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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 341:

  The financial analyst is allowed to breach client confidentiality if the information concerns ________ activities that the client is engaged in.

  A. personal
  B. confidential
  C. insider
  D. none of these answers
  E. illegal
  E. illegal

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  Explanation

  Standard IV (B.5) states that "Members shall preserve the confidentiality of information communicated by clients, prospects, or employers concerning matters within the scope of the client -member relationship, unless the member receives information concerning illegal activities on the part of the client."

• Question 342:

  What do we call the value called z that is computed using sample data?

  A. Decision rule
  B. Test statistic
  C. Parameter
  D. None of these answers
  B. Test statistic

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  Explanation

  The z-values are statistics generated to provide a measure of testing the hypothesis.

• Question 343:

  David's gasoline station offers 4 cents off per gallon if the customer pays in cash and does not use a credit card. Past evidence indicates that 40% of all customers pay in cash. During a one hour period twenty-five customers buy gasoline at this station. What is the probability that no more than twenty pay in cash?

  A. 0.1
  B. 0.9
  C. None of these answers
  D. 0.0
  E. 1.0
  E. 1.0

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  Explanation

  P(20) is almost zero. Probabilities of higher than 20 are also close to zero. So the probability of not more than 20 is almost 1.

• Question 344:

  Standard IV (B.1) clearly states that ________ owe undivided loyalty to their clients and must place client interests before their own.

  A. AIMR members
  B. supervisors
  C. none of these answers
  D. fiduciaries
  E. analysts
  D. fiduciaries

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  Explanation

  Standard IV (B.1) - Fiduciary Duties states that "In relationships with clients, members shall use particular care in determining fiduciary duty and must act for the benefit of their clients and place their clients' interests before their own."

  "Fiduciaries" is the best answer.

• Question 345:

  Which of the following statements is most correct?

  A. None of these answers are correct.
  B. All of these answers are correct.
  C. Opportunity costs should not be incorporated into capital budgeting decisions.
  D. Relevant externalities should be incorporated into capital budgeting decisions.
  E. Sunk costs should be incorporated into capital budgeting decisions.
  D. Relevant externalities should be incorporated into capital budgeting decisions.

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  Explanation

  Sunk costs should not be taken into consideration. Opportunity costs should be taken into consideration.

• Question 346:

  Ratios are best interpreted when compared to which of the following?

  A. Predetermined standards.
  B. The ratios of prior periods.
  C. All of these answers are correct.
  D. Ratios of competitors.
  C. All of these answers are correct.

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  Explanation

  Ratios are best interpreted when compared to, the ratios of prior periods, predetermined standards, and the ratios of competitors.

• Question 347:

  The NAV of an investment company equals the ________ of all its assets ________ the number of fund shares outstanding.

  A. total market value; multiplied by
  B. total market value; divided by
  C. the per-share value; divided by
  D. the per-share value; multiplied by
  B. total market value; divided by

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  Explanation

  Net Asset Value (NAV) = (Total market value of all assets/Number of outstanding fund shares)

• Question 348:

  Ameriscam, Inc. is considering the issuance of some junior subordinated debt. The Company's combined state/federal corporate tax rate is 30%, and the coupon on its outstanding senior debt is 7. 55%. The proposed debt would pay an annual coupon. Very recently, Ameriscam has met with a corporate finance firm, who advised the Company that the pre-tax cost of a debt issuance would be 7. 70%; Ameriscam's finance division mirrored these findings. A month earlier, a study in a popular financial magazine found that shareholder's require a 7. 95% rate of return on similar investments. Which of the following represents the best answer for Ameriscam's estimated after-tax cost of debt for this proposed debt issuance?

  A. 5. 425%
  B. The after-tax cost of debt cannot be determined from the information provided.
  C. 5. 565%
  D. 5. 39%
  E. 5. 285%
  D. 5. 39%

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  Explanation

  Remember that in calculating the after-tax cost of debt for new debt issues, the MARGINAL cost of issuing new debt is the most relevant measure. In this example, the marginal cost of debt is given as 7. 70%, and the after-tax cost of debt capital is found by multiplying (1 - corporate tax rate) by this figure. Specifically, the calculation of the after-tax cost of debt for Ameriscam is as follows: {pre-tax cost of issuing new debt 7. 70%

  * [1-combined state/federal tax rate 30%]} = 5. 39%. While the coupon rate on the firm's outstanding senior debt is often used as a proxy, this number is significantly inferior to the use of marginal figures. What is relevant in this example is the cost of new debt, and this can best be approximated by using the marginal cost of a new debt issue. Often, in capital budgeting and related corporate finance decisions, the only available figures are related to the cost and yield of outstanding debt, and in these instances, using the cost of outstanding debt is very appropriate. However, in this example, using the cost of existing debt does not yield the best possible answer.

• Question 349:

  A/An ________ sells shares at their NAV.

  A. initial offer fund
  B. par-value fund
  C. no-load fund
  D. closed-end fund
  C. no-load fund

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  Explanation

  A no-load fund imposes no sales charges so it sells shares at their NAV, however some charge a small redemption fee of about half-percent.

• Question 350:

  A project has the following cash flows over the next 5 years: $1,000, $600, $300, $1,200 and $1,400. Assume all cash flows occur at the end of a year. The project requires an initial cash outlay of $2,900. The project's cost of capital is 8%. The MIRR of the project equals ________.

  A. 11.54%
  B. 12. 22%
  C. 9.92%
  D. 14. 19%
  B. 12. 22%

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  Explanation

  The MIRR is defined as that rate which discounts the terminal value of the cash inflows to equate to the present value of a project's costs (using the project's cost of capital). The present value of the costs = 2,900. The terminal value (future value at the end of year 5) of the project equals 1,000*1.084 + 600*1.083 + 300*1.082 + 1,200*1.08 + 1,400 = 5,162. Note that this is calculated using the project's cost of capital. Then, MIRR satisfies 2,900 = 5,162/(1+MIrr)5. Solving gives MIRR = 12. 22%.