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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3871:

  Technical analysis

  A. does not conflict with the efficient market hypothesis. Technical analysis claims that the market moves in trends that can be predicted before they occur. The key to profiting from technical analysis involves a consistent ability to use past and present market data to predict future trends.
  B. does not conflict with the efficient market hypothesis. Technical analysts believe that information is disseminated slowly, first to the professionals, and later to the great bulk of investors. This causes stock prices to move in trends.
  C. conflicts with the efficient market hypothesis. Technical analysis claims that the market moves in trends that can be predicted before they occur. These trends are caused by the fact that information is disseminated relatively quickly.
  D. conflicts with the efficient market hypothesis. Technical analysts believe that information is disseminated relatively slowly, first to the professionals, and later to the great bulk of investors. In contrast, advocates of the efficient market hypothesis believe that information is spreads very quickly and is reflected in stock prices soon after it is available.
  D. conflicts with the efficient market hypothesis. Technical analysts believe that information is disseminated relatively slowly, first to the professionals, and later to the great bulk of investors. In contrast, advocates of the efficient market hypothesis believe that information is spreads very quickly and is reflected in stock prices soon after it is available.

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  Explanation

  Technical analysts believe that information is disseminated relatively slowly, causing the market to move in trends. They key to profiting from technical analysis lies in finding existing trends and exploiting them. The efficient market hypothesis holds that past market data (which is used to find trends) is already reflected in current prices, making effective technical analysis impossible.

• Question 3872:

  The exchange rate of a country's currency will ________ if the income of the country and its trading partners rises.

  A. neither of these answers
  B. increase
  C. This answer depends on which income rises the fastest: for countries that are similar in size and propensity to import, the country that is growing the fastest will increase its demand for imports relatively more than its trading partner, resulting in a decrease in the value of the more rapidly growing nation's currency.
  D. decrease
  C. This answer depends on which income rises the fastest: for countries that are similar in size and propensity to import, the country that is growing the fastest will increase its demand for imports relatively more than its trading partner, resulting in a decrease in the value of the more rapidly growing nation's currency.

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  Explanation

  Fore countries are similar in size and propensity to import, the country that is growing the fastest will increase its demand for imports relatively more than its trading partner, resulting in a decrease in the value of the more rapidly growing nation's currency. Sluggish growth of income relative to one's trading partners tends to cause the slow-growth nation's currency to appreciate.

• Question 3873:

  Under accrual accounting, revenues are recognized when:

  I. Sales are made.

  II. The earnings process is complete.

  III. The realization of payment is reasonably assured.

  IV.

  Cash is received from outside sources.

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

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  Explanation

  Both are required for earnings to be recognized. IV is not true under accrual accounting and I is incorrect since even after a sale is made, realization of payment may be doubtful or there may be a high probability of merchandise return.

• Question 3874:

  The direct capitalization approach equals: Market Value = Annual NOI / ________

  A. Market Capitalization Rate
  B. Market Discount Rate
  C. None of these answers
  D. Subject Property Capitalization Rate
  E. Subject Property Discount Rate
  A. Market Capitalization Rate

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  Explanation

  The direct capitalization approach =

  Market Value = Annual NOI / Market Capitalization Rate

• Question 3875:

  Which of the following statements is NOT correct?

  A. All of these statements are correct.
  B. Standards II through V contain principles guiding the general activities of members.
  C. Members who work in a country where the Code and Standards impose a higher degree of responsibility than local laws and regulations must adhere to the Code and Standards.
  D. Members are not required to report legal violations to the appropriate governmental or regulatory organizations.
  E. Members who work in a country where the Code and Standards impose a lesser degree of responsibility than local laws and regulations must adhere to the local laws and regulations.
  B. Standards II through V contain principles guiding the general activities of members.

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  Explanation

  Standards II through V address specific conduct, while Standard I contains principles guiding the general activities of members. This distinction should be noted.

• Question 3876:

  What are the two rejection areas in using a two-tailed test and the 0.01 level of significance?

  A. None of these answers
  B. Above 1.96 and below -1.96
  C. Above 1.645 and below -1.645
  D. Above 1.00 and below -1.00
  E. Above 2. 58 and below -2. 58
  E. Above 2. 58 and below -2. 58

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  Explanation

  0.01 means that we are considering a 99% level of significance. For this, we can find the z-value to be +/- 2. 58.

• Question 3877:

  Using the dividend discount model, the spread between the required rate of return on a stock and the expected growth rate of dividends on that stock is equal to

  A. the expected dividend payment divided by its price.
  B. the dividend payout ratio divided by the price.
  C. its price divided by the dividend payout ratio.
  D. its price divided by the expected dividend payment.
  A. the expected dividend payment divided by its price.

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  Explanation

  Using the dividend discount model, the price of a stock is equal to D / (k - g), where D is the expected dividend, k is the required rate of return, and g is the expected growth rate of dividends for the stock. Rearranging this equation yields D/P = k - g.

• Question 3878:

  Which of the following statements about international portfolio investing is TRUE?

  A. U.S. investors are internationally diversified.
  B. Emerging markets offer the greatest degree of diversification and the highest expected returns because of their industrial composition and currency behavior.
  C. The national beta measures the volatility of a nation's index relative to the referenced stock index, usually the U.S. index or the world index.
  D. The benefits of diversification increase when the weights used for international and domestic countries/assets conform to relative market capitalization weights.
  C. The national beta measures the volatility of a nation's index relative to the referenced stock index, usually the U.S. index or the world index.

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  Explanation

  U.S. investors are not internationally diversified, because of the following barriers: regulatory accounting and disclosure requirements that keep many foreign firms from registering and selling their shares in the U.S. capital markets, higher international trading costs, complications of foreign tax laws, and foreign exchange transaction cost and risk. Emerging markets offer the greatest degree of diversification and the highest expected returns because of their low correlations (due to volatile economic and political natures). Industrial composition and currency movements are not considered factors that impact correlations. The benefits of diversification increase when the weights used do not conform to relative market capitalization weights.

• Question 3879:

  According to the Prudent Investor Rule, the trustee must:

  -adhere to loyalty, impartiality and ________

  -maintain overall portfolio risk at a reasonable level

  -provide for reasonable diversification of trust investments

  - act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents

  -

  be cost conscious when investing

  A. commitment
  B. none of these answers
  C. prudence
  D. diversification
  E. supervisors
  C. prudence

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  Explanation

  Modern Portfolio Theory dictates that trustees consider a portfolio in its entirety and not just on an investment-by-investment basis. As a fiduciary, therefore, the trustee must:

  - adhere to fundamental fiduciary duties of loyalty, impartiality and prudence.

  -maintain overall portfolio risk at a reasonable level

  - the trade-off between risk and return is the fiduciary's central concern.

  -provide for reasonable diversification of trust investments.

  - act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.

  -be cost conscious when investing.

• Question 3880:

  Which of the following is the correct order of the steps (from first to last) of the top-down, three-step approach to valuation?

  A. Analysis of the economy and security markets, analysis of alternative industries, and analysis of individual firms and stocks
  B. Analysis of alternative countries and regions, analysis of the economy and security markets, and analysis of individual firms and stocks.
  C. Analysis of the economy and security markets, analysis of alternative countries, and analysis of individual firms and stocks
  D. Analysis of alternative industries, analysis of the economy and security markets, and analysis of individual firms and stocks
  A. Analysis of the economy and security markets, analysis of alternative industries, and analysis of individual firms and stocks

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  Explanation

  Analysis of alternative countries and regions is considered part of analysis of the economy and security markets. The steps follow a top-down approach, with the most general category (the economy) followed by more specific areas (industries and then individual firms).