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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3631:

  What is a listing of all possible outcomes of an experiment and their corresponding probability of occurrence called?

  A. Random variable
  B. Frequency distribution
  C. Subjective probability
  D. None of these answers
  E. Probability distribution
  E. Probability distribution

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  Explanation

  The probability distribution shows the outcomes with corresponding probabilities.

• Question 3632:

  Both a fixed exchange rate and ________ can be maintained if a country is willing to use its monetary policy to maintain the fixed exchange rate.

  A. current account deficit
  B. currency convertibility
  C. capital account surplus
  D. capital account deficit
  E. current account surplus
  B. currency convertibility

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  Explanation

  A country can either follow an independent monetary policy and allow its exchange rate to fluctuate or tie its monetary policy to the maintenance of the fixed exchange rate.

• Question 3633:

  The Pairagain mutual fund has entered into an equity swap with SingleSol, LLC, with a notional principal of $50 million. Pairagain has agreed to pay the quarterly return on the NASDAQ 100 in exchange for a fixed rate of 7. 0%. The initial price of the NASDAQ 100 was 1825, and the value at the end of the first quarter, 91 days later, was 1755. The swap uses a 365-day year convention. What is the net payment to be made at the end of the first quarter?

  A. SingleSol pays $2,790,411. B. SingleSol pays $1,917,808.
  C. SingleSol pays $872,603.
  A. SingleSol pays $2,790,411. B. SingleSol pays $1,917,808.

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  Explanation

• Question 3634:

  Which of the following is/are true?

  I. All Central bank transactions are excluded from the BOP account.

  II. All cash flows associated with foreign investments belong to the Capital account.

  III.

  Repatriation of domestic currency to a foreign country by foreign nationals living in the country are treated as part of the Current account.

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

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  Explanation

  All Central Bank transactions are excluded from the Current and Capital accounts and charged to the Official Reserve account. However, since the Reserve account is part of the BOP account, I is false. Direct foreign investments are Capital

  account items. However, income associated with these is treated as part of the Current account. Hence, II is false.

  III is a direct outflow of domestic currency and treated as a debit entry on the Current account.

• Question 3635:

  In a given year, Gondolpha had total imports of 976 and total exports of 734. It also made direct foreign investments of 297. There were no other transactions on the BOP account. The Official Reserves account:

  A. decreases by 1,413
  B. increases by 539
  C. decreases by 539
  D. decreases by 55
  C. decreases by 539

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  Explanation

  Remember the convention:

  1. Any inflow of domestic currency represents a credit and any outflow of domestic currency represents a debit on the BOP account.

  2. Any inflow of foreign currency represents a debit and any outflow of foreign currency represents a credit on the BOP account.

  Therefore, the credits on the combined current and capital account equal 734 and the debits equal 976 + 297 = 1,273.

  Since debits must equal credits at the end of the accounting period, there must be a credit entry in the amount of (1,273 - 734) = 539 in the Official Reserves account, since the sum of the changes in the current, capital and official reserves

  accounts equals zero over an accounting period. Thus, the Official Reserves account decreases by 539.

  If you do not like the above rule-based treatment of the problem, try the intuition: The total net outflow of cash from the current and capital accounts of Gondolpha equals 976 + 297 - 734 = 539. This amount has to come from somewhere. That

  "somewhere" is represented by the Official Reserves Account, which loses 539 in order to satisfy the liabilities of the current and capital accounts.

  Caution: One of the bizarre quirks in international accounting is that decreases in Official Reserves Account are represented by a "+."

• Question 3636:

  At which stage in an industry life cycle would growth most likely be able to be estimated most accurately?

  A. pioneering development
  B. mature growth
  C. deceleration of growth and decline
  D. rapid accelerating growth
  E. stabilization and market maturity
  E. stabilization and market maturity

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  Explanation

  During this stage, the industry growth rate matches the growth rate of the segment of the economy of which the industry is a part. Sales are highly correlated with an economic series.

• Question 3637:

  Which of the following is/are true?

  I. The mean deviation can never be negative.

  II. The range of a data set can never be negative.

  III.

  The mean deviation is always less than the mean absolute deviation (MAD).

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

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  Explanation

  Range of a dataset = maximum value - minimum value. Therefore, the range can never be negative. Also, since the mean deviation is the average of the absolute deviations from the mean, the MD can never be negative, either. Finally, Mean deviation and mean absolute deviation are one and the same thing.

• Question 3638:

  Which of the following best describes a statement of shareholders equity?

  A. A statement of shareholders equity measures a company's financial performance over a specified period of time.
  B. A statement of shareholders equity details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time.
  C. None of these answers.
  D. A statement of shareholders equity reports changes over a period of time in component accounts that comprise the ownership of a firm.
  E. A statement of shareholders equity summarizes the financial position of a company at a given point in time.
  D. A statement of shareholders equity reports changes over a period of time in component accounts that comprise the ownership of a firm.

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  Explanation

  The statement of shareholders equity reports changes in component accounts that comprising equity of a firm. This statement is useful in identifying reasons for changes in shareholders' claims on the assets of a company.

• Question 3639:

  What annual interest rate, compounded annually, is equivalent to 5% per year, compounded quarterly?

  A. 5. 09%
  B. 4. 97%
  C. 5. 25%
  D. 5%
  E. 5. 01%
  A. 5. 09%

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  Explanation

  Questions of this type are illustrating the concept of an Effective Interest Rate, which is a rate compounded annually that has the same effect as a rate compounded more often than one time a year. As such, a depositor or a creditor is indifferent between them, since they have the same effect. To solve this question, make any deposit and see how much is in the account after one year. The ratio of the ending FV to the beginning PV will indicate the annual rate earned. On the BAII Plus, press 4 N, 5 divide 4 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 4 n, 5 ENTER 4 divide i, 100 PV, 0 PMT, FV. The number displayed will be 105. 09. In other words, after one year, $100 has become $105. 09. An interest rate of 5. 09%, compounded annually, would cause a $100 deposit to become $105. 09 in one year. Choosing an initial deposit of $100 helps a great deal in these situations. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3640:

  The statement of cash flows provides us with important clues on all of the following except:

  A. Financial practices of management.
  B. Projected changes for the following year in current liability accounts.
  C. Feasibility of financing capital expenditures.
  D. Ability to meet debt service requirements.
  B. Projected changes for the following year in current liability accounts.

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  Explanation

  The statement of cash flows is very informative and can tell you a lot about a company. However, it does not tell you the direction the company is heading as far as its near term liquidity. It can not be inferred that because a company has a lot of cash flow that its payable balances will decrease in the followingyear. There could be many reasons for holding excess cash including business seasonality and potential acquisitions.