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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 711:

  Higher unemployment insurance benefits tend to increase unemployment because they

  A. reduce the opportunity cost of job search and hence decrease the search time.
  B. increase the opportunity cost of job search and hence increase the search time.
  C. reduce the opportunity cost of job search and hence increase the search time.
  D. increase the opportunity cost of job search and hence decrease the search time.
  C. reduce the opportunity cost of job search and hence increase the search time.

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  Explanation

  A change that reduced the job seeker's cost of continued search would lead to more lengthy periods of search. If unemployment benefits increase, it is less costly to continue looking for a preferred job. This reduction in the cost of job search

  would induce job seekers to expand their search time.

  Unemployment would be pushed upward.

• Question 712:

  ________ techniques estimate future market values by applying basic valuation models to equity markets.

  A. Micro
  B. Technical
  C. Fundamental
  D. Macro
  A. Micro

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  Explanation

  The prefix 'micro' suggests that such techniques uses formulaic or hypothetical models to predict future market values rather than judging by broad-based economic indicators.

• Question 713:

  A company is considering a project with the following cash flows: TimeCash flow 0-$100,000 150,000 250,000 350,000 4-10,000 The project's cost of capital is estimated to be 10 percent. What is the modified internal rate of return (MIRR)?

  A. 11.25%
  B. 20.34%
  C. 14. 25%
  D. 11.56%
  E. 13. 28%
  C. 14. 25%

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  Explanation

  First, calculate the present value of costs:

  N = 4, I/YR = 10, PMT = 0, FV = -10,000, and solve for PV = -$6,830.13.

  Add -$100,000 + -6,830.13 = -$106,830.13.

  Then, find the terminal value of inflows:

  Shift to BEGIN MODE, N = 3, I/YR = 10, PV = 0, PMT = -50,000, and solve for FV = $182,050.

  Finally, shift back to END mode, and solve for MIRR, where N = 4, PV = $-106,830, PMT = 0, FV = 182,050, and solve for I/YR = 14. 25%.

• Question 714:

  A study of business faculty at state supported institutions in Ohio revealed that the mean salary for nine months is $52,000 and the standard deviation of the sample is $3,000. The study also showed that the faculty had been employed an average (mean) of 15 years with a standard deviation of 4 years. How does the relative dispersion in the distribution of salaries compare with that of the lengths of service?

  A. Salaries about 6%, service about 27%
  B. Salaries about 100%, service about 50%
  C. Salaries about 2%, service about 6%
  D. None of these answers
  E. Salaries about 42%, service about 81%
  A. Salaries about 6%, service about 27%

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  Explanation

  The coefficient of variation = (s*100)/mean. Salary: 3,000*100/52,000 = 5. 7%. Service: 4*100/15 = 26. 7%.

• Question 715:

  What monthly payment, beginning next month, would repay a $25,000 car loan over 60 months, assuming your loan has an interest rate of 6. 9% per year, compounded monthly?

  A. $1,757. 07
  B. $493. 85
  C. $843. 95
  D. $1,789.14
  E. $650.58
  B. $493. 85

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  Explanation

  On the BAII Plus, press 60 N, 6. 9 divide 12 = I/Y, 25000 PV, 0 FV, CPT PMT. On the HP12C, press 60 n, 6. 9 ENTER 12 divide i, 25000 PV, 0 FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 716:

  Gretchen Miller has been analyzing options on the common stock of Spirit Electronics Group (SEG), which last traded on the NASDAQ for $25. 96. Miller has collected the following data on put options for SEG stock that expire in three months:

  StrikePut

  22. 500.25

  25. 000.65

  27. 502. 00

  Miller has been asked by her supervisor to determine the profit on a protective put strategy using a strike price of $25. 00 if the stock price is $27. 13 on the option expiration date. What figure should Miller report to her supervisor?

  A. $0.00
  B. $0.52
  C. S0.65
  B. $0.52

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  Explanation

• Question 717:

  An investment of $275 grows to $400 in 3 years. The holding period return is:

  A. 1.13
  B. 0.6875
  C. 1.455
  D. 1.455
  C. 1.455

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  Explanation

  The holding period return (HPR) is 400 / 275 = 1.455

• Question 718:

  An economist with Smith, Kleen and Beetchnutty Institutional Brokerage has been examining a stock market series and is trying to determine an appropriate earnings multiplier for the series. In her research, this economist has determined the following information:

  The annual dividend per share next year = $1.35 The earnings per share next year = $5. 10 The anticipated growth rate of dividends is 12. 5% per year The anticipated growth rate of earnings is 14% per year The required rate of return is 15. 75% per year

  What is the appropriate earnings multiplier for this stock market series? Further, what is the appropriate value for this stock market series? Choose the best answer.

  A. The answer cannot be determined from the information provided.
  B. None of these answers is correct.
  C. 14. 93; $76. 13
  D. 7. 74; $39.46
  E. 15. 13; $77. 16
  F. 8.14; $41.51
  F. 8.14; $41.51

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  Explanation

  The appropriate earnings multiplier is found to be 8.14.

  Estimating the earnings multiplier for a stock market series requires the estimation of each of the following components:

  The dividend payout ratio.

  The required rate of return on common stock in the country/region/industry/sector bein analyzed.

  The expected growth rate of dividends for the stocks in the country/region/industry/sector being analyzed.

  Once values for each of these components have been determined, they are imputed into the following formula:

  P/E = [D/E / (k - g)]

  Where: P/E = the earnings multiplier, or Price-to-Earnings ratio, D/E = the dividend payout ratio at t1, k = the required rate of return, and g = the anticipated growth rate of dividends.

  In this example all of the necessary information has been provided. However, the dividend payout ratio must be calculated based on the anticipated dividend at t1 and the projected EPS figure for t1. The calculation of the dividend payout ratio

  is as follows:

  D/E = [$1.35 / $5. 10] = 0.264706

  Now that the dividend payout ratio has been determined, the appropriate earnings multiplier is found as follows:

  P/E = [0.264706/ (0.1575 - 0.125)] = 8.14

  Notice that it is the anticipated growth rate of dividends, not the anticipated growth rate of earnings, which is used in the determination of the earnings multiplier.

  Multiplying this figure by the projected EPS will lead to an appropriate value of $41.51 for this series.

• Question 719:

  "Deferral" refers to:

  A. a postponement of recognition of income until the earnings process is actually completed.
  B. none of these answers.
  C. recognition of an asset for all payments made for goods and services not yet delivered.
  D. postponement of tax payments through the use of tax credits.
  A. a postponement of recognition of income until the earnings process is actually completed.

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  Explanation

  "Deferral" is the accounting process of recognizing a liability when payments are made in advance of the earnings process. Over time, as the earnings process proceeds, income is recognized and liabilities are decreased.

• Question 720:

  Because it is not the preferred method recommended by the PPS, the use of ________ valuation needs to be disclosed.

  A. new-date
  B. settlement-date
  C. trade-date
  D. old-date
  E. survivor-date
  B. settlement-date

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  Explanation

  Trade-date valuation is recommended when calculating performance, although settlement-date valuation is acceptable if disclosed.