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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3451:

  Capital stock (common stock)

  A. is a higher risk investment vehicle for the buyer than would be the purchase of bonds or preferred stock.
  B. represents the residual ownership of a firm.
  C. none of these answers.
  D. is typically the only type of stock that maintains voting privileges.
  B. represents the residual ownership of a firm.

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  Explanation

  Capital (common) stock is a class of stock that represents ownership interest in a firm. Common stockholders are typically the only shareholders that have voting privileges because they are the true owners of the firm. Investors bear the greatest risk when purchasing common stock because common stockholders stand last in line when it comes to the payment of income, or assets in the event of liquidation. By like token, common stockholders reap the greatest rewards because all earnings of a firm in excess of all obligations belong to the common stockholders.

• Question 3452:

  How much interest would an original $500 deposit earn at 5% per year simple interest after 14 months?

  A. $29.17
  B. $28.14
  C. $583. 33
  D. $350.00
  E. $30.04
  A. $29.17

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  Explanation

  The question only asks for the interest, not the ending balance. On the BAII Plus, press 500 x 0.05 x 14 divide 12 = to see the answer. On the HP12C, press 500 ENTER 0.05 x 14 x 12 divide to see the answer.

• Question 3453:

  Under a periodic inventory system, how is COGS determined?

  A. the cost of ending inventory is subtracted from costs of goods available for sale
  B. cost of goods sold is accumulated as sales are made
  C. ending inventory is counted and subtracted from beginning inventory
  D. none of these answers
  A. the cost of ending inventory is subtracted from costs of goods available for sale

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  Explanation

  Under the periodic inventory system, only the ending inventory is counted and priced. Cost of goods sold is determined by deducting the cost of the ending inventory from the cost of goods available for sale.

• Question 3454:

  On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because

  A. depreciation is a direct source of cash.
  B. depreciation is an outflow of cash to a reserve account for the replacement of assets.
  C. depreciation reduces net income but does not involve an outflow of cash.
  D. depreciation reduces net income and involves an outflow of cash.
  C. depreciation reduces net income but does not involve an outflow of cash.

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  Explanation

  Depreciation is an expense that reduces net income, but it is a non-cash item.

• Question 3455:

  Stock splits have the following effects on the financial statements:

  A. contributed capital and retained earnings are unchanged
  B. all of these answers are correct
  C. the account title for common stock changes to reflect the change in the par value of stock
  D. disclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share
  B. all of these answers are correct

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  Explanation

  All of the responses represent the effect of stock splits on the financial statements.

• Question 3456:

  The probabilities and the number of automobiles lined up at a Lakeside Olds at opening time (7:30 a.m.) for service are:

  Number Probability 20.30

  30.40

  40.25

  On average, how many automobiles should Lakeside Olds expect to be lined up at opening?

  A. None of these answers
  B. 1. C. 1.96
  D. 10.
  E. 2. 85
  E. 2. 85

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  Explanation

  1*0.05 + 2*0.30 + 3*0.40 + 4*0.25 = 2. 85.

• Question 3457:

  To carry out a comparative analysis of a firm's financial statements over a period of more than 3-4 years, one should use ________.

  A. year-to-year change analysis
  B. horizon analysis
  C. ratio analysis
  D. index-number trend analysis
  D. index-number trend analysis

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  Explanation

  To carry out a comparative statement analysis over a long period of time, you can express the financial statement numbers in terms of a common base. This base could be one of the years for which financial statements are available or can be arbitrarily set to a number like 100. This process then converts the financial statement quantities into indices and these can be analyzed more conveniently.

• Question 3458:

  According to the AIMR-PPS, systems incompatibilities

  A. causes distortion of performance presentation and needs to be disclosed.
  B. are one reason for which a firm may not claim compliance for all assets.
  C. cannot be used as a reason for not claiming compliance for all assets.
  D. render a firm unable to claim compliance with the PPS, thus the firm should ensure compatibility.
  C. cannot be used as a reason for not claiming compliance for all assets.

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  Explanation

  Systems incompatibilities cannot be used as a reason for not claiming compliance for all assets (i.e., a firm cannot make the claim of compliance for only those assets that are measured and monitored on compatible systems).

• Question 3459:

  Which of the following are true regarding correlation?

  I. Correlation is a number between 0 and 1. II. Correlation is a measure of the strength of the linear relationship between two variables.

  III.

  The higher the correlation, the higher the covariance.

  A. All but I.
  B. All are true.
  C. All but III.
  D. All but II.
  A. All but I.

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  Explanation

  II is true. Because the correlation between two random variables X and Y is Cov(X,Y)/[(sigma_X)*(sigma_Y)], III is true. I is false, because correlation is a number that can take on values between -1 and +1, inclusive. A value of -1 indicates perfectly negative linear correlation.

• Question 3460:

  Which of the following statements about short selling is FALSE?

  A. A short sale involves securities the investor does not own.
  B. According to the uptick rule, a short sale can only trade at a price higher than previous trade.
  C. A short seller loses if the price of the stock sold short falls.
  D. A short seller is required to set up a margin account.
  C. A short seller loses if the price of the stock sold short falls.

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  Explanation

  A short seller loses if stock prices rise. The other choices are true.