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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3571:

  How much would an original deposit of $500 grow to be after 8 and a half years, if the deposit earns interest at 6. 5% per year, compounded quarterly?

  A. $853. 97
  B. $573. 42
  C. $4,254. 58
  D. $837. 51
  E. $864. 95
  E. $864. 95

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  Explanation

  On the BAII Plus, press 500 PV, 0 PMT, 34 N, 6. 5 divide 4 = I/Y, then press CPT FV. On the HP12C, press 500 PV, 0 PMT, 34 n, 6. 5 ENTER 4 divide i, then press FV. Note that N = 34 quarters and the answer is displayed as a negative number. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3572:

  What is another name for the alternate hypothesis?

  A. None of these answers
  B. Rejected hypothesis
  C. Research hypothesis
  D. Null hypothesis
  C. Research hypothesis

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  Explanation

  The alternate is also referred to as the research hypothesis.

• Question 3573:

  A high short interest ratio would be interpreted by technical analysts as

  A. a sign of coming market instability.
  B. irrelevant.
  C. bearish.
  D. bullish.
  E. indicative of an approaching market peak.
  D. bullish.

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  Explanation

  The short interest ratio is equal to the outstanding short interest divided by the average daily volume of trading on the exchange. A high ratio is interpreted as bullish because a larger relative short interest is indicative of a high potential demand for stock from those who have sold short but not yet covered their sales.

• Question 3574:

  The consistency principle

  A. requires that the company use a selected accounting method period after period
  B. all of these answers are correct
  C. is limited to inventory pricing methods
  D. requires that a company use one inventory method exclusively
  A. requires that the company use a selected accounting method period after period

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  Explanation

  The consistency principle requires that an accounting procedure, once adopted by a company, remain in use from one period to the next unless users are informed of the change. It is not limited to inventory valuation methods.

• Question 3575:

  The ________ assumption must be disclosed if results are presented after taxes.

  A. tax rate
  B. trade
  C. composite
  D. selection
  E. settlement-date
  A. tax rate

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  Explanation

  To be in compliance with the PPS, a firm's presentation of its investment performance must disclose the tax rate information.

• Question 3576:

  ROE is equal to

  A. net sales divided by equity.
  B. net income divided by total capital.
  C. net income divided by equity.
  D. Risk-free rate divided by equity.
  C. net income divided by equity.

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  Explanation

  Return on equity (ROE) multiplied by the retention rate is equal to the growth rate of earnings and dividends. The growth rate, in turn, is used to derive the earnings multiplier, which is used to value stocks.

• Question 3577:

  Wendy Jones, CFA, is reviewing a current bond holding. The bond's duration is 10 and its convexity is 200. Jones believes that interest rates will fall by 100 basis points. Calculate the bond's percentage price change based on a 100 basis point decline.

  A. -8.0%.
  B. +8.0%.
  C. +12. 0%.
  C. +12. 0%.

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  Explanation

• Question 3578:

  A new payroll tax on businesses results in an increase in cost for each unit of production. Assuming no change in income or in the production mix, would this cause inflation?

  A. Yes, because producers would pass new costs onto consumers.
  B. No, because firms would choose to use more capital and less labor.
  C. Yes, because government spending would increase aggregate demand.
  D. Yes, because higher costs result in less production and lead to higher prices.
  E. No, because firms are "price takers" and will be unable to increase prices.
  D. Yes, because higher costs result in less production and lead to higher prices.

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  Explanation

  When firms face generally higher unit costs they decrease production. Assuming no change in income, there would be too many dollars (i.e. income) chasing too few goods (i.e. production). Although it may be tempting to say that costs are being "passed on" to consumers, this explanation is not economically viable. If demand for the product would support a higher price, then firms would have been charging a higher price prior to the oil shock and reaping higher profits. Even if we assume firms are "price takers," the new tax will take the firm's zero economic profit and turn it into an economic loss. The result will be fewer firms in the industry and less production overall.

• Question 3579:

  Misrepresentation of performance is prohibited by section ________ of the Standards of Professional Conduct.

  A. II (E)
  B. III (F)
  C. V (B)
  D. IV (E)
  E. III (A)
  C. V (B)

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  Explanation

  Standard V (B) states "Members shall not make any statements, orally or in writing, that misrepresent the investment performance that they or their firm have accomplished or can reasonably be expected to achieve."

• Question 3580:

  Growth companies are those that can

  A. experience dividend growth that is consistently higher than their required rates of return.
  B. experience sales growth that is consistently higher than their required rates of return.
  C. earn rates of return on their investments that are consistently above their required rates of return.
  D. keep their leverage ratios low.
  C. earn rates of return on their investments that are consistently above their required rates of return.

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  Explanation

  Growth companies have the opportunities and abilities to earn rates of return on the investments they make that are consistently higher than their required rates of return. Such companies have trouble holding their high returns and growth forever, though. Almost all of them see a slowdown in growth over time.