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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3551:

  What is the chart called when the paired date (the dependent and independent variables) are plotted?

  A. Linear regression
  B. Pie
  C. Bar
  D. Dotted-Swiss
  E. None of these answers
  E. None of these answers

  ---

  Explanation

  This chart is the scatter diagram.

• Question 3552:

  A firm pays an annual preferred dividend of $1.9 per share and investors expect a rate of return of 7. 8% from this equity issue. The firm is in the 35% tax bracket. The preferred stock should be trading at:

  A. $37. 47
  B. $42. 19
  C. $69.60
  D. $24. 35
  D. $24. 35

  ---

  Explanation

  Preferred dividends are not tax-deductible. Hence, no tax adjustment is made while calculating the cost of preferred equity. The price of a perpetuity that pays C per year, at a discount rate of R, equals C/R. Hence, P = 1.9/0.078 = $24. 35.

• Question 3553:

  Which of the following is an integral part of the Keynesian view of the business cycle?

  A. Equilibrium is a state of full employment without inflation.
  B. Multiplier effects magnify the impact of changes in aggregate demand (especially in investment) and thereby promote economic instability.
  C. Changes in private consumption are the major source of economic instability.
  D. Supply creates its own demand.
  E. Falling wage rates eventually lead the economy back to full employment.
  B. Multiplier effects magnify the impact of changes in aggregate demand (especially in investment) and thereby promote economic instability.

  ---

  Explanation

  The multiplier effect causes small changes in aggregate expenditures to result in much larger changes in income, leading to economic instability. This effect applies to all components of the aggregate expenditure model, and therefore none of the four components can be called "the major source of economic stability."

• Question 3554:

  Paul Erdosh is an independent contractor who was hired by Arbitrage Securities to carry out a research project involving the software industry. The scope of the research was broad and the aim was to identify relatively undervalued stocks in that sector. During the course of the research, Paul realized that two of the companies in the sector were prime takeover targets if anyone bothered to do more research on them. He decided to sell this finding to MandA Consultants and obtain a research contract from them. He did not inform Arbitrage Securities about this deal, though he did submit a competent research report on the software industry to them. Paul has

  A. not violated Standard III (B) - Duty to Employer.
  B. violated Standard III (B) - Duty to Employer - because by selling the information to a rival firm, he has potentially harmed Arbitrage Securities' business.
  C. not violated Standard III (B) - Duty to Employer - because he is an independent contractor, not an employee of Arbitrage Securities.
  D. violated Standard III (B) - Duty to Employer. He needs written permission from Arbitrage Securities before releasing any of his findings to third parties.
  A. not violated Standard III (B) - Duty to Employer.

  ---

  Explanation

  Arbitrage Securities hired Paul to do a research project that did not involve identifying specific merger/acquisition candidates. Hence, Paul's discovery is tangential to the original project and as such, cannot be considered the property of Arbitrage Securities. Standard III (B) does apply to Paul even though he is a contractor; however, it does not preclude him from selling his findings without Arbitrage Securities' permission as long as the information is not related to the project he was hired to conduct.

• Question 3555:

  What is the Net Present Value of this series of annual cash flows using an interest rate of 15% per year: Year 0: <$15,000>, Year 1: $5,000, Year 2: $8,000, Year 3: $11,000? (Note that the <> are used to indicate a negative number).

  A. $2,589.11
  B. $3,104. 37
  C. $2,981.21
  D. $5,077. 49
  E. $2,629.65
  E. $2,629.65

  ---

  Explanation

  On the BAII Plus, press CF 2nd CLRWork 15000 +/- ENTER DownArrow 5000 ENTER DownArrow DownArrow 8000 ENTER DownArrow DownArrow 11000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 15 ENTER DownArrow CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo 5000 BlueShift CFj 8000 BlueShift CFj 11000 BlueShift CFj Then press 15 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3556:

  Richard Wallace manages a portfolio of fixed-income securities for a large multinational investment firm. Wallace's portfolio is exposed to reinvestment risk, which he is attempting to reduce by adding securities with low levels of reinvestment risk. Of the following bonds, Wallace should most appropriately choose:

  A. a mortgage-backed security with scheduled principal and interest payments
  B. an 8%, 10-year Treasury bond with semiannual payments
  C. a 15-year Treasury strip.
  C. a 15-year Treasury strip.

  ---

  Explanation

• Question 3557:

  The following is true about liquidating dividends:

  A. all of these answers
  B. these dividends return part of the original investment to the stockholders
  C. the cash dividend account is closed to retained earnings
  D. they only occur when the company is making a major acquisition
  B. these dividends return part of the original investment to the stockholders

  ---

  Explanation

  The cash dividend account is not affected, and they would not likely occur when making an acquisition.

• Question 3558:

  Intelligent Semiconductor, a diversified technology company, is evaluating the sales of its cadmium silicon transistor coils, and has identified the following information: Fixed production costs for these transistors are $800,000 Average sales price per unit is $505. 50 Break-even quantity of 4,084 Which of the following best describes the average variable cost for this product?

  A. $424. 16
  B. $195. 89
  C. $20.84
  D. $309.61
  E. The average variable cost cannot be determined from the information provided.
  D. $309.61

  ---

  Explanation

  To calculate the break-even quantity for a product, use the following equation: {Fixed operating costs/[avg. sales price per unit - variable cost per unit]}. To determine the average variable cost of this product, we must rearrange the standard equation using algebra, in a manner such that the resulting equation resembles the following: {[$800,000/4,084] + X = $505. 50}. This equation is further rearranged into the following: {$195. 89 + X = $505. 50}. Finally, the ending equation becomes:{X = $505. 50 - $195. 89}. Solving for X yields an average variable cost per unit of $309.61.

• Question 3559:

  The price for French francs is $0.1945-67. What is the percent spread for this currency?

  A. 0.99%
  B. 1.12%
  C. 11.3%
  D. 1.13%
  E. 11.2%
  B. 1.12%

  ---

  Explanation

  The percent spread is the (ask price - bid price)/ask price times 100. In this case, (0.1967 - 0.1945)/0.1967 x 100 = 1.12%

• Question 3560:

  The majority of empirical evidence indicates that

  A. the gross returns on mutual funds tend to as good as or slightly better than those on buy-and-hold strategies, while the net returns on mutual funds tend to be slightly lower than those on buy-and-hold strategies.
  B. the gross returns on mutual funds tend to as good as or slightly worse than those on buy-and-hold strategies, while the net returns on mutual funds tend to be significantly lower than those on buy-and-hold strategies.
  C. the gross returns on mutual funds tend to be significantly better than those on buy-and-hold strategies, while the net returns on mutual funds tend to be about equal to those on buy-and-hold strategies.
  D. the gross and net returns on mutual funds tend to be significantly higher than those on buy-and-hold strategies.
  E. the gross and net returns on mutual funds tend to be significantly lower than those on buy-and-hold strategies.
  E. the gross and net returns on mutual funds tend to be significantly lower than those on buy-and-hold strategies.

  ---

  Explanation

  Net returns (which take account for research and trading costs) have been about 1% lower on mutual funds than on buy-and-hold strategies. Because of these studies, index funds have grown in popularity. Because index funds only imitate a broad market index, they have no research costs and minimal trading expenses.