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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 3951:

  What is the value of a stock that paid a $10 per share dividend this year, and is expected to pay a dividend 20% higher in a year's time, the stock is expected to be selling for $40 per share at the end of the year. The appropriate discount rate is 10% per year?

  A. Not able to compute with the above data.
  B. $45. 49
  C. $50.16
  D. $47. 27
  D. $47. 27

  ---

  Explanation

  Value = $52/1.10=$47. 27

• Question 3952:

  Which of the following projects would have multiple internal rates of return (IRRs)? The cost of capital for all projects is 10.0%.

  

  A. Project South only.
  B. Projects South and West.
  C. Project West only.
  D. Projects South and East.
  A. Project South only.

  ---

  Explanation

  The multiple IRR problem occurs if a project has non-normal cash flows, that is, the project has negative (net) cash flows over its life or at the end of its life. In short, the sign of the net cash flows changes from negative to positive to negative, or vice versa. For the exam, a shortcut to look for is the project cash flows changing signs more than once. Only Project South has this cash flow pattern. The 0 net cash flow in T2 for Project West and likely negative net present value (NPV) for Project East would not necessarily result in multiple IRRs.

• Question 3953:

  The main purpose of the statement of financial position is to reflect

  A. the market value of the firm's assets at some point in time.
  B. the status of the firm's assets in case of forced liquidation of the firm.
  C. items of value, debts and net worth.
  D. none of these answers.
  E. the firm's potential for growth in stock values in the stock market.
  C. items of value, debts and net worth.

  ---

  Explanation

  The Statement of Financial position or balance sheet presents 3 major elements: assets (items of value), liabilities (debts)), and shareholders' equity (net worth).

• Question 3954:

  Which of the following is used to calculate the actual adjustment for bad debt expense for the period?

  A. aging
  B. percent of accounts receivable
  C. percent of net sales
  D. all of these answers are correct
  C. percent of net sales

  ---

  Explanation

  The aging and percent of Accounts Receivable methods calculate what the balance of the allowance account should be, however, percent of net sales method calculates the actual expense for the period.

• Question 3955:

  When formulating an investment policy for a client, all of the following fall under "investor constraints," except ________.

  A. regulatory and legal circumstances
  B. tax considerations
  C. investor preferences, circumstances and unique needs
  D. none of these answers
  E. the existence of separate beneficiaries
  F. investable funds
  G. proxy voting
  H. liquidity needs
  E. the existence of separate beneficiaries

  ---

  Explanation

  The existence of separate beneficiaries is considered under the "client identification" category.

• Question 3956:

  John makes T-shirts and sells them only to American citizens and he purchases one bottle of French wine with his income. Which of the following will be true?

  A. John will not be affecting the U.S. trade deficit.
  B. John will be reducing the U.S. capital account surplus.
  C. John will be adding to the U.S. trade deficit.
  D. John will be reducing the U.S. trade deficit.
  C. John will be adding to the U.S. trade deficit.

  ---

  Explanation

  John adds to the U.S. trade deficit because he purchases imports why contributing no exports to the trade balance.

• Question 3957:

  What annual interest rate, compounded quarterly, would cause a series of 20 quarterly deposits of $800 to accumulate to $25,000, if the first deposit is made three months from today?

  A. 12. 31%
  B. 19.94%
  C. 19.78%
  D. 17. 85%
  E. 18.15%
  D. 17. 85%

  ---

  Explanation

  The value returned by the calculator will be the periodic interest rate which must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 20 N, 0 PV, 800 PMT, 25000 +/- FV, CPT I/Y. Then press x 4 = to see the answer. On the HP12C, press 20 n, 0 PV, 800 PMT, 25000 CHS FV, i. Then press 4 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3958:

  Which of the following is/are current liabilities?

  I. Accounts receivable

  II. Cash advances received

  III. Advance magazine subscription payments received

  IV.

  Revenues from credit card fees

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

  ---

  Explanation

  Accounts receivable represent current assets.

• Question 3959:

  An automatic machine inserts mixed vegetables into a plastic bag. Past experience revealed that some packages were underweight and some were overweight, but most of them had satisfactory weight.

  Weight % of Total Underweight 2. 5 Satisfactory 90.0 Overweight 7. 5

  Three packages are selected from the food processing line. What is the probability of selecting and finding that all three of them are underweight?

  A. None of these answers
  B. 0.0004218
  C. 0.075
  D. 0.0000156
  E. 0.0000001
  D. 0.0000156

  ---

  Explanation

  P(all three underweight) = 0.025*0.025*0.025 = 0.0000156.

• Question 3960:

  Which of the following statements is most correct?

  A. None of these statements are correct.
  B. If a firm finds that the cost of debt financing is currently less than the cost of equity financing, an increase in its debt ratio will always reduce its cost of capital.
  C. A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, the cost of retained earnings is generally lower than the after-tax cost of debt financing.
  D. The capital structure which minimizes the firm's cost of capital is also the capital structure which maximizes the firm's stock price.
  E. The capital structure which minimizes the firm's cost of capital is also the capital structure which maximizes the firm's earnings per share.
  D. The capital structure which minimizes the firm's cost of capital is also the capital structure which maximizes the firm's stock price.

  ---

  Explanation

  The optimal capital structure is the one that maximizes the price of the firm's stock, and this generally calls for a debt ratio which is lower than the one that maximized expected EPS.