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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3241:

  The internal rate of return of a capital investment

  A. changes when the cost of capital changes.
  B. must exceed the cost of capital in order for the firm to accept the investment.
  C. is equal to the annual net cash flows divided by one half of the project's cost when the cash flows are an annuity.
  D. all of the answers are correct.
  B. must exceed the cost of capital in order for the firm to accept the investment.

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  Explanation

  The IRR is calculated by finding the discount rate that equates the present value of future cash inflows to the project's cost. The IRR is the project's expected rate of return. If the IRR exceeds the cost of the funds used to finance the project, a surplus accrues. Thus, accepting a project whose IRR exceeds its cost of capital increases shareholder wealth.

• Question 3242:

  Which of the following is a method of assessing country risk?

  A. Delphi technique
  B. Simulation analysis
  C. Monte Carlo simulation
  D. Scenario Analysis
  E. None of these answers is correct.
  F. Darden case method
  G. More than one of these answers is correct.
  A. Delphi technique

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  Explanation

  The Delphi technique is a popular method of assessing country risk, and involves the collection of several independent opinions the appropriate countries risk premium to be applied to the country under examination. In the Delphi technique, a group of experts are asked to quantify the country risk of a particular nation, without any input from other experts. By limiting any group discussion, the Delphi technique seeks to provide a realistic quantification of the country risk premium.

  "Simulation analysis," "Monte Carlo simulation," and "scenario analysis," are techniques designed to measure stand-alone risk. The "Darden case method" is largely a fictitious term.

• Question 3243:

  Variable X is distributed normally and has a mean of 10. If the probability that an observation of X will be negative is 0.16, what is the coefficient of variation of X?

  A. 10.0
  B. 1.0
  C. 0.1
  D. 0.32
  B. 1.0

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  Explanation

  The probability that X lies a distance 10 below the mean is given to be 0.16. Since the normal distribution is symmetric about the mean, this implies that the probability that X will be 10 greater than the mean is also 0.16. Thus, the probability that X lies between 0 and 20 is 1-0.16-0.16 = 0.68. For a normal distribution, 68% of the observations lie within one standard deviation of the mean. Hence, the standard deviation of X equals 10. The coefficient of variation is then equal to standard deviation/mean = 10/10 = 1.

• Question 3244:

  According to the method for calculating short-term interest rates from annualized rates, a three-month interest rate of 4% means that the interest rate paid after three months will be ________.

  A. .25%
  B. 1%
  C. 2%
  D. 4%
  E. none of these answers
  B. 1%

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  Explanation

  The rate to be paid over the period is equal to the annual rate multiplied by the length of the period, as a proportion of a year. Thus: 4%(3/12) = 1%.

• Question 3245:

  Inflation contributes to the depreciation of a nation's currency only when a country's rate of inflation is ________ that of its trading partners.

  A. less rapid than
  B. equal to
  C. more rapid than
  D. none of these answers, inflation rate is irrelevant
  C. more rapid than

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  Explanation

  If the rate of inflation in a nation is greater than that of its trading partners prices are rising faster at home than abroad. As a result, foreign consumers demand less of the nation's exports because they are now relatively more expensive. Falling demand for exports causes the demand for the nation's currency to decline and thus the currency depreciates.

• Question 3246:

  The following is a distribution of monthly commissions:

  Monthly Commissions Class Frequencies $600 - $7993 $800 - $9997 $1,000 - $1,19911 $1,200 - $1,39922 $1,400 - $1,59940 $1,600 - $1,79924 $1,800 - $1,9999 $2,000 - $2,1994

  Referring to the table above, what is the relative frequency of those salespersons that earn more than $1,599?

  A. 25. 5%
  B. None of these answers
  C. 29.5%
  D. 27. 5%
  E. 30.8%
  E. 30.8%

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  Explanation

  This is found by adding up all the frequencies of the classes above $1599. In this case 24 + 9 + 4 = 37. Then we divide this by the total frequencies, which is 120. Therefore, 37/120 = 30.8%

• Question 3247:

  The mean amount of gasoline and services charged by Key Refining Company credit customers is $70 per month. The distribution of amounts spent is approximately normal with a standard deviation of $10. What is the probability of selecting a credit card customer at random and finding the customer charged between $70 and $83?

  A. 0.4032
  B. None of these answers
  C. 0.1962
  D. 0.3413
  E. 0.4750
  A. 0.4032

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  Explanation

  z = (x-u)/sigma. z1 = 70 - 70/10 = 0 and z2 = 83 - 70/10 = 1.3. For z = 1.3, the area under the curve is 0.4032.

• Question 3248:

  Which is not a true statement concerning industry analysis?

  A. Industries that perform well in one time period will continue to outperform the aggregate market in subsequent time periods.
  B. Risk measures for different industries remain fairly constant over time.
  C. During any time period, the returns for different industries vary within a wide range.
  D. Company analysis is a necessary follow-up to industry analysis.
  E. During any time period, different industries' risk levels vary within wide ranges.
  A. Industries that perform well in one time period will continue to outperform the aggregate market in subsequent time periods.

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  Explanation

  Researchers found almost no association in individual industry performance year to year or over sequential rising or falling markets.

• Question 3249:

  Which of the following can be found in Standard V?

  A. Members shall not undertake any independent practice in competition with employer without written consent.
  B. Members shall not participate in plagiarism.
  C. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.
  D. Members shall maintain appropriate records to support the reasonableness of recommendations.
  E. Members shall maintain knowledge of and comply with all applicable laws.
  C. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.

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  Explanation

  Standard V states: "Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty."

• Question 3250:

  John Gavin, CFA, manages money for high net worth individuals. Gavin utilizes a combination of open-end and closed-end mutual funds to meet each individual's investment objectives. Gavin is evaluating a mutual fund that has assets of

  $233 million and liabilities of $2 million. In addition, the Fund has a sales charge of 4% and a redemption fee of 1%. The Fund has 16. 8 million shares. Gavin makes the following two statements.

  Statement 1: The net asset value (NAV) of the fund is $13. 75.

  Statement 2: The primary difference between a closed-end and open-end fund is their method of computing net asset value(NAV).

  Indicate whether Statement 1 and Statement 2 are correct.

  A. Only Statement 1 is correct.
  B. Only Statement 2 is correct.
  C. Statements 1 and 2 are both correct.
  A. Only Statement 1 is correct.

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  Explanation