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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3861:

  Ameriscam, Inc. is considering the issuance of some perpetual preferred stock. The Company's corporate tax rate is 30%, and the yield on its outstanding senior debt is 7. 55%. Additionally, Ameriscam has been told by a leading investment bank that if issued, its preferred stock would merit a price of $40 net of flotation costs and other charges. If issued, the firm plans to dedicate preferred annual dividends of $2. 35 per share. What is the cost of the proposed preferred stock for this firm?

  A. The cost of preferred stock cannot be calculated from the information supplied.
  B. 2. 265%
  C. 7. 98%
  D. 0.0875%
  E. 5. 875%
  E. 5. 875%

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  Explanation

  The cost of preferred stock can be found by dividing the annual dividend by the issuing price, which is net of any underwriting, or "flotation," charges. The cost of preferred stock in this example is very low. Typically, the cost of preferred stock is greater than the cost of debt but less than the cost of common equity.

• Question 3862:

  Which of the following is not a current liability?

  A. Notes Payable
  B. Wages Payable
  C. Allowance for Uncollectible Accounts
  D. Unearned Revenue
  C. Allowance for Uncollectible Accounts

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  Explanation

  Allowance for Uncollectible Accounts is a contra account to Accounts Receivable, both of which are reported in the current asset section of the balance sheet.

• Question 3863:

  The simple or linear annualized short-term interest rate is calculated according to:

  A. multiply the annual rate by the length of the period in months.
  B. divide the annual rate by the length of the period in months.
  C. multiply the annual rate by the length of the period, as a proportion of a year.
  D. multiply the annual rate by the length of the period as a percentage of six months.
  E. divide the annual rate by the length of the period as a proportion of the year.
  C. multiply the annual rate by the length of the period, as a proportion of a year.

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  Explanation

  The rate to be paid over the period is equal to the annual rate multiplied by the length of the period, as a proportion of a year.

• Question 3864:

  The performance benchmark for a currency overlay portfolio must be calculated in accordance with the portfolio's mandates, unless the benchmark is the ________ on a published benchmark.

  A. tax return
  B. cross hedge
  C. currency return
  D. mean value
  E. standard deviation
  C. currency return

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  Explanation

  Two portfolios with the same benchmark may give different mandates to the overlay portfolio managers. For example, when the mandate is based on the underlying assets, the return of the overlay performance benchmark will be different unless the underlying assets of two portfolios imply identical currency exposures. Consequently, the performance benchmark for a currency overlay portfolio must be calculated in accordance with the portfolio's mandates, unless the benchmark is the currency return on a published benchmark.

• Question 3865:

  Which of the following would affect both net income and cash flow from operations?

  A. credit sale to a customer
  B. sale of marketable security for a gain
  C. interest payment on capitalized interest
  D. none of these answers
  D. none of these answers

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  Explanation

  The sale of a marketable security falls under an investing activity. Interest payments fall under financing activities. Credit sale to a customer doesn't apply.

• Question 3866:

  A survey of passengers on domestic flights revealed these miles:

  Miles Flown Number of Passengers 100 - 49916 500 - 89941 900 - 129981 1300 - 169911 1700 - 20999 2100 - 24996

  What is the range (in miles)?

  A. 1,100
  B. 1,999
  C. 2,499
  D. 2,399
  E. None of these answers
  D. 2,399

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  Explanation

  2499 - 100 = 2399

• Question 3867:

  Birch Ltd. had net income for the year of $101,504 and a simple capital structure consisting of the following common shares outstanding:

  Months Outstanding Number of Shares

  January - February 24,000 March - June 29,400 July - November 36,000 December 35,040

  Birch's earnings per share (rounded to the nearest cent) were ________.

  A. $2. 90
  B. $3. 45
  C. $4. 23
  D. $3. 20
  E. $3. 25
  D. $3. 20

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  Explanation

  EPS equals net income divided by the weighted average number of shares outstanding and is $3. 20 ($101,504 / 31,720). Following is the calculation for the weighted average number of shares outstanding:

  24,000 X (2 / 12) = 4,000 29,400 X (4 / 12) = 9,800 36,000 X (5 / 12) = 15,000 35,040 X (1 /12) = 2,920 weighted average 31,720

• Question 3868:

  A researcher has organized 310 observations into 9 classes. The frequency of the 50-75 frequency class is 34. The relative frequency of the class equals ________.

  A. 0.14
  B. 34
  C. 0.11
  D. 0.27
  C. 0.11

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  Explanation

  relative frequency = class frequency/total # of observations = 34/310 = 0.11 Remember that relative frequency is always a number between zero and one.

• Question 3869:

  A study of the opinion of designers with respect to the primary color most desirable for use in executive offices showed that:

  Primary Color Number of Opinions Red 92 Orange 86 Yellow 46 Green 91 Blue 37 Indigo 46 Violet 2

  What is the probability that a designer does not prefer yellow?

  A. 1.000
  B. 0.885
  C. None of these answers
  D. 0.765
  E. 0.000
  B. 0.885

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  Explanation

  There are 400 opinions. 46/400 prefer yellow. So 1 - 46/400 = 177/200 = 0.885 does not prefer yellow.

• Question 3870:

  Which of the following is/are true about computation of Basic EPS?

  I. Reacquired shares are excluded from the date of acquisition.

  II. Shares issued in the purchase of assets are assumed to have been outstanding for the entire period.

  III.

  Shares issued in mergers are assumed to have been outstanding from the date of issuance.

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

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  Explanation

  Weighted average shares used in EPS computations are calculated using the following rules:

  1. Reacquired shares are excluded from the date of acquisition.

  2. Shares issued in the purchase of assets are included from the date of issuance.

  3. Shares issued in mergers are assumed to have been outstanding for all periods for which EPS numbers are presented.