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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 331:

  Suppose you need $500 in 9 months. How much must you deposit today, if the deposit will earn interest at 6% per year, compounded monthly?

  A. $522. 96
  B. $478.05
  C. $381.95
  D. $295. 95
  E. $291.77
  B. $478.05

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  Explanation

  On the BAII Plus, press 9 N, 6 divide 12 = I/Y, 0 PMT, 500 FV, CPT PV. On the HP12C, press 9 n, 6 ENTER 12 divide i, 0 PMT, 500 FV, PV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 332:

  Assume you buy a computer for $1,450 and agree to pay for it with 36 monthly payments of $55, beginning next month. What is the size of the final payment needed at month 36 to completely pay off the computer, if the interest rate you are being charged is 16% per year, compounded monthly?

  A. $0.00
  B. $184. 31
  C. $217. 88
  D. $187. 14
  E. $174. 39
  B. $184. 31

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  Explanation

  This question describes a situation often called a balloon payment. On the BAII Plus, press 36 N, 16 divide 12 = I/Y, 1450 PV, 55 +/- PMT, CPT FV. On the HP12C, press 36 n, 16 ENTER 12 divide i, 1450 PV, 55 CHS PMT, FV. The answer is shown as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 333:

  Which of the following is NOT a measure of dispersion?

  A. MAD
  B. variance
  C. mode
  D. range
  C. mode

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  Explanation

  The mode is a measure of central tendency.

• Question 334:

  Which of the following conditions must be satisfied for a stable dividend policy to result from the Residual Dividend Policy?

  I. The earnings of a firm must be stable.

  II. Investor preference for dividends must be stable.

  III. The investment opportunities available to the firm must be stable.

  IV.

  There should be no signaling effects involved.

  A. III and IV
  B. I, III and IV
  C. I only
  D. I and III
  E. I and II
  F. III only
  G. II only
  D. I and III

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  Explanation

  Under the Residual Dividend Policy, a firm first determines the amount of capital it requires for sufficiently profitable projects. It then uses retained earnings to supply equity capital and raises debt in the proper amount to maintain the target capital structure. If any earnings are left over after this, they are paid out as dividends. If not, the firm will not only not pay any dividends but also issues new equity for financing. Thus, for this to lead to stable dividends, one must have stability in earnings and available investment opportunities. Note that for positive dividends, earnings must exceed capital requirements under the Residual Dividend Policy.

• Question 335:

  Since return results must be calculated on a basis that includes the effect of leverage, return results must be restated to a(n) ________ basis.

  A. margin
  B. total asset
  C. cash flow
  D. all cash
  E. multiple cash
  D. all cash

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  Explanation

  Return results must be calculated on a basis that includes the effect of leverage, return results must be restated to an all-cash basis when the portfolio used leverage and the same securities could have been purchased at the same prices if the portfolio has the cash to do so. Results should be restated to an all cash basis only when the necessary restatement can be based entirely on actual transactions and can be verified in accordance with applicable account standards.

• Question 336:

  Warranty liabilities:

  A. are estimated liabilities
  B. must also result in an expense during the same period as the revenue from the sale of the product
  C. result when a company sells a product
  D. all of these answers
  D. all of these answers

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  Explanation

  All responses meet the definition of a warranty liability.

• Question 337:

  If you deposit $1,111 a year, beginning next year, for 20 years into an account paying 7% per year, compounded annually, how much is in your account after that last deposit?

  A. $50,598.15
  B. $47,003. 98
  C. $45,545. 99
  D. $30,118.37
  E. $48,304. 12
  C. $45,545. 99

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  Explanation

  On the BAII Plus, press 20 N, 7 I/Y, 0 PV, 1111 PMT, CPT FV. On the HP12C, press 20 n, 7 i, 0 PV, 1111 PMT, FV. On the BAII Plus, make sure the value of P/Y is set to 1. Note that the answer is displayed as a negative number.

• Question 338:

  In applying the CAPM (Capital Asset Pricing Model) to estimate the cost of equity capital, which of the following elements is not subject to dispute or controversy?

  A. Expected rate of return on the market.
  B. All of these answers are subject to dispute.
  C. The stock's beta coefficient.
  D. Market risk premium.
  E. Risk-free rate.
  B. All of these answers are subject to dispute.

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  Explanation

  Under the CAPM approach, it is difficult at best, to obtain correct estimates of the inputs required to make it operational:

  1. there is controversy about whether to use long-term or short-term Treasury yields for the risk-free rate.

  2. it is difficult to estimate the beta that investors expect to firm to have in the future, and it is difficult to estimate the market risk premium.

• Question 339:

  A stock paid an $18 per share dividend this year. Dividends are expected to grow at 5% per year, forever. What is the value of the stock is the appropriate discount rate is 10% per year?

  A. $18.12
  B. $37. 80
  C. Not able to compute with the above data.
  D. $378.00
  D. $378.00

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  Explanation

  Value = $18.9/(0.10-0.05)=$378.00

• Question 340:

  If you buy an item for $500 and agree to pay for it with 36 monthly payments of $22. 22, beginning next month, what annual interest rate, compounded monthly, are you being charged?

  A. 27. 84%
  B. 24. 92%
  C. 41.15%
  D. 33. 58%
  E. 26. 43%
  D. 33. 58%

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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 36 N, 500 PV, 22. 22+/- PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 36 n, 500 PV, 22. 22 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.