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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3791:

  According to the AIMR-PPS, assets to which the Standards cannot be applied are not to be considered by firms when claiming compliance with the Standards. Which of the following is an example of an asset to which the Standards cannot be applied?

  A. Guaranteed investment contract assets
  B. Convertible securities
  C. International assets
  D. Assets managed to more than one base currency
  A. Guaranteed investment contract assets

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  Explanation

  Traditional GIC portfolios provide stable results that are not based on a mark-to-market valuation. The valuation of the traditional GIC is based on book value, not current market value, which are the valuations required by the total return calculation and reporting requirements of the Standards. GIC assets would be reported separately.

• Question 3792:

  Standard I deals with ________.

  A. Use of Professional Designation
  B. Duty to Employer
  C. Obligation to Inform Employer of Code and Standards
  D. Professional Misconduct
  E. Plagiarism
  F. Fundamental Responsibilities
  G. Disclosure of Conflicts to Employer
  H. None of these answers
  F. Fundamental Responsibilities

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  Explanation

  Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation. Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.

• Question 3793:

  Colin Pollard currently owns a portfolio lying on the Markowitz efficient frontier that has an expected return equal to 15% and a standard deviation equal to 15%. Pollard tells his adviser he would prefer a portfolio tying on the Markowitz efficient frontier with a standard deviation equal to 10%. Which of the following most likely describes the expected return on Pollard's new portfolio?

  A. The expected return will be equal to 10%.
  B. The expected return will be less than 10%.
  C. The expected return will be greater than 10%.
  B. The expected return will be less than 10%.

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  Explanation

• Question 3794:

  Marlene Gooseberry, an institutional money manager with Middle Road Brokerage, has been examining a stock market series and has determined the following information:

  The dividend payout ratio has been estimated at: 31% The required rate of return is 16% per year

  The anticipated future growth rate of dividends is 13. 75% per year The anticipated future growth rate of earnings is 14. 25% per year The corporate tax rate is 35%

  What is the earnings multiplier for this stock market series? Choose the best answer.

  A. None of these answers is correct.
  B. 7. 75
  C. 13. 78
  D. 17. 71
  E. 8.96
  F. The answer cannot be determined from the information provided.
  C. 13. 78

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  Explanation

  Estimating the earnings multiplier for a stock market series requires the estimation of each of the following components:

  The dividend payout ratio.

  The required rate of return on common stock in the country/region/industry/sector being analyzed.

  The expected growth rate of dividends for the stocks in the country/region/industry/sector being analyzed.

  Once values for each of these components have been determined, they are imputed into the following formula:

  P/E = [D/E / (k - g)]

  Where: P/E = the earnings multiplier, or Price-to-Earnings ratio, D/E = the dividend payout ratio at t1, k = the required rate of return, and g = the anticipated growth rate of dividends.

  In this example, all of the necessary information has been provided, and the calculation of the earnings multiplier is shown as follows:

  P/E = [0.31 / 0.16 - 0.1375] = 13. 78

  Notice that it was the anticipated growth rate of dividends, not the anticipated growth rate of earnings, which was used in determining the earnings multiplier. Additionally, note that the tax rate was notexplicitly factored in to the equation, as the earnings figure used in the dividend payout ratio is already an after-tax figure.

• Question 3795:

  ________ exchange-rates are determined by the market forces of supply and demand.

  A. None of these answers
  B. Fixed
  C. Mixed
  D. Flexible
  D. Flexible

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  Explanation

  A system of flexible exchange rates is a system where the exchange rate is determined by the market forces. Floating exchange rate is synonymous with flexible exchange rate.

• Question 3796:

  Normal projects C and D are mutually exclusive. Project C has a higher net present value if the WACC is less than 12 percent, whereas Project D has a higher net present value if the WACC exceeds 12 percent. Which of the following statements is most correct?

  A. None of the answers are correct.
  B. Project C probably has a faster payback.
  C. Project D is probably larger in scale than Project C.
  D. Project D has a higher internal rate of return.
  E. All of the statements are correct.
  D. Project D has a higher internal rate of return.

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  Explanation

  In this situation, D has a flatter NPV profile and a higher IRR. Project acceptance depends on what is the correct discount rate. If the discount rate is less than 12%, accept C. If it is greater than 12%, accept D. Projects that return their cash flows early (faster payback) and have lower initial investments tend to have higher IRRs.

• Question 3797:

  Which of the following variables has/have an inverse relationship with the P/E ratio?

  A. Dividend payout ratio
  B. Required rate of return
  C. All of these answers
  D. Growth rate of dividends
  B. Required rate of return

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  Explanation

  One can remember the formula P/E = (D/E)/(k - g); and note that k, which is the required rate of return, is in the denominator, i.e. inverse relationship. Or one can remember that a high P/E ratio means paying a high price for some earnings,

  i.e. the rate of return required is low.

• Question 3798:

  Name the fee charged by a fund when the fund is bought and is typically in the 3 percent range of the NAV?

  A. low-load
  B. management fees
  C. deferred sales load
  D. no-load
  E. commissions
  F. 12b-1 plan
  D. no-load

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  Explanation

  Between the full-load and no-load funds charges, low-load funds are used for bond or equity funds offered by management companies that also offer no-load funds.

• Question 3799:

  The balance sheet

  A. reports all of the cash inflows and shows specifically how that cash was used.
  B. is a report that shows the change in the financial position of a firm.
  C. reports the firm resources and how those resources were specifically used.
  D. reports the firm resources, claims on those resources, and stockholders' equity at specific points in time.
  E. reports the assets and liabilities of the firm for the accounting period.
  D. reports the firm resources, claims on those resources, and stockholders' equity at specific points in time.

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  Explanation

  The balance sheet reports the categories and amounts of assets, liabilities, and stockholders' equity at specific points in time.

• Question 3800:

  If the average annual after tax cash flow was $5,101, the after tax net proceeds from sales was $89,514, the initial equity was $60,000 and n was 5, then what is the approximate yield?

  A. 15. 7%
  B. 15. 2%
  C. 16. 9%
  D. 14. 7%
  D. 14. 7%

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  Explanation

  Approximate yield =

  [($5,101 + (($89,514 - $60,000) / 5)] / (($89,514 + $60,000) / 2) = 14. 7%