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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 561:

  An employee's pension payments are based on his salary and length of service. He does not bear the risk of the pension size being affected by market performance. He is enrolled in the:

  A. defined benefits plan.
  B. defined contribution plan.
  C. defined pension plan.
  D. employee pension benefits plan.
  A. defined benefits plan.

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  Explanation

  In a defined benefit pension plan, the retirement benefits are "predefined." The employer commits to providing the benefits regardless of the performance of the pension plan. Thus, in this plan, the risk of pension plan performance is borne by the employer and not the employee.

• Question 562:

  ________ attempt to match the composition of the market.

  A. Balanced funds
  B. Growth funds
  C. Composite funds
  D. Market index funds
  D. Market index funds

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  Explanation

  They are funds that attempt to match a benchmark index of the market.

• Question 563:

  Each ________ needs to comprise portfolios or asset classes that represent a similar investment goal.

  A. return
  B. composite
  C. value
  D. benchmark
  E. mix
  B. composite

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  Explanation

  All actual fee-paying discretionary portfolios must be included in at least one composite defined according to similar strategy or investment objective.

• Question 564:

  In the Keynesian model, if the marginal propensity to consume were 0.75, an independent decline in investment of $10 billion would cause equilibrium income to decline ________.

  A. $40 billion
  B. $75 billion
  C. $10 billion
  D. $50 billion
  C. $10 billion

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  Explanation

  The expenditure multiplier is found by M = 1/(1-MPC). Thus, here M = 1/(1-3/4) = 4. Therefore the $10 billion decrease in aggregate expenditures is magnified four times to $40 billion.

• Question 565:

  Mooradian Corporation estimates that its cost of capital is 11 percent. The company is considering two mutually exclusive projects whose after-tax cash flows are as follows: Year Project SProject L 0-$3,000 -$9,000 12,500-1,000 21,500 5,000 31,500 5,000 4-500 5,000 What is the modified internal rate of return (MIRR) of the project with the highest NPV?

  A. 18.25%
  B. 11.89%
  C. 20.12%
  D. 16. 01%
  E. 13. 66%
  C. 20.12%

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  Explanation

  Use cash flow registers to determine the NPV of each project:

  NPV(S) = $1,237. 11; NPV(L) = $1,106. 82.

  Since NPV(S) > NPV(L) we need to calculate MIRR(S).

  Calculate the PV of cash outflows:

  CF(0) = -3,000; CF(1-3) = 0; CF(4) = -500; I = 11. Solve for NPV = $3,329.37.

  Calculate the TV of cash inflows:

  First find the cumulative PV, then take forward as a lump sum to find the TV.

  Solve for NPV = $4,566. 47.

  Calculate TV or FV: N = 4; I = 11; PV = -4,566. 47; PMT = 0.

  Solve for FV = $6,932. 22.

  Calculate MIRR: N = 4; PV = -3,329.37; PMT = 0; FV = 6,932. 22.

  Solve for MIRR = I = 20.12%.

• Question 566:

  The annual income and expense figures for a proposed property under consideration for purchase, along with some recent sales data, are given below.

  

  The appraised value for the proposed property using the income approach is closest to:

  A. $1,268,125
  B. $1,504,375
  C. $1,623,200
  B. $1,504,375

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  Explanation

• Question 567:

  Tony Nguyen works in the investor relations department of a medium sized technology firm. He recently received the following e-mail: "I am an investor concerned with agency problems between managers and stockholders. What assurance do I have that the company works to align the interests of these two groups?" Which of the following actions that the firm has taken does NOT address the e-mail's concerns?

  A. Every employee receives performance shares and cash bonuses, based on his or her position and company earnings per share results.
  B. The company recently expanded its executive stock-option program to include middle-level managers.
  C. The company recently adopted a shareholder rights plan that allows existing shareholders favorable terms over outside parties. The plan is triggered if a person or group acquires beneficial ownership of 10 percent or more of the company's common stock.
  D. The board has a reputation for aggressively monitoring current management and is quick to remove poor-performing managers.
  C. The company recently adopted a shareholder rights plan that allows existing shareholders favorable terms over outside parties. The plan is triggered if a person or group acquires beneficial ownership of 10 percent or more of the company's common stock.

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  Explanation

  The shareholder rights agreement is an example of a poison pill, a device used to discourage hostile takeovers. The threat of takeover is a mechanism designed to reduce conflicts between managers and shareholders, so anything that

  weakens the threat would not align the interests of managers and shareholders.

  Performance shares, cash bonuses, and stock option plans are examples of managerial compensation mechanisms designed to align the interests of stockholders and managers. The aggressive board is an example of the threat of firing

  mechanism. The other mechanism noted in the reading is direct intervention by shareholders. The goal of these mechanisms is to motivate managers to achieve a higher stock price, which improves shareholder wealth.

• Question 568:

  In the regression equation, what does the letter "a" represent?

  A. Slope of the line
  B. Y intercept
  C. Any value of the independent variable that is selected
  D. None of these answers
  B. Y intercept

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  Explanation

  The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line.

• Question 569:

  Rock Inc. maintains a policy of paying 30% of earnings to its investors in the form of dividends. Rock is expected to generate a return on equity of 9.3%. Rock's beta is 1.5. The equity risk premium is 6% and U.S. Treasury notes are yielding 3%. Rock's required rate of return is closest to:

  A. 9.0%.
  B. 9.3%.
  C. 12. 0%.
  A. 9.0%.

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  Explanation

• Question 570:

  Distributions X and Y have the same coefficients of variation. If the mean of X is twice the mean of Y and the standard deviation of X is 5, the standard deviation of Y is ________.

  A. 5
  B. 10
  C. 2. 5
  D. 2
  C. 2. 5

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  Explanation

  coefficient of variation = standard deviation/mean. If the mean of Y is M, then the coefficient of variation of X is 5/(2M) and that of Y is (standard deviation of Y)/M. Given that these two are equal, 5/(2M) = (standard deviation of Y)/M. Therefore, standard deviation of Y = 5/2 = 2. 5.