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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 761:

  What is the difference between a sample mean and the population mean called?

  A. Sampling error
  B. Point estimate
  C. Standard error of the mean
  D. None of these answers
  E. Interval estimate
  A. Sampling error

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  Explanation

  This is the error incurred when sampling from a population.

• Question 762:

  Marie Vaszquez, a semiconductor analyst with Smith, Kleen and Beetchnutty, has been working on a determination of an EPS figure for a semiconductor index. In her analysis, she has found the following:

  1. Regressing sales for the series against Nominal GDP, the sales figure for the index has been estimated at: $22. 14.

  2. Analyzing capacity utilization rates, foreign competition, rates of inflation and unit labor costs, the operating profit margin for the series has been determined to be: 40%.

  3. Creating a time series based upon inputs such as levels of capital expenditures and PPandE turnover, next year's depreciation-per-share has been determined to be: $1.95.

  4. Creating a time series based upon levels of debt outstanding and prevailing debt yields, the interest expense for next year is determined to be: $0.23 per share.

  5. Coordinating his research with a legislative consultant, the corporate tax rate for this series has been estimated at: 37. 3%. Using this information, what is the EPS figure for this stock market series?

  A. None of these answers is correct.
  B. $1.82
  C. $4. 42
  D. $6. 14
  E. $2. 49
  F. The answer cannot be determined from the information provided.
  A. None of these answers is correct.

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  Explanation

  The EPS figure for this series is found as $4. 19. Thus, none of the answers is correct.

  All of the necessary information has been provided in this example. To determine the EPS for a stock market series, the following steps are necessary:

  Step 1: Estimate sales-per-share for the series:

  Step 2: Estimate operating profit margin for the series

  Step 3: Estimate the depreciation-per-share for next year

  Step 4: Estimate the interest expense-per-share for the next year

  Step 5: Estimate next year's corporate tax rate

  Once these five steps have been completed, the calculation of EPS for a stock market series is found by the following:

  EPS = [(Sales per share * Operating profit margin) - Depreciation-per-share - Interest Expense] * (1 -Corporate Tax Rate)

  The calculation of EPS for this stock market series is shown as follows: EPS = [($22. 14 * 0.40) - $1.95 - $0.23] * (1 - 0.373) = $4. 19

• Question 763:

  Where is Unearned Revenue reported in the financial statements?

  A. liability section of the balance sheet
  B. asset section of the balance sheet
  C. operating expense section of the income statement
  D. revenue section of the income statement
  A. liability section of the balance sheet

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  Explanation

  Unearned revenue represents "services owed" and is reported in the liability section of the balance sheet.

• Question 764:

  A firm has a constant pre-depreciation income using assets that last 5 years. The straight-line method results in a rate of return that ________ over the life of the assets. The accelerated methods result in a rate of return that ________ over the life of the assets.

  A. increases, increases
  B. decreases, increases
  C. decreases, decreases
  D. increases, decreases
  A. increases, increases

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  Explanation

  The straight line and all accelerated depreciation methods giving an increasing rate of return on assets over the asset life (the pre-depreciation income is held constant to isolate the effect). This is a mathematical fact which you can easily prove.

• Question 765:

  ________ financing is an example of expansion financing.

  A. Turnaround
  B. Leveraged-buyout
  C. Third-stage
  D. First-stage
  E. Start-up
  C. Third-stage

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  Explanation

  There are three stages of "expansion financing":

  1. Second-stage financing. This capital is used for initial expansion of a company that has already been selling a product.

  2. Third-stage financing. Capital provided to fund major expansion.

  3. Mezzanine (bridge) financing. Capital provided for a company that expects to go public within a year or so.

• Question 766:

  In graphs of return performance, which of the following scales is commonly used?

  A. Exponential scale.
  B. Semi-logarithmic scale.
  C. Arithmetic scale.
  D. Log-normal scale.
  B. Semi-logarithmic scale.

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  Explanation

  Historical returns are often graphed using a semi-logarithmic scale, where equally-large y-axis movements correspond to equally-large percentage changes. An arithmetic scale, on the other hand, has equally-large y-axis movements corresponding to equally-large arithmetic changes. So on an arithmetic scale, the vertical movement for a price change from 100 to 110 is just as large as the vertical movement from 10,000 to 10,010. This is widely considered a distortion (if you are considering rates of return), so the semi-logarithmic scale is used instead.

• Question 767:

  ________ is a position in which, if a property's return is in excess of its debt cost, the investor's return will be increased to a level well above what could have been earned from an all-cash real estate deal.

  A. Positive leverage
  B. None of these answers
  C. Excess financing
  D. Negative leverage
  A. Positive leverage

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  Explanation

  Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters.

• Question 768:

  You have a stock that you are holding for one year. It has an estimated dividend payout of $2. 50 and an expected sale price of $43. Using the dividend discount model, calculate the value of the stock if your required rate of return is 12%.

  A. $45. 50
  B. not enough information to calculate it
  C. $43
  D. $40.63
  D. $40.63

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  Explanation

  Calculation = $2. 50/(1+.12) + $43. 00/(1+.12) = $40.63.

• Question 769:

  Standard III (C) is ________.

  A. Responsibilities of Supervisors
  B. None of these answers
  C. Duty to Employer
  D. Disclosure of Conflicts to Employer
  E. Disclosure of Additional Compensation Arrangements
  F. Obligation to Inform Employer of Code and Standards
  D. Disclosure of Conflicts to Employer

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  Explanation

  Standard III (A) deals with the Obligation to Inform Employer of Code and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer. Standard III (D) deals with Disclosure of Additional Compensation Arrangements. Standard III (E) deals with Responsibilities of Supervisors.

• Question 770:

  Excess kurtosis is a problem for investment researchers using normal distributions because:

  A. The likelihood of extreme outcomes will be overestimated.
  B. Historical returns are better modeled with platykurtic distributions.
  C. It is difficult to calculate.
  D. The likelihood of extreme outcomes will be underestimated.
  D. The likelihood of extreme outcomes will be underestimated.

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  Explanation

  Historical returns are better modeled with fat-tailed (or leptokurtic) distributions, not platykurtic ones. If a researcher uses a normal distribution to model a fat-tailed distribution, the estimated probability of an extreme outcome will be underestimated. Thus, the frequency of market crashes will be underestimated, an underestimation of the volatility risk.