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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 911:

  The cash spent on replacing operating capacity used up in the normal course of business is classified as:

  A. investing cash flow.
  B. operating cash flow.
  C. either operating cash flow and investing cash flow.
  D. financing cash flow.
  A. investing cash flow.

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  Explanation

  Operating cash flow does not include cash outlays for replacement of depreciation of capacity. The cash used for this purpose is classified as an investment cash flow.

• Question 912:

  Kevin wants to retire a millionaire. If he is 45 years old today and already has $80,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

  A. $1,028.58
  B. $1,760.14
  C. $407. 81
  D. $1,138.45
  E. $2,119.81
  A. $1,028.58

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  Explanation

  The total number of deposits will be 240 (20 years x 12 months/year). On the BAII Plus, press 240 N, 8 divide 12 = I/Y, 80000 PV, 1000000 +/- FV, CPT PMT. On the HP12C, press 240 n, 8 ENTER 12 divide i, 80000 PV, 1000000 CHS FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 913:

  You are given n = 12, sum of the (X_i) = 2%, sum of the (X_i)^2 = 0.5%%. Find the sample standard deviation.

  A. 1.27%.
  B. 1.73%.
  C. 1.23%.
  D. 1.11%.
  C. 1.23%.

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  Explanation

  The sample standard deviation will be the positive square root of the sample variance. The sample variance will be determined using the computational formula [1/(n-1)] * {sum (as i goes from 1 to n) of (X_i)^2 - (1/n) * [sum (as i goes from 1 to n) of (X_i)]^2}. So we get 1/11 * (0.5 - 1/12*(2^2)) = 1.51%%. The positive square root of 1.51%% is 1.23%.

• Question 914:

  Incremental cash flows are

  A. cash flows that can be attributed to specific tax deductions like depreciation and interest expense.
  B. cash flows from a project that occur after the initial capital expense.
  C. cash flows that occur only if a project under consideration is accepted.
  D. the additional cash flows from a project for a given increase in capital invested.
  C. cash flows that occur only if a project under consideration is accepted.

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  Explanation

  Incremental cash flows of a project are the cash flows that occur if and only if the project is undertaken.

• Question 915:

  Which of the following statements about international portfolio investing is FALSE?

  A. The majority of risk for individual foreign country markets is unsystematic.
  B. When markets are volatile, global diversification is of increased value.
  C. Barriers to international diversification include lack of liquidity, currency controls, and exchange rate risk.
  D. While the introduction of foreign stocks ("second layer") into a domestically-only diversified portfolio shifts the efficient frontier up and left, adding a "third layer" of foreign bonds shifts the efficient frontier even more up and left.
  B. When markets are volatile, global diversification is of increased value.

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  Explanation

  When markets are volatile, global diversification is of limited value. Studies show that correlations between markets increase as market volatility increases, which limits the benefits of diversification. In particular, studies show that correlations

  increase when markets are falling.

  The other statements are true. Although foreign exchange risk is not considered a factor that impacts correlations, it is a significant barrier to international investing.

• Question 916:

  Which of the following information would not be filed with the SEC by a publicly company?

  A. proxy statement
  B. tax return
  C. 10K report
  D. prospectus
  B. tax return

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  Explanation

  Tax returns are filed with the IRS.

• Question 917:

  Monthly commissions of first-year insurance brokers are $1,270, $1,310, $1,680, $1,380, $1,410, $1,570, $1,180 and $1,420. These figures are referred to as:

  A. None of these answers
  B. Raw data
  C. Frequency distribution
  D. Ogive
  E. Histogram
  B. Raw data

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  Explanation

  Data or observations that have not been organized in any form are called raw data.

• Question 918:

  In a statistical regression estimation, the R-square is found to be 63% and the slope coefficient is 0.6. The correlation coefficient between the dependent and the independent variables is ________.

  A. 0.60
  B. 0.63
  C. 0.24
  D. 0.79
  D. 0.79

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  Explanation

  In a univariate regression, the correlation coefficient is the square root of the R-square. Hence, correlation coefficient = sqrt(0.63) = 0.79

• Question 919:

  The table below lists information on price per share and shares outstanding for three stocks ?Rocking, Payton, and Strand.

  

  Using the information in the table, determine which of the following statements is FALSE?

  A. The geometric return is less than 11.7%.
  B. If the three stocks comprise an index, a change in Stock Payton would have the biggest impact if the index was market-value weighted.
  C. An investor creating a price-weighted index of these three stocks would need to change his holdings at year-end to reflect the price changes.
  D. If the three stocks comprise an index, a change in Stock Strand would have the biggest impact if the index was price-weighted.
  C. An investor creating a price-weighted index of these three stocks would need to change his holdings at year-end to reflect the price changes.

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  Explanation

  A price-weighted index assumes that the investor holds an equal number of shares of each stock in the index. Since the number of stocks did not change, the investor would not need to change his holdings.

  The other statements are true. A price-weighted index is most influenced by the stock with the highest per-share price (Strand). A market-value weighted index is most influenced by the stock with the largest market capitalization (Payton).

  The geometric return is always less than the arithmetic return (see calculation).

  The arithmetic and geometric return are calculated as follows:

  Arithmetic return = sum of: (1 + stock return) divided by the number of stocks minus 1, or

  [(1.5 + 1.0 + 0.85) / 3]

• Question 920:

  When merchandise inventory is purchased under a perpetual system, which account is debited?

  A. Cash
  B. Merchandise Inventory
  C. Accounts Payable
  D. Purchases
  B. Merchandise Inventory

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  Explanation

  The perpetual inventory system records purchases of merchandise inventory directly into a balance sheet account called Merchandise Inventory.