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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3321:

  Which of the following are notations for the covariance between X and Y?

  I. Cov(X,Y).

  II. sigma_(X,Y)

  III.

  [sigma_(X,Y)]^2.

  A. I only.
  B. II only.
  C. I and II.
  D. I and III.
  C. I and II.

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  Explanation

  I and II are both notations for covariance between X and Y.

• Question 3322:

  The following account is affected when recording a return of inventory to the vendor under a perpetual inventory system:

  A. merchandise inventory
  B. cash
  C. accounts receivable
  D. purchase returns and allowances
  A. merchandise inventory

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  Explanation

  When inventory is purchased, Merchandise Inventory is debited, and credited when returned. The periodic system records purchases in an account called Purchases and returns are booked to Purchases Returns and Allowances.

• Question 3323:

  On November 15, 2006, the yield curve was upward sloping with yields of 3%, 4%, and 5. 5% on 1-year, 5-year, and 10-year Treasuries, respectively. The following day, the Treasury yield curve experienced an upward parallel shift equal to 112 basis points. Which of the following noncallable bonds would have experienced the least percentage change in price as a result of the yield curve shift?

  A. A 6% coupon corporate bond maturing in ten years.
  B. A 6% coupon corporate bond maturing in five years.
  C. A 0% coupon U.S. government bond maturing in ten years.
  B. A 6% coupon corporate bond maturing in five years.

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  Explanation

• Question 3324:

  J_Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. What is the firm's cost of newly issued common stock?

  A. 16. 5%
  B. 18.0%
  C. 10.0%
  D. 12. 5%
  E. 15. 5%
  A. 16. 5%

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  Explanation

  Cost of new common equity: k(e) = ($2. 20/$34) + 0.10 = 0.1647 = 16. 5%.

• Question 3325:

  During periods of rapid growth in output

  A. there has been no consistent relationship between output growth and employment or unemployment.
  B. both employment and unemployment generally rise.
  C. employment generally decreases and unemployment increases.
  D. employment generally increases, while unemployment decreases.
  E. both employment and unemployment generally fall.
  D. employment generally increases, while unemployment decreases.

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  Explanation

  During a business expansion, business sales tend to rise, GDP grows rapidly and the rate of unemployment declines.

• Question 3326:

  Technical analysis assumes that shifts in trends can be detected sooner or later in the action of the ________.

  A. consumer price index
  B. investment managers
  C. all of these answers
  D. market
  D. market

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  Explanation

  The four assumptions that support technical analysis are these:

  1. The market value of any good or service is determined solely by the interaction of supply and demand for it.

  2. Supply and demand are governed by numerous factors, both rational and irrational, including the economic variables relied upon by the fundamental analyst, as well as opinions, models and guesses. The market weights all of these factors continually and automatically.

  3. Disregarding minor fluctuations, the prices for individual securities and the overall value of the market tend to move in trends, which persist for appreciable lengths of time.

  4. Prevailing trends change in reaction to shifts in supply and demand relationships. These shifts, no matter why they occur, can be detected sooner or later in the action of the market itself.

• Question 3327:

  Based upon the following information, what is the net operating income of the property?

  

  A. $104,000.
  B. $98,600.
  C. $114,600.
  D. $120,000.
  D. $120,000.

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  Explanation

  

• Question 3328:

  Two events, A and B, are mutually exclusive if:

  A. P(A and B) = P(A) + P(B)
  B. P(A and B) = 0
  C. P(A and B) = P(A) P(B)
  D. P(A and B) = 1
  B. P(A and B) = 0

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  Explanation

  By definition, if A and B are mutually exclusive, they cannot occur simultaneously. Therefore, P(A and B) = 0 for mutually exclusive events A and B. Note that P(A and B) = P(A).P(B) if and only if A and B are independent. Clearly, if A and B are mutually exclusive, they cannot be independent unless at least one of the two has a zero probability of occurring (i.e. is an impossible event). Finally, the only way "P(A and B) = P(A) + P(B)" will be true is if P(A) = P(B) = 0. To see this, recall that P(A or B) = P(A) + P(B) - P(A and B). The only way for "P(A and B) = P(A) + P(B)" to hold would be to have P(A or B) = 0. This is possible only when P(A) = P(B) = 0.

• Question 3329:

  A firm has to pay 1,000 to its suppliers in one year. The interest rate on this liability is 9%. The current liability recorded by the firm is ________.

  A. 1,090
  B. 90
  C. 1,000
  D. 917
  C. 1,000

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  Explanation

  Current liabilities, in general, are recorded at the principal portion of the payment. Hence, even though the firm in this case will have to pay 1,090 in 1 year, the current liability equals the principal portion = 1,000.

• Question 3330:

  If you were to receive $100 per year for the next 10 years, starting today, and the discount rate applicable is 9% per year, what's the value of this stream of cash flows to you?

  A. $700
  B. $600
  C. $678
  D. $642
  A. $700

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  Explanation

  Since you receive one payment today, the stream of cash flow equals $100 plus a 9-year ordinary annuity. The value of the annuity today = (100/0.09)*(1 - 1/(1.09^9)) = 600. Thus, the total value to you is 600+100 = 700.