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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 831:

  Given that the risk-free rate of return is 5%, what is the value of a zero-coupon bond with a principal payment of $15,000 in 15 years, and a risk-premium of 5%?

  A. $7,864
  B. $3,591
  C. $6,415
  D. $9,249
  E. Not enough information
  F. $11,358
  B. $3,591

  ---

  Explanation

  The value of a zero-coupon bond is the present value of its principal payments. The required rate of return is the risk-free rate of return plus the risk premium (5 + 5 = 10%). Using appendix C in the book by Reilly and Brown, the present value of the bond is $15,000 x 0.2394 = $3,591, or $15,000/(1.1^15).

• Question 832:

  A 1-year U.S. Treasury bill is priced to yield 4. 10%. A 2-year U.S. Treasury security is priced to yield 4. 65%. The 1-year forward rate one year from now is closest to:

  A. 3. 55%.
  B. 4. 38%.
  C. 5. 20%.
  C. 5. 20%.

  ---

  Explanation

• Question 833:

  Which of the following is/are forms of plagiarism as defined by AIMR code of conduct?

  I. Using material from a seminar in research reports without proper acknowledgment.

  II. Presenting statistical estimates prepared by others without the associated caveats and qualifiers.

  III. Using of information obtained in a teleconference without identifying the original source.

  IV.

  Using Standard and Poor's estimates of stock betas without attribution.

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

  ---

  Explanation

  Standard II (C) - Prohibition against Plagiarism - considers a use of factual information published by recognized financial and statistical services without attribution acceptable. All of the others are forms of plagiarism and violations of Standard II (C).

• Question 834:

  Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct.

  Cash from operating activities $60,000

  Net Income (4,000)

  Depreciation (2,000)

  Increase in accounts receivable (1,000)

  Increase in deferred tax liability $53,000

  Cash from investing activities ($48,000)

  Purchase of marketable securities 2,500

  Dividends received 1,500

  Dividends paid ($44,000)

  Cash from financing activities (500)

  Increase in Short-term debt (2,500)

  Increase in Long-term debt ($3,000)

  Increase in cash $ 6,000

  The correct Cash flows from financing activities is ________.

  A. None of these answers
  B. $1,500
  C. $3,000
  D. ($4,500)
  B. $1,500

  ---

  Explanation

  The increase in short-term and long-term debt are cash inflows, not outflows. The dividend paid is also a financing activity. $500 + $2,500 - $1,500 = $1,500.

• Question 835:

  What does it mean if r = -1.00?

  A. High values of one variable are associated with low values of the other variable
  B. Dependent variable can be perfectly predicted by the independent variable
  C. All of the variation in the dependent variable can be accounted for by the independent variable
  D. Coefficient of nondetermination equals zero
  E. All of these answers are correct
  E. All of these answers are correct

  ---

  Explanation

  All the above are properties or explanations of the coefficient of correlation being equal to -1.0.

• Question 836:

  A trial generates only two results, "success" and "failure." The variance of the number of failures in 20 trials equals 2. 35. The probability of success on a given trial equals ________.

  A. 0.66
  B. 0.136
  C. 0.231
  D. 0.452
  B. 0.136

  ---

  Explanation

  For a binomial distribution with N trials, with the probability of success = p in each trial, the variance equals Np(1-p). Hence, 20*p*(1-p) = 2. 35. Solving this gives quadratic equation gives p = 0.136.

• Question 837:

  Assume the following information about a stock market series:

  Observed beginning value: 515. 60 Anticipated ending value: 609.15 Expected dividends during the period: $24 Required rate of return: 21%

  Using this information, what is the expected rate of return for this index? (Assume a one-year holding period.)

  A. None of these answers is correct.
  B. 22. 80%
  C. 19.30%
  D. 11.42%
  E. 13. 49%
  B. 22. 80%

  ---

  Explanation

  To calculate the expected rate of return for a stock market series, the following information must be known: The beginning value for the series, the anticipated ending value for the series, and the amount of any dividends and/or distributions during the period.

  Once this information has been determined, the expected return on a stock market index can be found by employing the following equation: {E(R) = [(EV - BV + Div) / BV]}. Where: E(R) = the expected return on the stock market series, EV = the anticipated ending value for the series, BV = the observed beginning value for the series, and Div = the amount of any dividends paid during the period. In this example, all of the necessary information has been provided and the calculation of the expected return on this stock market series is found as follows: {E(R) = [$609.15 - $515. 60 + $24] / $515. 60} = 22. 80%. This is slightly higher than the required rate of return. Assuming that the ending value and dividends prove accurate, investment in this stock market series is likely advisable.

• Question 838:

  Compute the Net Asset Value given the following total portfolio:

  Stock A - 1000 shares - market value = $ 12,000 Stock B - 5000 shares - market value = $ 25,000 Stock C - 1000 shares - market value = $ 2,000

  A. 6. 1667
  B. 6. 5841
  C. 5. 5714
  D. 5. 3241
  E. 7. 4456
  C. 5. 5714

  ---

  Explanation

  NAV equals the total market value of all assets divided by the number of fund shares outstanding. ($12,000 + $25,000 + $2,000) / (1000 + 5000 + 1000) = $5. 5714

• Question 839:

  Interest rate expense per share

  A. has consistently increased from 1977 to the present.
  B. increased throughout the 1980s and decreased in the early 1990s.
  C. has fluctuated widely from year to year.
  D. has consistently decreased from 1977 to the present.
  B. increased throughout the 1980s and decreased in the early 1990s.

  ---

  Explanation

  U.S. firms in the 1980s assumed increased debt financing and financial risk. As a result, interest rate expenses increased consistently during that period. This growth was reversed after the 1989-1990 recession because of a decrease in debt levels and interest rates.

• Question 840:

  An end-of-period adjustment for depreciation of fixed assets is necessary

  A. proper statement of net income
  B. to be consistent with the matching principle
  C. all of these answers are correct
  D. to recognize the expense of using fixed assets
  C. all of these answers are correct

  ---

  Explanation

  An adjustment for depreciation expense matches expenses with revenues for the period , thus contributing to correct statement of net income for the period.