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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3541:

  The weights (in kilograms) of a group of crates being shipped to Panama are 95, 103, 110, 104, 105, 112 and 92. What is the mean deviation?

  A. 52. 50 kg
  B. 5. 43 kg
  C. 0.53 kg
  D. None of these answers
  E. 6. 25 kg
  B. 5. 43 kg

  ---

  Explanation

  The mean is 103. The mean deviation is the absolute values of the deviation from the mean: (8 + 0 + 7 + 1 + 2 + 9 + 11)/7 = 38/7 = 5. 43

• Question 3542:

  Shortin Mart is a quantitative research analyst with Dataminers, an investment advisory firm which prides itself on finding patterns in past market data. Shortin recently used data on high-yield, distressed firm corporate convertible bonds and discovered that over the last 3 years, this class has generated an astounding 76% rate of return (assuming optimal conversion). Realizing that this result is mainly due to a strong bull market, he recommends to his portfolio managers that if they believe the market will be bullish over the next year, they should add extreme junk bonds to their portfolios. Shortin has

  I. not violated any code of ethics.

  II. has violated Standard IV (A.1) - Reasonable Basis and Representations.

  III. has violated Standard IV (A.2) - Research Reports.

  IV.

  has violated Standard IV (B.2) - Portfolio Investment Recommendations and Actions.

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

  ---

  Explanation

  In the present case, Shortin was negligent in that he did not carry out through analysis of his result. For one, he should have used a much longer period to determine a pattern. Second, he should have been careful in laying out all the caveats to his result and even questioned the validity of the result. By not following such a course, he violated Standard IV (A.1) - Reasonable Basis and Representations. Note that he has not violated Standard IV (A.2) - Research Reports.

• Question 3543:

  Bob Kramer, CFA, manages money for high net worth clients. Kramer creates an investment portfolio tailored to his clients' specific needs using mutual funds. Kramer is considering the following Emerging Market Fund and uses a live year time frame. Exhibit 1 details the Emerging Market Fund's fees and expenses. Exhibit 1 - Fees and expenses for Emerging Market Fund

  

  Kramer expects the Emerging Market Fund to earn 12% per year.

  Select the class of Emerging Market Fund shares that are most appropriate for Kramer's clients.

  A. Class A
  B. Class B
  C. Class C
  C. Class C

  ---

  Explanation

• Question 3544:

  Given the following:

  Return on Investor's Equity with 80% Financing = 50%

  Return on Investor's Equity with 0% Financing = 10%

  The investor is experiencing the effects of ________.

  A. negative leverage
  B. none of these answers
  C. cannot be determined by the information given
  D. positive leverage
  D. positive leverage

  ---

  Explanation

  Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters. In this case, leverage has a positive effect.

• Question 3545:

  The mean weight of trucks traveling on a particular section of I-475 is not known. A state highway inspector needs an estimate of the mean. He selects a random sample of 49 trucks passing the weighing station and finds the mean is 15. 8 tons, with a standard deviation of the sample of 3. 8 tons. What is the 95 percent interval for the population mean?

  A. 14. 7 and 16. 9
  B. 16. 1 and 18.1
  C. 10.0 and 20.0
  D. None of these answers
  E. 13. 2 and 17. 6
  A. 14. 7 and 16. 9

  ---

  Explanation

  Interval estimate can be found from x_bar +/-z*s/(n^0.5). Here we have n = 49, x_bar = 15. 8 and z = 1.96 (for 95%) and s = 3. 8. Therefore 15. 8 +/- 1.96*3. 8/7 and we get 14. 76 and 16. 84.

• Question 3546:

  If the alternate hypothesis states that u (Mu) does not equal 4,000, what is the rejection region for the hypothesis test?

  A. Center
  B. None of these answers
  C. Lower or left tail
  D. Upper or right tail
  E. Both tails
  E. Both tails

  ---

  Explanation

  The alternate hypothesis says does not equal, which means it could be less or more than 4000. So we must consider both tails.

• Question 3547:

  Seeing that the unemployment rate is reaching new highs each month, several Senators group together to propose major tax cuts and spending increases to stimulate the economy. Both the increased spending and tax cuts will be implemented in the following January, more than six months away. Due to major public outcry, these bills pass through legislature very quickly. During the six months in between passage and implementation, the unemployment rate begins to fall. Another year passes, now 18 months after the bill was first passed, and the economy is suffering from significant inflation. What problem(s) with fiscal policy does this illustrate?

  I. recognition lag

  II. impact lag

  III. crowding out effect

  IV.

  rational expectations

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

  ---

  Explanation

  In this case, tax cuts and spending increases took approximately six months to enact. However, illustrating the recognition lag, by the time six months had passed, the economy was recovering. One year later, the economy is suffering from inflation. This is due to the fact that fiscal policy takes time to have its full impact, or impact lag. By the time the full impact was realized, the economy had recovered, and the fiscal stimulus caused inflation.

• Question 3548:

  Level ________ verification applies to specific composites.

  B. IV
  C. II
  D. I
  E. III
  C. II

  ---

  Explanation

  Level I verification applies to all firm composites. Level II verification requires a Level I verification at least on the specific composites being verified at Level II. (Note: There are only two levels of verification.)

• Question 3549:

  While working abroad, United States citizen Alex Beggs purchases a foreign bond with an annual coupon of 7. 0 percent for 93. 0. He holds the bond for one year and then sells it for 95. 5 before he leaves. During the year, the dollar

  appreciated 2. 5% relative to the foreign currency.

  Which of the following is closest to Begg's Total Dollar Return?

  A. 7. 460%.
  B. 12. 970%.
  C. 10.215%.
  D. 0.121%.
  A. 7. 460%.

  ---

  Explanation

  TheTotal Dollar Returnis calculated as follows:

  Step 1: Calculate the value change in the foreign currency:

  The dollarappreciated0.025, so the foreign currencydepreciatedby 0.025, or 2. 5%.

  Step 2: Use the Total Dollar return formula to calculate the return:

  R$= { [ 1+($coupon + VEND- VBEG)/ VBEG] * (1 + g) } - 1,

  WhereR$=Total dollar return,VEND= Bond value at end of period,VBEG=Bond value at end of period, andg= % change in thedollarvalue of the foreign currency.

  Here,R$= { [ 1+(7. 0 + 95. 5 ?93. 0)/93. 0 ] * (1 - 0.025) } - 1

  = { [1.102151 ] * (0.975) } - 1

  = 0.07460, or7. 460%

• Question 3550:

  The constant-growth dividend discount valuation model states that the fair price of a share of common equity is determined by dividing next period's forecasted dividend by the difference between the cost of equity capital and the firm's longterm sustainable growth rate. Using this relationship, the cost of equity capital can alternatively be stated as:

  A. D/V + g.
  B. RFR-(+ RFR).
  C. expected growth rate of dividends minus required rate of return.
  A. D/V + g.

  ---

  Explanation