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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3681:

  If you deposit $400 today into an account paying 8% per year, compounded quarterly, how much will be in the account after 42 months?

  A. $10,135. 79
  B. $1,174. 88
  C. $918.90
  D. $927. 54
  E. $527. 79
  E. $527. 79

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  Explanation

  There are 14 quarters in 42 months (42 divide 3 =). On the BAII Plus, press 14 N, 8 divide 4 = I/Y, 400 PV, 0 PMT, CPT FV. On the HP12C, press 14 n, 8 ENTER 4 divide i, 400 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3682:

  What is the relationship among the mean, median and mode in a symmetric distribution?

  A. Mean is always the smallest value
  B. Mean is always the largest value
  C. None of these answers
  D. Mode is the largest value
  E. All equal
  E. All equal

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  Explanation

  Since the distribution is symmetric, all three are equal.

• Question 3683:

  Annual management fees compensating the professional managers typically vary from ________ of the average net assets of the fund.

  A. two to five percent
  B. one quarter to one percent
  C. one to two percent
  D. one half to one percent
  B. one quarter to one percent

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  Explanation

  Annual management fees compensating the professional managers typically vary from one quarter to one percent of the average net assets of the fund; with a larger (dollar value) size fund charging a lower percentage.

• Question 3684:

  The Bird-in-the-Hand theory implies that as the dividend pay-out ratio is increased, the stock price:

  A. remains unaffected.
  B. decreases.
  C. increases.
  D. increases or decreases.
  C. increases.

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  Explanation

  The Bird-in-the-Hand theory implies that as the dividend pay-out ratio is increased, the stock price increases.

• Question 3685:

  In the regression equation, what does the letter "b" represent?

  A. Slope of the line
  B. Value of Y when X=0
  C. Any value of the independent variable that is selected
  D. Y concept
  E. None of these answers
  A. Slope of the line

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  Explanation

  The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line.

• Question 3686:

  If a distribution is heavily right or left skewed, which of the following statistics should not be used as a measure of central tendency?

  A. skewness
  B. mean
  C. median
  D. mode
  B. mean

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  Explanation

  The mean is affected severely by outliers and hence, should not be used as a measure of central tendency with skewed distributions.

• Question 3687:

  Which of the following statements is correct?

  A. If you are choosing between two projects which have the same life, and if their NPV profiles cross, then the smaller project will probably be the one with the steeper NPV profile.
  B. If the cost of capital is relatively high, this will favor larger, longer-term projects over smaller, shorter term alternatives because it is good to earn high rates on larger amounts over longer periods.
  C. If the cost of capital is less than the crossover rate for two mutually exclusive projects' NPV profiles, a NPV/IRR conflict will not occur.
  D. Because discounted payback takes account of the cost of capital, a project's discounted payback is normally shorter than its regular payback.
  E. The NPV and IRR methods use the same basic equation, but in the NPV method the discount rate is specified and the equation is solved for NPV, while in the IRR method the NPV is set equal to zero and the discount rate is found.
  E. The NPV and IRR methods use the same basic equation, but in the NPV method the discount rate is specified and the equation is solved for NPV, while in the IRR method the NPV is set equal to zero and the discount rate is found.

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  Explanation

  This statement reflects exactly the difference between the NPV and IRR methods.

• Question 3688:

  John buys a house that costs $175,000 and agrees to pay for it with a 15 year mortgage at 7% per year, compounded monthly. What is John's monthly payment on the loan?

  A. $972. 22
  B. $552. 12
  C. $12,218.50
  D. $12,250.06
  E. $1,572. 95
  E. $1,572. 95

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  Explanation

  On the BAII Plus, press 180 N, 7 divide 12 = I/Y, 175000 PV, 0 FV, CPT PMT. On the HP12C, press 180 n, 7 ENTER 12 divide i, 175000 PV, 0 FV, PMT. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3689:

  "Counter-cyclical macroeconomic policy will be ineffective as a stabilization tool because people will undermine the policy by adjusting their choices once they expect a systematic policy response to recessions and booms." This statement most clearly reflects the

  A. Keynesian view.
  B. rational expectations view.
  C. supply-side view.
  D. 1960 view of the Phillips curve.
  B. rational expectations view.

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  Explanation

  Rational agents will weigh all of the likely economic policies in their estimation of future inflation rates. Therefore, once a systematic policy response to recessions and booms is established, counter-cyclical macroeconomic policy will be ineffective since it will be fully anticipated.

• Question 3690:

  Which of the following would most likely cause a nation's currency to depreciate?

  A. an increase in domestic real interest rates
  B. higher inflation than one's trading partners and a reduction in domestic real interest rates
  C. a reduction in domestic real interest rates
  D. higher inflation than one's trading partners
  E. an increase in exports coupled with a decline in imports
  B. higher inflation than one's trading partners and a reduction in domestic real interest rates

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  Explanation

  Higher relative inflation and a reduction in domestic real interest rates causes the demand for the nation's exports and assets to decline. This in turn causes the demand for the nation's currency todecline. Once the demand for the currency falls, the "price" of the currency (or the exchange rate) falls. This is a depreciation in the currency.