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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 721:

  What three factors are examined in the three-step valuation process?

  A. industry influences, company analysis, market analysis
  B. economic influences, global analysis, company analysis
  C. economic influences, industry influences, company analysis
  D. industry influences, company analysis, technical analysis
  C. economic influences, industry influences, company analysis

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  Explanation

  Economic influences such as government spending and tax; Industry influences such as how industries respond to the business cycle or economic changes; and Company analysis using cash flow values and financial ratios - are examined in the three-step valuation process. Remember: the factors are in increasing in scope.

• Question 722:

  Which of the following is/are true under accrual accounting?

  I. Expenses are recognized as services are used.

  II. Revenues are recognized when service is performed.

  III.

  Cash outflows determine expense recognition.

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

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  Explanation

  With accrual accounting expenses are recognized when they are incurred, not when the cash is disbursed.

• Question 723:

  The current exchange rate for French francs is $0.20. For a U.S. bank this is an example of:

  A. An indirect quote in European terms
  B. An indirect quote in American terms
  C. A direct quote in American terms
  D. A direct quote in European terms
  C. A direct quote in American terms

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  Explanation

  A direct quote provides the home currency price of a specific quantity of foreign currency. An indirect quote states the foreign currency price of one unit of home currency. A quote in American terms gives the number of US dollars per units of foreign currency, and in European terms gives the number of foreign currency units per U.S. dollar.

• Question 724:

  Caleb Gold is studying for the Level 1 CFA examination with a fellow group of first year MBA students at the London School of Economics. During that night's study session, Stephan LeMond, the self-proclaimed group "leader," gives a short presentation on the forms of the efficient market hypothesis (EMH). As Gold listens, he hears LeMond make an obviously incorrect statement. He quickly speaks up, and identifies which of the following statements as INCORRECT?

  A. The weak-form EMH states that stock prices reflect current public market information and expectations.
  B. The semi-strong form EMH addresses market and non-market public information.
  C. The strong-form EMH assumes perfect markets.
  D. The weak-form EMH suggests that technical analysis will not provide excess returns while the semi-strong form suggests that fundamental analysis cannot achieve excess returns.
  A. The weak-form EMH states that stock prices reflect current public market information and expectations.

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  Explanation

  The weak-form EMH assumes the price of a security reflects all currently available historical information. Thus, the past price and volume of trading has no relationship with the future, hence technical analysis is not useful in achieving

  superior returns.

  The other statements are true. The strong-form EMH states that stock prices reflect all types of information: market, non-public market, and private. No group has monopolistic access to relevant information; thus no group can achieve excess

  returns. For these assumptions to hold, the strong-form assumes perfect markets ?information is free and available to all.

• Question 725:

  Which of the following is the formula for the covariance between X and Y?

  A. (X - E(X))*(Y - E(Y)).
  B. E[(X - E(X))*(Y - E(Y))].
  C. E[(X + E(X))*(Y + E(Y))].
  D. E[XY - E(XY)].
  B. E[(X - E(X))*(Y - E(Y))].

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  Explanation

  E[(X - E(X))*(Y - E(Y))] is the covariance between X and Y.

• Question 726:

  What does the coefficient of determination equal if r = 0.89?

  A. 0.94
  B. None of these answers
  C. 0.89
  D. 0.06
  E. 0.79
  E. 0.79

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  Explanation

  The coefficient of determination is the r-squared.

• Question 727:

  With a discount rate of 12% per year, the value of a perpetuity that pays $500 every year is:

  A. $5,231
  B. $6,000
  C. $4,167
  D. $4,756
  C. $4,167

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  Explanation

  The value of the perpetuity = 500/0.12 = 4,167

• Question 728:

  In order to comply with Standard IV (B.4), Priority of Transactions, firms should prepare and distribute to firm personnel a code of ethics and compliance procedures. The code and procedures should do all of the following, EXCEPT:

  A. establish reporting and prior-clearance requirements.
  B. ensure that procedures will be enforced.
  C. consider special situations.
  D. contain disciplinary procedures.
  E. define personal transactions, investment and prohibited transactions.
  F. maximize the number of access persons.
  F. maximize the number of access persons.

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  Explanation

  The question deals with the compliance procedures under Standard IV (B.4). Personal transactions must be defined to all employees. The number of access persons - those who have knowledge of pending or actual recommendations or action - should be limited, by implementing Fire Walls.

• Question 729:

  A/An ________ imposes a front-end sales charge when buying the fund typically in the range of 3 percent.

  A. low-load fund
  B. no-load fund
  C. oversubscribed fund
  D. closed-end fund
  A. low-load fund

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  Explanation

  A low-load fund imposes a front-end sales charge when buying the fund typically in the range of 3 percent instead of the typical load fund charge of 7 to 8 percent.

• Question 730:

  Lugar Industries is considering an investment in a proposed project which requires an initial expenditure of $100,000 at t = 0. This expenditure can be depreciated at the following annual rates:

  tDepreciation Rate

  120%

  232%

  319%

  412%

  511%

  66%

  The project has an economic life of six years. The project's revenues are forecasted to be $90,000 a year. The project's operating costs (not including depreciation) are forecasted to be $50,000 a year. After six years, the project's estimated

  pre-tax salvage value is $10,000. The company's WACC is 10 percent, and its corporate tax rate is 40 percent. What is the project's net present value (NPV)?

  A. $31,684
  B. $34,667
  C. $45,453
  D. $33,843
  E. $38,840
  E. $38,840

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  Explanation

  The cash flows for each of the years are as follows: 0-100,000 1 [90,000 - 50,000 -(100,000)(0.20)](1-0.4)+(100,000)(0.20)= 32,000 2 [90,000 - 50,000 -(100,000)(0.32)](1-0.4)+(100,000)(0.32)= 36,800 3 [90,000 - 50,000 -(100,000)(0.19)](1-0.4)+(100,000)(0.19)= 31,600 4 [90,000 - 50,000 -(100,000)(0.12)](1-0.4)+(100,000)(0.12)= 28,800 5 [90,000 - 50,000 -(100,000)(0.11)](1-0.4)+(100,000)(0.11)= 28,400 6 [90,000 - 50,000 -(100,000)(0.06)](1-0.4)+(100,000)(0.06) + (10,000)(1 - 0.4) = 32,400 Enter the cash flows and solve for the NPV = $38,839.56.