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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 411:

  Stockholders' equity may contain all of the following components, except:

  A. Minimum pension liability
  B. Minority interests in consolidated subsidiaries
  C. Employee Stock Option Plan accruals
  D. Treasury stock
  E. Reinvested earnings
  B. Minority interests in consolidated subsidiaries

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  Explanation

  Classified as a liability, minority interests in consolidated subsidiaries represent the equity held by investors other than the subject firm in those subsidiaries.

• Question 412:

  Smith, a research analyst with a brokerage firm, decides to change his recommendation on the common stock of Green company, Inc., from a buy to a sell. He mails this change in investment advice to all the firm's clients on Wednesday. The day after the mailing, a client calls with a buy for 500 shares of Green Company. In this circumstance, Smith should:

  A. accept the order.
  B. advise the customer of the change in recommendation before accepting the order.
  C. not accept the order because it is contrary to the firm's recommendation.
  D. not accept the order until five days have elapsed after the communication of the change in recommendation.
  B. advise the customer of the change in recommendation before accepting the order.

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  Explanation

  Under Standard IV (B.3), investment recommendations must be disseminated to all clients at the same time, so that all clients are treated fairly. The client's request is contrary to Smith's latest recommendation which he has not yet received. Smith must now make sure that the client receives the changed recommendation. If the client still wants to place a buy order for the shares, only then is Smith obligated to comply with the client's directive.

• Question 413:

  The U.S. Federal Aviation Administration reported that passenger revenues on international flights increased from $528 million in 1972 to $5,100 million in 1995. What is the geometric mean annual percent increase in international passenger revenues?

  A. None of these answers
  B. 27. 9
  C. 9.96
  D. 103. 6
  E. 10.4
  E. 10.4

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  Explanation

  There are 24 years involved. The geometric mean is = [(1 + 5100/528)^1/23]-1. In words, it is the 23rd square root of (1 + 5100/528) minus 1. So we have GM = (1 + 9.66)^(1/23) - 1 = 0.1036 = 10.4%

• Question 414:

  In a binomial probability distribution,

  A. there are 2 distinct modes.
  B. the probability graph is bell-shaped and symmetrical.
  C. each trial can only take values between 0 and 1. D. each trial can take only two values.
  D

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  Explanation

  A binomial distribution with "N trials" arises when the same experiment is repeated N times. Each of the trails is known as a "Bernoulli" trial. It is the Bernoulli trial which can only take two distinct values, "success" and "failure." Each outcome of a binomial distribution with N trials is the string of N values generated by the individual Bernoulli trials. Clearly, the binomial distribution with N trials can take 2^N values, even though each individual trial can have only two outcomes. It is important that you understand the difference between the binomial distribution and the underlying Bernoulli trials themselves.

• Question 415:

  Which of the following is not demographic figure?

  A. Person's lifestyle
  B. Person's age structure
  C. Person's occupation
  D. Person's marital status
  E. Person's gender
  A. Person's lifestyle

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  Explanation

  Demographics - Age structure, occupation, gender, marital status. A person's lifestyle would be part of psychographics.

• Question 416:

  In a given period, the firm's beginning gross investment is 6,000 and ending gross investment is 10,000. The accumulated depreciation at the beginning was 500 and the ending balance in this account was 1,500. The firm uses straight-line depreciation. Then, the average depreciable life of the firm's assets is ________.

  A. 6. 67 years
  B. 6 years
  C. 10 years
  D. 12 years
  C. 10 years

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  Explanation

  Note that: Average depreciable life = Ending Gross Investment/Depreciation expense. Depreciation expense = 1,500-500 = 1,000. Hence, ADL = 10,000/1,000 = 10 years.

• Question 417:

  On a certain date, the banking system had $2 billion in excess reserves. The legally required reserve ratio was 12. 5 percent. Potentially, the banking system as a whole could increase its loans a maximum of

  A. more than $25 billion.
  B. $2 billion.
  C. $12. 5 billion.
  D. $16 billion.
  D. $16 billion.

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  Explanation

  The deposit expansion multiplier in this economy is 8 (found by taking the inverse of 12. 5%=1/(.125)). Since banks hold an excess $2 billion in reserves they could extend loans in this amount and increase the money supply by 8 x $2 billion = $16 billion.

• Question 418:

  When referring to foreign exchange trades, "American terms" refers to: A. a direct quote outside the U.S.

  B. trades by Americans living abroad

  C. the number of foreign currency units per U.S. dollar

  D. an indirect quote in the U.S.

  E. the number of U.S. dollars per unit of foreign currency

  Correct Answer. E
  E

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  Explanation

  "European terms" refers to the number of foreign currency units per U.S. dollar.

• Question 419:

  The primary beneficiaries of the AIMR-PPS are:

  A. current and prospective clients.
  B. AIMR members.
  C. all investment professionals.
  D. investment firms who adopt the standards.
  A. current and prospective clients.

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  Explanation

  Since the PPS strive to achieve greater uniformity and compatibility amongst the various performance presentations, clients who wish to compare investment results across various firms benefit the most. Note, however, the mere compliance of a firm with the PPS does not mean that clients should not perform due diligence before making investment decisions.

• Question 420:

  If the Fed conducts a demand stimulus policy, the rational expectations theory implies that

  A. the slope of the Phillips curve will increase.
  B. unemployment will temporarily fall below the natural rate.
  C. the Phillips curve immediately shifts upward.
  D. the natural unemployment will rise.
  C. the Phillips curve immediately shifts upward.

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  Explanation

  Under rational expectations people quickly anticipate the effect of policy changes and adjust their actions accordingly. Thus, under a demand stimulus policy the Phillips curve immediately shifts upward because individuals anticipate an acceleration in the inflation rate due to the more expansionary macropolicy.