documents comply with ERISA;

  -refrain from engaging in prohibited transactions.

  A. caution
  B. care, skill
  C. none of these answers
  D. attention
  B. care, skill

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  Explanation

  A fiduciary is required to discharge all duties with respect to a plan "with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims."

• Question 3194:

  An entity desiring to issue a fixed-income security has placed $10 million worth of loan receivables in a special purpose vehicle (SPV) that is completely independent of the company. Additionally, the credit rating agencies have suggested the entity secure a third-party guarantee in order to have the security rated AAA. After completing the transfer of assets to the SPV and obtaining a letter of credit from a national bank, the entity issued the AAA-rated security. Which of the following securities did the entity most likely issue?

  A. Commercial paper.
  B. International bonds.
  C. Asset-backed securities.
  C. Asset-backed securities.

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  Explanation

• Question 3195:

  If you buy an item for $475 and agree to pay for it with 24 monthly payments of $22. 50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

  A. 17. 53%
  B. 14. 15%
  C. 12. 63%
  D. 12. 92%
  E. 1.05%
  C. 12. 63%

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  Explanation

  The interest rate returned by the calculator will be the periodic interest rate. It must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 24 N, 475 PV, 22. 50 +/- PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 24 n, 475 PV, 22. 50 CHS PMT, 0 FV, i. Then press 12 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3196:

  You are examining a portfolio composed of 33% money-market investments, 9.5% bonds, and 57. 5% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 9%, and the return on stocks was -11%. What is the portfolio weighted average return?

  A. -4. 05%.
  B. -4. 15%.
  C. None of these answers is correct.
  D. -3. 90%.
  B. -4. 15%.

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  Explanation

  The portfolio weighted-average mean return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 0.33 * 0.04 + 0.095 * 0.09 + 0.575 * -0.11 = -4. 15%.

• Question 3197:

  Which of the following statements is correct?

  A. If you are choosing between two projects which have the same cost, and if their NPV profiles cross, then the project with the higher IRR probably has more of its cash flows coming in the later years.
  B. The NPV and IRR methods both assume that cash flows are reinvested at the cost of capital. However, the MIRR method assumes reinvestment at the MIRR itself.
  C. There can never be a conflict between NPV and IRR decisions if the decision is related to a normal, independent project, i.e., NPV will never indicate acceptance if IRR indicates rejection.
  D. A change in the cost of capital would normally change both a project's NPV and its IRR.
  E. To find the MIRR, we first compound CFs at the regular IRR to find the TV, and then we discount the TV at the cost of capital to find the PV.
  C. There can never be a conflict between NPV and IRR decisions if the decision is related to a normal, independent project, i.e., NPV will never indicate acceptance if IRR indicates rejection.

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  Explanation

  To see this, sketch out a NPV profile for a normal, independent project, which means that only one NPV profile will appear on the graph. If WACC < IRR, then IRR says accept. But in that case, NPV > 0, so NPV will also say accept.

• Question 3198:

  A capital lease is recorded as ________.

  A. an asset and a liability
  B. a temporary asset
  C. an off-balance-sheet item
  D. a liability
  A. an asset and a liability

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  Explanation

  According to the GAAP, leases that transfer substantially all of the benefits and risks of the property to the lessee be treated as an asset acquisition and an assumption of liability. Hence, capital leases generate an asset and a liability.

• Question 3199:

  Which of the following statements about put options is false?

  A. The most the buyer of a put can lose is the premium.
  B. The most the buyer can gain is unlimited.
  C. The most the writer can lose is the stock's price less the premium.
  D. The most the writer can gain is the put's premium.
  B. The most the buyer can gain is unlimited.

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  Explanation

• Question 3200:

  The NAV of an open-ended fund is $6. 35. The fund charges a 9% sales charge and no redemption charges. The price at which you can purchase a share of the fund equals ________.

  A. none of these answers
  B. $6. 98
  C. $6. 92
  D. $6. 35
  B. $6. 98

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  Explanation

  The offer price i.e. the price at which you can buy a share equals NAV/(1-load charge) = 6. 35/(1-0.09) = $6. 98

  Be careful NOT to calculate the offer price as NAV*(1 + load charge). The sales charge is expressed as an percentage of the amount you deposit. In this example, you deposit $6. 98 and get a share worth $6. 35 = $6. 98*(1-0.09)