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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 671:

  An acceptable method for recognizing profit when the collection of cash is in doubt is the ________.

  A. installment method
  B. percentage-of-completion method
  C. consignment method
  D. production method
  E. completed-contract method
  A. installment method

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  Explanation

  Revenue is recognized when the conditions of "realized" or "realizable" and earned are met. If the collectibility of assets to be received for products or services is in doubt, revenues may be recognized when cash is received, as in the installment method.

• Question 672:

  Bart Wiggum believes the current level of the SandP 500 index reflects all public information. To convince his supervisor of his hypothesis, Wiggum has downloaded a daily price series for the SandP 500 index for the period 1950 to 2007. Which of the following tests can be used to test Wiggum's belief about public information?

  A. Runs test.
  B. Autocorrelation test.
  C. Earnings surprise test.
  C. Earnings surprise test.

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  Explanation

• Question 673:

  Chuck Hill, CFA, is explaining an efficient frontier analysis to one of his clients. Which of Hill's following statements regarding the efficient frontier is correct?

  A. The left endpoint of the efficient frontier is represented by the portfolio with the lowest level of risk.
  B. Portfolios that are further to the right on the efficient frontier dominate portfolios that are to the left.
  C. Only efficient assets are on the efficient frontier.
  A. The left endpoint of the efficient frontier is represented by the portfolio with the lowest level of risk.

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  Explanation

• Question 674:

  What is the effective date for compliance with the AIMR-Performance Presentation Standards for including accrued income in market value performance calculations?

  A. January 1, 1997
  B. January 1, 1993
  C. July 1, 1995
  D. January 1, 1992
  A. January 1, 1997

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  Explanation

  From January 1, 1997, going forward, all of the firm's composites and performance presentations must include accrued income in market value performance calculations. In addition, all of the firm's performance presentations, including presentations of historical performance, must contain a measure of composite dispersion.

• Question 675:

  If the earnings per share on the SandP 500 index increases by 16% and the earnings multiplier decreases by 9%, the index will experience a change of:

  A. +16%
  B. -9%
  C. +26. 44%
  D. +5. 56%
  D. +5. 56%

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  Explanation

  The index value = earnings multiplier * earnings per share. Therefore, the change in index value equals 1.16 * 0.91 - 1 = 5. 56%

• Question 676:

  Smithers is a financial analyst with XYZ Brokerage Company. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations would represent a conflict of interest for Smithers and, therefore, would have to be disclosed?

  I. Smithers is on a retainer as a consultant to JNI.

  II. XYZ holds for its own account a substantial common stock position in JNI.

  III. Smithers has material beneficial owners of JNI through a family trust.

  IV.

  Smithers' brother-in-law is a supplier to JNI.

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

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  Explanation

  This question pertains to Standard IV (B.7), Disclosure of Conflicts to Clients and Standard III (C), Disclosure of Conflicts to Employer. Statements I, II and III describe conflicts of interest for Smithers or for her firm that would have to be disclosed. Statement I describes an employment relationship between the analyst and the company subject to recommendation. Statement II describes the beneficial interest of the analyst's employer in the company's stock. Statement III describes the analyst's own beneficial interest in the company stock. In Statement IV, the relationship between the analyst and the company through a relative is so tangential that it does not create a conflict of interest necessitating disclosure.

• Question 677:

  Which of the following is/are true?

  I. Multiplying every value in a distribution by 2 will double the sample variance.

  II. Multiplying every value in a distribution by 2 will double the sample mean.

  III.

  Adding a constant to every value in a distribution increase the sample variance by the square of the constant.

  A. I, II and III
  B. I only
  C. II only
  D. III only
  E. I and III
  C. II only

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  Explanation

  Multiplying every value in a distribution by 2 will double the sample mean and standard deviation and quadruples the variance. Adding a constant to every value in a distribution leaves the sample variance unchanged.

• Question 678:

  Performance results for a portfolio need to be presented with cash, ________ equivalents, or substitute assets.

  A. multiple
  B. composite
  C. average
  D. cash
  D. cash

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  Explanation

  Returns from cash and cash equivalents held in portfolios must be included in return calculations and the cash and cash equivalents must be included in the portfolio amount (total assets) on which the return is calculated.

• Question 679:

  Studies have found that mutual fund managers tend to have

  A. great market timing ability.
  B. ignored the potential of market timing.
  C. moderate market timing ability.
  D. little market timing ability.
  D. little market timing ability.

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  Explanation

  Most studies in this area have found that funds could not consistently generate superior returns through attempts at market timing. In fact, many have found that mutual funds cannot outperform passive investment strategies.

• Question 680:

  Assume the following information about an international telecommunications company.

  Retention rate = 0.91 Net income / sales = 0.21 Total assets / common equity = 3. 125 Sales / total assets = 0.33

  What is the expected annual growth rate of this firm's dividends?

  A. 23. 63%
  B. 1.77%
  C. The answer cannot be determined from the information provided.
  D. None of these answers is correct.
  E. 28.71%
  F. 19.71%
  F. 19.71%

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  Explanation

  A popular model for determining the growth rate of dividends is the following: g = RR * ROE

  Where: g = the expected growth rate of dividends, RR = the retention rate (this is equal to 1 - dividend payout ratio), and ROE = the return on equity.

  Although it may at first appear otherwise, all of the necessary information has been provided. Remember the Du Pont decomposition process for ROE, which breaks down the ROE figure into the following:

  ROE = (Net Income / Sales) * (Sales / Total Assets) * (Total Assets * Common Equity)

  Mathematically, this will break down into (Net Income / Common Equity), the ROE figure. The calculation of the return on equity for this company is as follows:

  ROE = [0.21 * 0.33 * 3. 125] = 0.216563, or 21.66%.

  Now that the ROE figure has been determined, the calculation of the growth rate of dividends is as follows:

  g = [(0.91) * 0.2166] = 0.197072, or 19.71%.