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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 681:

  Joe Finn is a highly paid corporate executive who will retire in two years. Over 25 years ago, Finn invested in a portfolio of growth stocks that has performed quite well. Finn has asked his financialadviser to consider switching from stocks to high-yielding bonds. The investment issue of greatest concern in implementing this strategy will be the client's:

  A. liquidity needs.
  B. time horizon
  C. tax considerations
  C. tax considerations

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  Explanation

• Question 682:

  The Income Statement: I. reflects the current operating performance of the firm.

  II. indicates whether the firm is healthy and growing or not.

  III. explains the changes in assets, liabilities and equity of the firm.

  IV.

  is a snapshot of a firm's operations at a given time.

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

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  Explanation

  To assess the health and growth of a firm, one needs the cashflow statement in addition to the income statement to evaluate the liquidity and solvency of the firm. III is not true since the Income statement does not contain all the details which pertain to changes in assets and liabilities. Finally, (IV) is true of a balance sheet; an income statement displays some aspects of a firm's operations over a selected period.

• Question 683:

  One of the discretionary accounts managed by Farnsworth is the Jones Corporation employee profit- sharing plan. Jones, the company president, recently asked Farnsworth to vote the shares in the profit- sharing plan in favor of the company-nominated slate of directors and against the directors sponsored by a dissident stockholder group. Farnsworth does not want to lose this account because he directs all the account's trades to a brokerage firm that provides Farnsworth with useful information about tax-free investments. Although this information is not of value in managing the Jones Corporation account, it does help managing several other accounts. The brokerage firm providing this information also offers the lowest commissions for trades and best execution. Farnsworth investigates the directors' issue, concludes that management's slate is better for the long-run performance of the firm than the dissident group's slate and votes accordingly. Farnsworth:

  A. Did not violate the Standards in voting the share in the manner requested by Jones or in directing the trades to the brokerage firm.
  B. Violated the Standards in directing the trades to the brokerage firm but not in voting the shares as requested by Jones.
  C. Violated the Standard in voting the shares in the manner requested by Jones and in directing trades to the brokerage firm.
  D. Violated the Standards in voting the shares in the manner requested by Jones but not in directing trades to the brokerage firm.
  A. Did not violate the Standards in voting the share in the manner requested by Jones or in directing the trades to the brokerage firm.

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  Explanation

  This question pertains to Standard IV (B.1) Fiduciary Duties, in particular members' responsibilities for voting proxies and the use of client brokerage. Because Farnsworth investigated the issue and concluded independently the best way to vote, he was not in violation of his fiduciary duties even though the company president asked him to vote the shares of the profit-sharing plan a certain way. Moreover because the brokerage firm provides the lowest commissions and best executions, he has met his fiduciary duties to the client in using this brokerage firm. Since he's not paying any extra money of the client for the information he's receiving from the brokerage firm, it does not matter.

• Question 684:

  Daniel Tipton and Jesse Torrez are first-year MBA students at the Haas School of Business. Torrez has an economics background, but Tipton's background is in music. To help Tipton study one of the main tenets of competition theory, Torrez creates the following question and asks Tipton to identify the statement that is most inconsistent with Porter's five forces. Which statement should Tipton select?

  A. Supplier power is higher when there are only a few suppliers to an industry.
  B. To sustain above average returns on invested capital, firms should strive for economies of scale.
  C. Porter's five forces are: rivalry among current competitors, economies of scale, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers.
  D. Rivalry increases when firms of equal size compete within an industry.
  C. Porter's five forces are: rivalry among current competitors, economies of scale, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers.

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  Explanation

  Porter's five forces are: rivalry among current competitors, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers. Economies of scale are a way to lessen the threat of new entrants, but are not the only way to discourage competition. Companies can also have barriers to entry such as regulation or high start up capital. The other choices are true.

• Question 685:

  Deferred taxes would be classified as

  A. a long-term borrowing.
  B. a current liability.
  C. a current asset.
  D. a prepaid expense.
  E. stockholders' equity.
  C. a current asset.

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  Explanation

  Deferred income taxes represent deferred tax assets.

• Question 686:

  Which type of investment company may charge a load?

  A. both of these answers
  B. none of these answers
  C. closed-end investment company
  D. open-end investment company
  D. open-end investment company

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  Explanation

  An open-end investment company (mutual fund) sells shares with or without a sales charge (load) and redeems shares with or without redemption fees.

• Question 687:

  Which of the following is not true regarding the normal distribution?

  A. It is symmetrical
  B. It has a single peak
  C. None of these answers
  D. Mean, median and mode are all equal
  E. The points of the curve meet the X-axis at z = -3 and z = 3
  E. The points of the curve meet the X-axis at z = -3 and z = 3

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  Explanation

  Nothing is stated about the points where the curve meets the X axis (does it meet at all?)

• Question 688:

  Firm A has a higher operating leverage than firm B. All else equal, firm A has a _______ business risk and a ________ variability of ROE.

  A. lower, higher
  B. higher, lower
  C. higher, higher
  D. lower, lower
  C. higher, higher

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  Explanation

  "Operating leverage" refers to the extent to which changes in sales revenues affect operating profits. The greater the leverage, the higher the business risk and the variability of ROE.

• Question 689:

  Many different types of investment companies offer ________.

  A. only one investment fund that pools the risks and return characteristics of the Fortune 500 companies
  B. a wide variety of alternative instruments with a range of risk and return characteristics
  C. arbitrage opportunities
  D. risk-free investments
  B. a wide variety of alternative instruments with a range of risk and return characteristics

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  Explanation

  Investment companies typically offer investments that are portfolios of various instruments that would take an individual a lot of effort to compose via direct investment. Such fund-portfolios are created based on target risks and return characteristics.

• Question 690:

  What is the present value today of these annual cash flows: $300, $1,200, $2,500? Assume the first cash flow occurs 1 year from today and an interest rate of 9% per year, compounded annually.

  A. $3,215. 70
  B. $2,989.06
  C. $3,244. 09
  D. $3,298.82
  E. $3,308.86
  A. $3,215. 70

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  Explanation

  You could solve this question using 3 different compound interest problems, but it is easier to solve them using the calculator's cash flow functions. On the BAII Plus, press CF 2nd CLRWork 0 ENTER DownArrow 300 ENTER DownArrow DownArrow 1200 ENTER DownArrow DownArrow 2500 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 9 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 300 BlueShift CFj 1200 BlueShift CFj 2500 BlueShift CFj. Then press 9 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.