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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 601:

  At the end of the fiscal period, the account debited to show the estimated amount of uncollectible accounts is:

  A. Bad Debt Expense
  B. Accounts Receivable
  C. None of these answers
  D. Unearned Revenue
  E. Allowance for Uncollectible Accounts
  A. Bad Debt Expense

  ---

  Explanation

  The adjusting entry should recognize an expense and increase the allowance account.

• Question 602:

  ________ are funds that continue to sell and repurchase shares after their initial public offerings.

  A. Unrestricted public funds
  B. Open-end investment funds
  C. Closed-end investment funds
  D. No-load closed-end funds
  B. Open-end investment funds

  ---

  Explanation

  Open-end investment funds or mutual funds continue to sell and repurchase shares after their initial public offering. The total number of outstanding fund shares can change with time.

• Question 603:

  If all the data points in a regression lie exactly on a straight line, which of the following is/are true?

  I. The observed values of the dependent variable will equal the predicted values.

  II. The R-square will equal 100%.

  III. The slope coefficient will be 1. IV.

  The residual error will be 100%.

  A. I and II
  B. III only
  C. II only
  D. IV only
  E. I only
  F. I and III
  G. I, II and III
  H. III and IV
  A. I and II

  ---

  Explanation

  Since there is no error in the regression, the R-square equals 1 (100%). The slope coefficient can be any real number, not necessarily 1. The residual error will be zero.

• Question 604:

  How much will $3,250 become after 6 years at 8% per year, compounded annually?

  A. $5,298.66
  B. $2,039.09
  C. $2,048.05
  D. $5,157. 34
  E. $5,180.00
  D. $5,157. 34

  ---

  Explanation

  On the BAII Plus, press 6 N, 8 I/Y, 3250 PV, 0 PMT, CPT FV. On the HP12C, press 6 n, 8 i, 3250 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 605:

  A firm using LIFO accounting has a LIFO reserve of 4,700, with a FIFO ending inventory of 34,600. It is currently in the 40% tax bracket. If it switches to FIFO accounting for reporting purposes, it's deferred taxes ________.

  A. decrease by 2,820
  B. increase by 2,820
  C. increase by 1,880
  D. decrease by 1,880
  C. increase by 1,880

  ---

  Explanation

  When the firm switches from LIFO to FIFO, it must recognize the additional tax liability that arises because the taxes not paid in the past will now have to be paid. This liability equals the LIFO reserve times the current tax rate and must be added to the deferred taxes account (to be completely accurate, you would have to go back all the way to the inception of the firm and recalculate historical taxes. This is never done).

• Question 606:

  A thorough analysis of financial statements should include an examination of which of the following sources of information?

  A. All of these are correct.
  B. The report of the independent external auditor.
  C. Management's discussion and analysis of its financial condition and results of operation.
  D. Form 10-K reports.
  E. Explanatory footnotes that accompany financial statements.
  A. All of these are correct.

  ---

  Explanation

  All of these statements are correct. Management's discussion and analysis, footnotes and Form 10-K reports provide important details as to the company's balance sheet, income statement and overall financial condition; auditors reports will indicate if the financial information that is presented complies with generally accepted accounting principles.

• Question 607:

  In the Keynesian model, if the multiplier is 3, then ________.

  A. MPS must be approximately .30
  B. MPC must be approximately 2/3
  C. MPC must be approximately .30
  D. MPC must be approximately 1/3
  E. MPS must be approximately 2/3
  D. MPC must be approximately 1/3

  ---

  Explanation

  The expenditure multiplier is found by M = 1/(1-MPC). Therefore, 3= 1/(1-MPC) implies that MPC is .333)

• Question 608:

  In a research report, a securities analyst with Smith, Kleen and Beetchnutty claims that the newly issued perpetual preferred stock of Ludicrous Telecom should be purchased because its current market price does not reflect its "intrinsic value." The analyst cites a higher valuation as evidenced by the results produced by the perpetuity valuation model. Assume the following information:

  Market price of Ludicrous Telecom preferred stock: $20.75 Quarterly preferred dividend: $0.80 Expected return on the market: 14. 75% per year Risk-free rate of return: 5. 00% per year

  Given this information, are the claims of the analyst justified? If not, at what price is the preferred stock of Ludicrous Telecom fairly valued?

  A. None of these answers is correct.
  B. $4. 05
  C. The answer cannot be calculated from the information provided.
  D. $21.70
  E. $16. 00
  F. $5. 42
  C. The answer cannot be calculated from the information provided.

  ---

  Explanation

  Assuming that the quarterly dividend is to remain unchanged forever allows us to use the standard perpetuity model, which is illustrated as follows:

  Value of preferred stock = {Annual dividend / required rate of return} However, in this example, the required rate of return on preferred stock is not provided, and thus the answer cannot be calculated.

• Question 609:

  A restrictive monetary policy will not

  A. raise firms' costs by raising interest rates.
  B. increase firms' costs by decreasing interest rates.
  C. have an influence on individual firms.
  D. reduce the supply of funds for working capital and expansion available to firms.
  B. increase firms' costs by decreasing interest rates.

  ---

  Explanation

  A restrictive monetary policy often raises interest rates (and never lowers them). Such increases in rates would increase the cost of borrowing for firms. A restrictive monetary policy may also reduce the growth rate of monetary supply, and thus reduce the supply of funds for working capital and expansion available to businesses.

• Question 610:

  How many monthly payments of $40 are needed to pay off a debt of $1,000, if interest accrues at 10% per year, compounded monthly?

  A. No solution/Error
  B. 28.15
  C. 31.48
  D. 17. 60
  E. 22. 80
  B. 28.15

  ---

  Explanation

  On the BAII Plus, press 10 divide 12 = I/Y, 1000 PV, 40 +/- PMT, 0 FV, CPT N. On the HP12C, press 10 ENTER 12 divide i, 1000 PV, 40 CHS PMT, 0 FV, n. Note that the HP12C will display 29 as the answer. Make sure the BAII Plus has the value of P/Y set to 1.