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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 921:

  A sample of size 100 is drawn from a population. The sample mean equals 35. 2 and the variance of the sample equals 47. 8. The 95% confidence interval for the population mean is given by:

  A. [33. 13, 37. 27]
  B. [35. 13, 35. 27]
  C. [35. 06, 35. 34]
  D. [33. 85, 36. 56]
  D. [33. 85, 36. 56]

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  Explanation

  If z is the z-value corresponding to the specified confidence level, the sample mean is M and the standard deviation is D in a sample size N, the confidence interval is specified as [M - z*D/sqrt(N), M + z*D/sqrt(N)]. In the present case, for the 95% confidence interval, z = 1.96. The sample standard deviation equals sqrt(47. 8) = 6. 91. Therefore, the confidence interval equals [35. 2 - 1.96*6. 91/sqrt(100), 35. 2 - 1.96*6. 91/sqrt(100)] = [33. 85, 36. 56]

• Question 922:

  When the relative strength of a stock with respect to an index is increasing, the stock is

  A. keeping pace with the chosen index.
  B. all of these answers are possible.
  C. doing better than the chosen index.
  D. worse than the chosen index.
  C. doing better than the chosen index.

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  Explanation

  The Relative Strength of a stock relative to an index equals the ratio of the stock price to the index price. Hence, if the relative strength is increasing, it indicates that the stock is doing better in price appreciation than the index.

• Question 923:

  BeigeBox, a computer manufacturer, can construct computer systems with any one of 4 processors, 2 memory configurations, 3 hard drives, 2 monitors, 2 keyboards, and 2 CD drives. How many unique configurations of computer systems can BeigeBox construct?

  A. 192.
  B. 96.
  C. 384.
  D. 64.
  A. 192.

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  Explanation

  The multiplication rule of counting states that the number of combinations available when there are n_1 options in one aspect, n_2 in another, and so on, up to n_k, is n_1

  * n_2 * ... * n_k. In this case, the number of combinations is 4*2*3*2*2*2 = 192.

• Question 924:

  A firm currently has a financial leverage ratio of

  2. After a thorough review, the firm's management has concluded that they have to write-down assets worth 200,000. This will cause the firm's financial leverage to ________.

  A. decrease
  B. insufficient information given
  C. increase
  D. stay constant
  C. increase

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  Explanation

  The write-down of assets effectively decreases assets and equity by the same amount, once tax effects are correctly figured. Since A > E, a decrease in both quantities by the same amount increases the financial leverage (A/E) ratio.

• Question 925:

  A statistician has framed his hypothesis testing problem as:

  Ho: mean >= 1 H1: mean < 1

  For the given sample, he calculates the z-statistic. Then, the region of rejection at the 95% level is given by:

  A. z-statistic > +1.96
  B. z-statistic < -1.645
  C. -1.96 < z-statistic < +1.96
  D. z-statistic < -1.96
  B. z-statistic < -1.645

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  Explanation

  Since the alternative hypothesis is directional and to the left, the rejection region for the null is also to the left. Hence, you should use a one-tailed test. 5% of the probability mass in a Normal distribution lies in the left tail with values which are less than -1.645. Therefore, the rejection region comprises of z-values less than -1.645.

• Question 926:

  When prices are rising, which of the following inventory valuation methods produces a lower ending inventory value?

  A. LIFO
  B. Average cost
  C. None of these answers
  D. FIFO
  A. LIFO

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  Explanation

  When prices are rising, LIFO will produce the lowest ending inventory value because the last in (highest cost) inventory is the first out. This leaves the oldest inventory on hand and since it was purchased at lower prices, it has the lowest cost and ending inventory will have the lowest value.

• Question 927:

  Standard II (C) deals with ________.

  A. None of these answers
  B. Obligation to Inform Employer of Code and Standards
  C. Disclosure of Conflicts to Employer
  D. Duty to Employer
  E. Fundamental Responsibilities
  F. Plagiarism
  G. Use of Professional Designation
  H. Professional Misconduct
  F. Plagiarism

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  Explanation

  Standard I deals with Fundamental Responsibilities. Standard II (A) deals with Use of Professional Designation. Standard II (B) deals with Professional Misconduct. Standard II (C) deals with Plagiarism. Standard III (A) deals with the Obligation to Inform Employer of Codes and Standards. Standard III (B) deals with the Duty to Employer. Standard III (C) deals with Disclosure of Conflicts to Employer.

• Question 928:

  Cricketers, Inc. recently purchased Baseball Corp. for $3 million using debt financing. Analysts are in agreement that the fair value for Baseball's assets was around $2. 7 million and that the overpayment was for strategic reasons. When Cricketers' accountants record the transaction, they must record:

  A. an asset of $2. 7 million an equity of $0.3 million and a debt of $2. 7 million.
  B. an asset of $3. 3 million an equity of $0.3 million and a debt of $3 million.
  C. an asset of $2. 7 million, a goodwill of $0.3 million and a debt of $3 million.
  D. an asset of $2. 7 million, a premium of $0.3 million and a debt of $3 million.
  C. an asset of $2. 7 million, a goodwill of $0.3 million and a debt of $3 million.

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  Explanation

  Goodwill is defined as the price paid in excess of the fair market value of the assets of the target firm. Under US GAAP, Goodwill can and should be capitalized only when purchased externally (i.e. internally developed goodwill cannot be capitalized). Therefore, the over-payment of $0.3 million must be recognized separately as goodwill on the balance sheet of Cricketers, Inc.

• Question 929:

  When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?

  A. Simultaneous dissemination.
  B. Establish procedures for determining material change.
  C. Disclose levels of service.
  D. Publish personnel guidelines for predissemination.
  E. Limit the number of people involved.
  F. Be flexible on the time frame between decision and dissemination.
  G. Establish control over trading activity.
  F. Be flexible on the time frame between decision and dissemination.

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  Explanation

  Members have an obligation to ensure that their firms establish compliance procedures requiring all employees who disseminate investment recommendations or actions to treat clients fairly. The number of people privy to an investment recommendation should be limited. The amount of time that lapses between the decision and the dissemination of the recommendation should be shortened. Guidelines must be established to prohibit persons who have prior knowledge from discussing a pending recommendation. Trading activities should be monitored and controlled. Procedures should be established to determine whether a change in an investment recommendation is considered material. The organization should disclose to firms whether or not it offers two or more levels of service to clients for the same or different fees.

• Question 930:

  In contrast to ________, which generally is an evaluation of internal performance, ________ is a measure of external performance.

  A. economic value-added, the franchise factor
  B. the price/cash flow ratio, the price/book value ratio
  C. market value-added, economic value-added
  D. economic value-added, market value-added
  D. economic value-added, market value-added

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  Explanation

  To properly analyze performance using either economic value-added or market value-added, it is necessary to look for changes over time, the percent change each year.