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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 781:

  Which of the following best describes a balance sheet?

  A. None of these answers.
  B. A balance sheet reports changes over a period of time in component accounts that comprise the ownership of a firm.
  C. A balance sheet summarizes the financial position of a company at a given point in time.
  D. A balance sheet details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time.
  E. A balance sheet measures a company's financial performance over a specified period of time.
  C. A balance sheet summarizes the financial position of a company at a given point in time.

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  Explanation

  A balance sheet provides a detailed listing of a company's assets, liabilities, and equity at a point in time. This provides a glimpse at a company's financial condition.

• Question 782:

  The top-down, three-step approach to valuation has

  A. been disproved by studies.
  B. generally been supported by studies.
  C. generally not been supported by studies.
  D. been proven by studies.
  B. generally been supported by studies.

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  Explanation

  The top-down, three-step approach to valuation has tended to be supported by various studies. Studies have found that earnings and rates of return are significantly influenced by the economy, industry, and market.

• Question 783:

  Adams Audio is considering whether to make an investment in a new type of technology. Which of the following factors should the company consider when it decides whether to undertake the investment?

  A. None of these factors should be considered.
  B. The installation costs for the new equipment for the new technology are very high.
  C. The new technology will affect the cash flows produced by its other operations.
  D. If the investment is not made, then the company will be able to sell one of its laboratories for $2 million.
  E. All of these factors should be considered.
  E. All of these factors should be considered.

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  Explanation

  These are all incremental cash flows which change the firm's total cash flow that occurs as a direct result of accepting the project, and should all be considered

• Question 784:

  Ann Fowler, CFA, has a client that wants to invest in hedge funds. Fowler recommends the client invest in a Fund of Funds (FOF), which will invest in a variety of hedge funds. Fowler makes the following statements:

  Statement 1:Investing in several different types of hedge funds will reduce risk compared to investing in a single fund.

  Statement 2:An important part of the selection process is due diligence to resolve any transparency issues.

  Which statements are correct?

  A. Only statement 1 is correct.
  B. Only statement 2 is correct.
  C. Both statements 1 and 2 are correct.
  A. Only statement 1 is correct.

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  Explanation

• Question 785:

  If 50 units are sold at $7,500 to buy a piece of property for $1,000,000, how much money will be coming from the partners?

  A. $625,000
  B. $1,000,000
  C. $375,000
  D. $7,500
  C. $375,000

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  Explanation

  Partners will supply (50 x 7,500) = $375,000.

• Question 786:

  Why do the corporation's directors declare stock dividends?

  A. to increase the market value of the company's stock
  B. to provide tangible evidence of management's confidence in the company's strong performance
  C. to decrease the number of shares outstanding
  D. none of these answers is correct
  B. to provide tangible evidence of management's confidence in the company's strong performance

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  Explanation

  Declaring a stock dividend will increase the number of shares outstanding and thereby keep the per share price low enough to be an attractive investment. Stock dividends may also show the company management's confidence in the present and future performance of the company.

• Question 787:

  Tony Ly is a Treasury Manager with Deeter Holdings, a large consumer products holding company. The Assistant Treasurer has asked Ly to calculate the current yield (CY) and the Yield-to-first Call (YTC) on a bond the company holds that

  has the following characteristics:

  If Ly calculates correctly, the CY and YTC are approximately:

  A. 7. 80% and 15. 82%, respectively.
  B. 7. 78% and 15. 72%, respectively.
  C. 3. 89% and 15. 72%, respectively.
  D. 7. 78% and 15. 82%, respectively.
  A. 7. 80% and 15. 82%, respectively.

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  Explanation

  To calculate the CY and YTC, we first need to calculate the present value of the bond: FV =1,000, N =14= 7*2, PMT =35=(1000*0.07)/2, I/Y =4. 5(9 / 2), Compute PV = -897. 77 (negative sign because we entered the FV and payment as

  positive numbers).

  Then, CY = (Face value * Coupon) / PV of bond = (1,000 * 0.07) / 897. 77 =7. 80%

  And finally, YTC calculation: FV =1,060(price at first call), N =4(2*2), PMT =35(same as above), PV = -897. 77 (negative sign because we entered the FV and payment as positive numbers), ComputeI/Y = 7. 91 (semi-annual rate, need to

  multiply by 2) =15. 82%

• Question 788:

  If you deposit $100 a month, beginning next month, for 20 years into an account paying 6% per year, compounded monthly, how much is in your account after that last deposit?

  A. $46,204. 09
  B. $1,973,585,957
  C. $24,000.00
  D. $2,097. 91
  E. $3,678.56
  A. $46,204. 09

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  Explanation

  On the BAII Plus, press 240 N, 6 divide 12 = I/Y, 0 PV, 100 PMT, CPT FV. On the HP12C, press 240 n, 6 ENTER 12 divide i, 0 PV, 100 PMT, FV. On the BAII Plus, make sure the value of P/Y is set to 1. Note that the answer is displayed as a negative number.

• Question 789:

  Which of the following is not an example of a cash flow from operations?

  A. none of these answers is correct
  B. cash received from customers
  C. cash paid for merchandise
  D. cash paid for taxes
  A. none of these answers is correct

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  Explanation

  Operating activities include the cash effects of transactions and other events that enter into the determination of net income. All of the responses apply.

• Question 790:

  In a changing economy, a firm has experienced a fall in profit margin by 25%, a fall in asset turnover of 15% and an increase in financial leverage of 20%. If the firm increases its payout ratio from 30% to 40%, what's the change in its dividend growth rate?

  A. +12. 14%
  B. + 18.98%
  C. -34. 43%
  D. -23. 5%
  C. -34. 43%

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  Explanation

  Use g = ROE * retention ratio

  ROE = profit margin * asset turnover * financial leverage.

  The change in ROE equals (1-25%)*(1-15%)*(1+20%) - 1 = -23. 5%. The retention ratio decreases from 70% to 60%. Therefore, the change in the growth rate equals (1-23. 5%)*60/70 - 1 = -34. 43%. Thus, the growth rate falls by 34. 43%.