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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 631:

  Which of the following AIMR Standards states that the financial analyst shall distinguish between facts and opinions in research reports?

  A. III A
  B. III D
  C. III (B.1)
  D. IV (A.2)
  D. IV (A.2)

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  Explanation

  Standard IV (A.2) - Research Reports states: "Members shall distinguish between facts and opinions in research reports."

• Question 632:

  Buchanan Brothers anticipates that its net income at the end of the year will be $3. 6 million (before any recapitalization). The company currently has 900,000 shares of common stock outstanding and has no debt. The company's stock trades at $40 a share. The company is considering a recapitalization where it will issue $10 million worth of debt at a yield to maturity of 10 percent, and use the proceeds to repurchase common stock. Assume the stock price remains unchanged by the transaction, and the company's tax rate is 34 percent. What will be the company's earnings per share if it proceeds with the recapitalization?

  A. $4. 52
  B. $5. 54
  C. $2. 23
  D. $3. 26
  E. $2. 45
  A. $4. 52

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  Explanation

  After issuing the debt, the company can repurchase $10,000,000/$40 = 250,000 shares leaving 650,000 shares outstanding. We still need to find the expected NI after issuing the debt. We're given the anticipated NI is $3. 6 million. Thus, the EBIT (before the debt issue) can be found as follows: $3,600,000 = EBIT(1 - 0.34) or EBIT = $5,454,545. 45. The company will pay $1,000,000 in interest after issuing the debt so the new EBT will be $5,454,545. 45 - $1,000,000 = $4,454,545. 45. Also, the new NI figure will be: $4,454,545. 45(1 - 0.34) = $2,940,000. Finally, $2,940,000/650,000 = $4. 52 is the EPS after the recapitalization.

• Question 633:

  What are the earnings before interest and taxes (EBIT) of the building?

  A. $79,563.
  B. $52,919.
  C. $95,277.
  D. $59,580.
  A. $79,563.

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  Explanation

  92,886 - 13,322 = 79,564

• Question 634:

  Standard III includes which of the following?

  A. Reasonable Basis and Representations
  B. Preservation of Confidentiality
  C. All of these answers
  D. Performance Presentation
  E. Use of Professional Designation
  F. None of these answers
  F. None of these answers

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  Explanation

  Standard III deals with Obligation to Inform Employer of Code and Standards, Duty to Employer, Disclosure of Conflicts to Employer, Disclosure of Additional Compensation Arrangements and Responsibilities of Supervisors.

• Question 635:

  The multiplier effect refers to the fact that an autonomous change in spending (aggregate demand) will

  A. cause prices to rise by some multiple of the initial increase in spending.
  B. reduce prices by some multiple of the increase in spending.
  C. increase the money supply.
  D. increase unemployment.
  E. cause nominal output to rise by some multiple of the initial increase in spending.
  E. cause nominal output to rise by some multiple of the initial increase in spending.

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  Explanation

  The multiplier explains why small changes in investment, government or consumption spending triggers much larger changes in output.

• Question 636:

  Given the academic research supporting the efficiency of the stock market, which of the following is the least accurate description of a portfolio manager's role in an efficient market?

  A. Identifying and specifying a client's objectives and constraints.
  B. Specifying an explicit investment strategy to meet the client's needs.
  C. Diversifying the client's portfolio across all asset classes to eliminate systematic risk.
  C. Diversifying the client's portfolio across all asset classes to eliminate systematic risk.

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  Explanation

• Question 637:

  The rate of inflation

  A. has been found to vary inversely with the aggregate profit margin.
  B. has been found to vary positively with the aggregate profit margin.
  C. has an unresolved affect on aggregate profit margin.
  D. has been found not to affect aggregate profit margin.
  C. has an unresolved affect on aggregate profit margin.

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  Explanation

  Finkel and Tuttle found that the capacity utilization rate, unit labor costs, rate of inflation, and foreign competition were the four major variables that affected the aggregate profit margin. They postulated that the rate of inflation was positively related to profit, while others have postulated the opposite.

• Question 638:

  Consider the following information for Company XYZ:

  30 day T-Bill rate (Risk free rate) 5. 2%

  Common Stock Beta 1.1

  Expected Rate of return for the market 12. 0%

  Debt Credit Rating BBB

  Calculate this firm's cost of retained earnings using the CAPM approach.

  A. 5. 72%
  B. 17. 2%
  C. 10.2%
  D. 12. 0%
  E. 12. 68%
  F. 5. 2%
  E. 12. 68%

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  Explanation

  To calculate the cost of retained earnings for a firm using CAPM, one may use the following formula: Cost of retained earnings = risk free rate + ((expected rate of return on the market - risk free rate) x Beta). In this case the cost of retained earnings = 5. 2% + ((12. 0% - 5. 2%) x 1.1 = 12. 68%.

• Question 639:

  When a researcher uses the classes 129-147, 147-165, 165-183 to create a distribution, he is violating which of the following suggested practices?

  A. Avoid a use of non-standard class marks.
  B. Avoid a use of open-ended classes.
  C. Avoid a use of uneven classes.
  D. Avoid a use of overlapping classes.
  D. Avoid a use of overlapping classes.

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  Explanation

  The classes are overlapping (for e.g., the classes "147-165" and "165-183" have the point "165" in common). There are no open-ended classes and the classes have the same class interval. Note that "Avoid a use of non-standard class marks" is a bogus choice; there is no such suggested practice.

• Question 640:

  According to Standard IV (A.2), members should consider including the following information in research reports, except:

  A. the methodology that drove the investment decisions.
  B. yield-to-maturity.
  C. annual amount of income expected.
  D. degree of uncertainty associated with the cash flows.
  E. business, financial, political, sovereign and market risks.
  F. none of these answers.
  G. degree of marketability / liquidity.
  H. expected annual rate of return.
  A. the methodology that drove the investment decisions.

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  Explanation

  All the information has to be included in the research reports except the methodology that drove the investment decision, which is part of the 'maintaining files' compliance procedure for Standard IV (A.1).