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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3221:

  The Dow Theory

  A. is widely used today.
  B. was invented in the 1960s.
  C. was invented in the early 19th century.
  D. was one of the first theories of technical analysis.
  D. was one of the first theories of technical analysis.

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  Explanation

  The Dow Theory was invented in the late 19th century by Charles Dow, publisher of the Wall Street Journal. It postulated that there were three types of price movements over time: major trends, intermediate trends, and short-term movements. These three types of trends interacted with one another, and identifying and isolating them individually would lead to profit opportunities.

• Question 3222:

  A financial economist runs the following regression: Demand for cars = alpha + beta*income level + error In this regression, the demand for cars is ________ variable and the income level is ________ variable.

  A. dependent; dependent.
  B. dependent; independent.
  C. independent; independent.
  D. independent; dependent.
  B. dependent; independent.

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  Explanation

  The left-hand side variable is the dependent variable since its behavior in the equation is being explained by the right-hand side variable, which is the independent variable. Note, however, that this does not imply any kind of causal relationship in general.

• Question 3223:

  Marc Juneau, equity analyst, has just been assigned the task of valuing Avalon Games, Inc. The company is expected to grow at 30 percent for the next two years. Beginning in the year 4, the growth rate is expected to reach seven percent and stabilize. The required return for this type of company in the non-electronic games sector is estimated at 13 percent. The dividend in year 1 is estimated at $3. 00. Which of the following is closest to the value Juneau should calculate for the stock of Avalon Games?

  A. $71.88.
  B. $64. 68.
  C. $73. 01. D. $45. 41.
  A. $71.88.

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  Explanation

  The high "supernormal" growth in the first three years and the decrease in growth thereafter signals that we should use a combination of the multi-period and finite dividend growth models (DDM) to value the stock of Avalon Games.

  Step 1:Determine the Dividend stream through year 4

  Step 2:Calculate the value of the stock at the end of year 3 (using D4)

  Step 3:Calculate the PV of each cash flow stream at ke= 13%, and sum the cash flows.Note:We suggest you clear the financial calculator memory registers before calculating the value.

  

  Note: 1Future values are entered in a financial calculator as negatives to ensure that the PV result is positive. It does not mean that the cash flows are negative. Also, your calculations may differ slightly due to rounding. Remember that the question asks you to select the closest answer.

• Question 3224:

  Which of the following statements is most correct?

  A. The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.
  B. As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.
  C. The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price.
  D. All of these statements are false.
  E. The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC.
  D. All of these statements are false.

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  Explanation

  The optimal capital structure is the one that maximizes the price of the firm's stock, and minimizes the firm's WACC.

• Question 3225:

  Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except:

  A. the manager's soft-dollar practice should be always maintained confidentially in his or her files.
  B. at all times, the manager must seek best price and execution.
  C. the commission paid must be reasonable in relation to the research and execution services received.
  D. the goods or services purchased must be for "research service."
  E. none of these answers.
  A. the manager's soft-dollar practice should be always maintained confidentially in his or her files.

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  Explanation

  The soft-dollar practice must be disclosed.

• Question 3226:

  What monthly payment is required over the next 60 months to pay off a $12,500 debt today, if interest is charged at 12% per year, compounded monthly?

  A. $316. 02
  B. $270.54
  C. $296. 67
  D. $3,467. 62
  E. $278.06
  E. $278.06

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  Explanation

  On the BAII Plus, press 60 N, 12 divide 12 = I/Y, 12500 PV, 0 FV, CPT PMT. On the HP12C, press 60 n, 12 ENTER 12 divide i, 12500 PV, 0 FV, PMT. Make sure the BAII Plus has the P/Y value set to 1. Note that the answer will be displayed as a negative number.

• Question 3227:

  The mosaic theory holds that an analyst:

  A. Can use material public information or nonmaterial nonpublic information in the analyst's analysis.
  B. Should distinguish between facts and opinions in research reports.
  C. Should use all available and relevant information in support of an investment recommendation.
  D. Violates the Code and Standards if the analyst fails to notify her or his employer of the Code and Standards fails to have knowledge of and comply with applicable laws.
  A. Can use material public information or nonmaterial nonpublic information in the analyst's analysis.

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  Explanation

  This question pertains to Standard V (A), Prohibition against Use of Material Nonpublic Information. The mosaic theory states that an analyst may use material public information or nonmaterial nonpublic information in creating a larger picture than shown by any individual piece of information and the conclusions drawn become material only after the pieces are assembled. All the other answers describe violations of the Code and Standards, but are not the mosaic theory.

• Question 3228:

  The peaks and valleys of the business cycle tend to be magnified using which inventory method?

  A. LIFO
  B. FIFO
  C. gross profit method
  D. weighted average
  B. FIFO

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  Explanation

  Businesses tend to increase selling prices as costs rise, regardless of the fact that inventories may have been purchased before the price rise. The reverse effect occurs in periods of price decreases.

• Question 3229:

  The Performance Presentation Standards are designed for

  A. investment consultants.
  B. current clients.
  C. prospective clients.
  D. all of these are beneficiaries of the AIMR Performance Presentation Standards.
  D. all of these are beneficiaries of the AIMR Performance Presentation Standards.

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  Explanation

  The primary beneficiaries of the PPS are prospective clients who are attempting to compare performance of different investment firms. However, current clients attempting to evaluate their investment managers performance also benefit from the PPS. Consultants may also use the information when evaluating performance data.

• Question 3230:

  Albert and Tye, who recently started their own investment advisory business, have registered to take the Level III CFA examination. Albert's business card reads, "Judy Albert, CFA Candidate." Tye has not put anything about the CFA designation on his business card, but promotional material that he designed for the business describes the CFA requirements and indicates that Tye participates in the CFA Program and completed Levels I and II. According to the Standards:

  A. Albert has violated the Standards but Tye has not.
  B. Neither Albert nor Tye had violated the Standards.
  C. Tye has violated the Standards and Albert has not.
  D. Both Albert and Tye have violated the Standards.
  A. Albert has violated the Standards but Tye has not.

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  Explanation

  The question deals with Standard II (A), Use of Professional Designation. Candidates may not use the designation in any form prior to actually obtaining their charter. Therefore, Albert has violated Standard II (A). Candidates may communicate that they are participating in the CFA Program, however and may state the levels that they have completed. Therefore, Tye has not violated Standard II (A).