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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 901:

  ________ = Retention Rate x Return on Equity

  A. risk free rate, RFR
  B. growth, g
  C. required rate, k
  D. period 1 earnings, E1
  B. growth, g

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  Explanation

  By definition: growth, g = retention rate x ROE

• Question 902:

  The offering price for a share of a ________ equals the NAV of the share plus a sales charge.

  A. closed-end investment company
  B. 12b-1 plan fund
  C. no-load fund
  D. load fund
  D. load fund

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  Explanation

  The offering price for a share of a load fund equals the NAV of the share plus a sales charge, which typically is 7. 5 to 8.0 percent of the NAV.

• Question 903:

  If the alternative hypothesis states that u(Mu) > 6,700, what is the rejection region for the hypothesis test?

  A. Center
  B. None of these answers
  C. Lower tails
  D. Upper tail
  E. Both tails
  D. Upper tail

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  Explanation

  Since the alternative is that Mu is bigger than the mean, then it will be located at the upper tail.

• Question 904:

  Pulser Primorak is an investment manager who recently bid in an IPO on behalf of his clients and was allowed to buy 1,000 shares of the issue. What should Primorak do?

  A. He should distribute the IPO shares amongst the client accounts over which he has discretionary investment powers on a pro rata basis.
  B. He should treat all his customers equally and fairly by distributing the IPO shares amongst all his client accounts on a pro rata basis.
  C. He should distribute the IPO shares amongst all his client accounts for which the IPO is an appropriate investment on a pro rata basis.
  D. The question is based on a false premise. Primorak should not have bid on an IPO in the first place since this violates the AIMR code of Ethics.
  C. He should distribute the IPO shares amongst all his client accounts for which the IPO is an appropriate investment on a pro rata basis.

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  Explanation

  Standard IV (B.3) - Fair Dealing. Note that the AIMR code does not prohibit investments by portfolio managers in IPOs if they are deemed appropriate investments.

• Question 905:

  ________ accounting is mandatory for fixed-income securities.

  A. Flexible
  B. Risky
  C. Total
  D. Equal
  E. Accrual
  E. Accrual

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  Explanation

  Accrual accounting must be used for fixed-income securities and all other securities that accrue income. Accrued income must be included in the market value calculation of the denominator and numerator.

• Question 906:

  If restrictive monetary policy results in a deceleration in the domestic inflation rate and higher real interest rates, other things constant, the

  A. nation will run a current account surplus.
  B. nation's currency will appreciate.
  C. nation will run a capital account deficit.
  D. nation will run a balance of trade surplus.
  E. nation's currency will depreciate.
  B. nation's currency will appreciate.

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  Explanation

  Contractionary monetary policy will lead to a deceleration in inflation and higher real interest rates. As a result, demand for the nation's exports and assets will increase as will the demand for the nation's currency. This in turn will cause the currency to appreciate.

• Question 907:

  Which of the following is/are true about a closed-end fund?

  I. Shares of the fund trade on an exchange.

  II. The market price of the fund is determined by supply and demand.

  III.

  It issues shares only infrequently.

  A. I only
  B. II only
  C. I and III
  D. III only
  E. I, II and III
  F. II and III
  G. I and II
  E. I, II and III

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  Explanation

  Shares of a closed-end fund trade on an exchange like those of any other firm, with the share price determined by the laws of supply and demand. The fund issues new shares only infrequently, when it needs additional capital.

• Question 908:

  A perpetuity pays $1,000 a year. You have a discount rate of 10% per year. If you are indifferent between buying this perpetuity and a 7-year annuity, how much does the annuity pay per year?

  A. $2,054
  B. $3,199
  C. $1,867
  D. $1,429
  A. $2,054

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  Explanation

  The value of the perpetuity is 1,000/0.1 = $10,000. If the annuity pays $C per year, then its value is C/0.1*[1 - 1/(1.1)^7] = 4. 868C. For you to be indifferent between these two, the two values must be equal, giving C = 10,000/4. 868 = $2,054.

• Question 909:

  Meriam Mastrani is a senior member of "The Seven Samurai," a high-flying hedge fund. Meriam supervises a group of 6 portfolio managers and is also involved in advising some independent clients. To prevent violations of securities laws at the firm, Meriam has instituted some standard procedures in conjunction with the Compliance Department. However, for the past 6 months, he has been extremely busy catering to his clients to be able to check on the weekly compliance reports. Meriam does not have a deputy whom he can delegate his duties to. No violations of any laws have been detected at The Seven Samurai. Meriam has

  A. has not violated any standard in the AIMR code of ethics.
  B. violated Standard III (B) - Duty to the Employer.
  C. violated Standard III (E) - Responsibilities of Supervisors.
  D. none of these answers.
  C. violated Standard III (E) - Responsibilities of Supervisors.

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  Explanation

  Standard III (E) - Responsibilities of Supervisors - requires that supervisors must take reasonable care to ensure that their subordinates do not violate any laws or the code of conduct. This includes designing effective procedures to deter fraudulent activity. However, merely enacting such procedures does not fulfill the member's duties. If steps are not taken to make sure that the restrictions are being abided by, the member could be deemed in violation of Standard III (E). By not keeping track of the activities of his subordinates for an extended period of time and not having a deputy to whom such a duty could be delegated, Meriam has violated Standard III (E).

• Question 910:

  When the FIFO method is used, ending inventory units are priced at the:

  A. none of these answers
  B. most recent price
  C. the average price
  D. earliest price
  B. most recent price

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  Explanation

  The first-in-first-out (FIFO) method is based on the assumption that the costs of the first items acquired should be assigned to the first items sold, therefore ending inventory on hand is based on the most recent prices.