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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 421:

  All portfolios that lie on the capital market line:

  A. contain the same mix of risky assets unless only the risk-free asset is held.
  B. have some unsystematic risk unless only the risk-free asset is held.
  C. contain at least some positive allocation to the risk-free asset.
  A. contain the same mix of risky assets unless only the risk-free asset is held.

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  Explanation

• Question 422:

  Edwin Hubble, who works for a respectable investment advisory firm, recently found out that his supervisor has been engaging in "front-running," i.e., executing transactions for personal accounts before client accounts. As an AIMR member, he is required to do all of the following EXCEPT?

  A. Report the illegal activity to the appropriate regulatory authorities.
  B. Dissociate himself from the activity.
  C. Consult with the legal department on the matter.
  D. Inform senior management about the activity with a view of stopping it.
  A. Report the illegal activity to the appropriate regulatory authorities.

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  Explanation

  Standard I does not require a member to report the illegal activity to the appropriate regulatory authorities, though it may be prudent to do so in many cases if it is evident that the activity is illegal.

• Question 423:

  Steve McCool is estimating the expected return and standard deviation of his equity portfolio. Steve has estimated a 20% chance that the portfolio will provide an 8% rate of return, a 40% chance that theportfolio will provide a 10% return, and a 40% chance that the portfolio will provide a 12% rate of return. Calculate the standard deviation of McCool's portfolio.

  A. 0.00022
  B. 0.01497
  C. 0.02240
  B. 0.01497

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  Explanation

• Question 424:

  How many monthly payments of $50, beginning next month, are needed to pay off a debt of $700, if interest accrues at 8% per year, compounded monthly?

  A. 18.60
  B. No solution/Error
  C. 11.48
  D. 12. 80
  E. 14. 75
  E. 14. 75

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  Explanation

  On the BAII Plus, press 8 divide 12 = I/Y, 700 PV, 50 +/- PMT, 0 FV, CPT N. On the HP12C, press 8 ENTER 12 divide i, 700 PV, 50 CHS PMT, 0 FV, n. Note that the HP12C will display 15 as the answer. Make sure the BAII Plus has the P/Y value set to 1.

• Question 425:

  The variability among venture capital investments is exhibited by the fact that

  A. approximately 75 percent of investments lose money.
  B. about 50 percent of all gains come from about 7 percent of the investments.
  C. about 75 percent of all gains come from about 5 percent of the investments.
  D. about one-third of the investments are responsible for half of all gains.
  B. about 50 percent of all gains come from about 7 percent of the investments.

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  Explanation

  The returns of venture capital are not uniformly realized across investments, i.e., about 1 in 15 investments is responsible for half of all gains. Approximately one-third of investments lose money.

• Question 426:

  ________ risk is the risk that a bank will deliver currency on one side of a foreign exchange deal while the counterparty does not send any money in return.

  A. Trading
  B. Settlement (Herstatt)
  C. Foreign Exchange
  D. Exchange
  E. Credit
  B. Settlement (Herstatt)

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  Explanation

  In order to minimize credit risk, most banks will transact large amounts only with blue chip customers.

• Question 427:

  The deferred income tax account

  A. can be reported as an asset
  B. is reported as a liability if it has a credit balance
  C. is where the difference between income tax expense and income tax payable is reconciled
  D. all of these answers are correct
  D. all of these answers are correct

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  Explanation

  The difference between income tax expense (based on accounting income) and the actual income taxes payable (based on taxable income) is reconciled in an account called deferred income taxes. It can be reported as an asset or a liability, depending on its balance and the circumstances.

• Question 428:

  Which of the following is not an advantage of technical analysis?

  A. Requires the use of audited financial statements
  B. Technical analysis is not time-consuming
  C. Can catch market trends and reversals close to their occurrence
  D. Does not rely heavily on financial figures and accounting statements
  E. Does not assume that securities prices move in observable trends
  A. Requires the use of audited financial statements

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  Explanation

  One of the major advantages cited by technical analysts is that technical analysis does not rely heavily on financial statements. Technical analysts believe that securities markets "price in" material information gradually, and that securities prices move in identifiable trends and patterns. An astute technical analyst, it is argued, can identify superior investment opportunities by recognizing the implicit trends exhibited by securities prices and quantifiable past performance data. This belief is in striking contrast with the Weak Form EMH, and is arguably the greatest criticism raised against technical analysis.

• Question 429:

  If you deposit $10,000 into an account paying 8% per year, compounded semiannually, how much do you have in the account in 10 years?

  A. $15,403. 52
  B. $21,911.23
  C. $24,800.00
  D. $22,667. 70
  E. $25,938.48
  B. $21,911.23

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  Explanation

  On the BAII Plus, press 20 N, 8 divide 2 = I/Y, 10000 PV, 0 PMT, CPT FV. On the HP12C, press 20 n, 8 ENTER 2 divide i, 10000 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 430:

  A survey of 144 retail stores revealed that a particular brand and model of a VCR retails for $375 with a standard deviation of $20.

  If 95% and 98% confidence intervals are developed to estimate the true cost of the VCR, what difference would they have?

  A. Interval widths
  B. Z-variates
  C. None of these answers
  D. Both interval widths and z-variates
  E. Standard errors
  D. Both interval widths and z-variates

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  Explanation

  The interval widths and the z variates differ according to the rule chosen. The standard error is the same regardless.