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

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 961:

  Technicians often feel that a large proportion of investment advisory services with bearish attitudes is indicative of

  A. a flat trend channel.
  B. the approach of a peak and the onset of a bear market.
  C. the approach of a trough and the onset of a bull market.
  D. a low cash position by mutual funds.
  C. the approach of a trough and the onset of a bull market.

  ---

  Explanation

  Many technicians feel that investment advisory services tend to be trend followers, so that by the time most services are bearish, the bear market is nearing a trough, which will be followed by a new bull market.

• Question 962:

  For the normal distribution, the mean plus and minus 1.96 standard deviations will include about what percent of the observations?

  A. None of these answers
  B. 50%
  C. 68%
  D. 95%
  E. 99.7%
  D. 95%

  ---

  Explanation

  95% of the are under the curve will lie within plus and minus 2 standard deviations of the mean.

• Question 963:

  What incentives does inflation create in consumers and producers?

  A. Consumers will save less and producers will invest more.
  B. Consumers will spend more and producers will produce more.
  C. Consumers will save more and producers will produce more.
  D. Consumers will spend more and producers will sell off inventories.
  E. Consumers will spend less and producers will lay off workers.
  B. Consumers will spend more and producers will produce more.

  ---

  Explanation

  Inflation causes consumers to spend now, because goods will be more expensive in the future.

  Conversely, producers will produce goods now, because wages and raw materials prices are expected to rise. Producers will also build up inventories in anticipation of higher future prices.

• Question 964:

  You are examining a group of 20 mutual funds. You find that 5 have an 8% position in foreign stocks, 7 have a 9% position in foreign stocks, and 8 have no position in foreign stocks. What is the weighted average position in foreign stocks of these 20 mutual funds?

  A. 5. 10%.
  B. 5. 20%.
  C. 5. 25%.
  D. 5. 15%.
  D. 5. 15%.

  ---

  Explanation

  A weighted-average is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight of the ith item, and X_i is the value of the ith item. Here, we get a weighted mean of 5/20 * 0.08 + 7/20 * 0.09 + 8/20 * 0 = 5. 15%.

• Question 965:

  A U.S. investor is considering investing in a security of a company in a developing country. The country's market is characterized by infrequent trading, high inflation, large market volatility, low operating leverage, political unrest, low debt usage, and a depreciating exchange rate. In determining the appropriate country risk premium for the developing country, the investor should consider:

  A. liquidity risk, exchange rate risk, financial risk, business risk, balance sheet risk
  B. financial risk, liquidity risk, exchange rate risk, country risk, business risk
  C. business risk, variability risk, country risk, exchange rate risk, financial risk
  B. financial risk, liquidity risk, exchange rate risk, country risk, business risk

  ---

  Explanation

• Question 966:

  Employers' income tax expense consists of the following obligations except:

  A. Federal Income Tax
  B. Social Security Tax
  C. State Unemployment Tax
  D. Medicare Tax
  A. Federal Income Tax

  ---

  Explanation

  Federal income tax is withheld from employee paychecks; it is not an expense to the company.

• Question 967:

  As the covariance of a stock's return with the market portfolio increases, its price ______, all else equal.

  A. can be all of these answers
  B. is not affected
  C. decreases
  D. increases
  C. decreases

  ---

  Explanation

  As the covariance of a stock's return with the market portfolio increases, its betaincreases. This increases its expected return in the CAPM framework, causing its price to decline.

• Question 968:

  Level ________ verification applies to the firm.

  A. IV
  C. I
  D. II
  E. III
  C. I

  ---

  Explanation

  Level I verification applies to all firm composites. Level II verification requires a Level I verification at least on the specific composites being verified at Level II. (Note: There are only two levels of verification.)

• Question 969:

  Assuming estimates of .30, .15 and 0.135 for the dividend payout, required rate of return, and expected growth rate, respectively, calculate the earnings multiplier.

  A. 50X
  B. 14X
  C. 5X
  D. 13X
  E. 20X
  E. 20X

  ---

  Explanation

  The earnings multiplier or P/E ratio = Dividend payout ratio/Required rate of return-Expected growth rate. Analyzing these inputs and the underlying factors, and comparing these to the indications of the macroanalysis, the analyst forecasts an earnings multiplier for the firm. In this example, P/E = .3/(.15-.135) = 20 times.

• Question 970:

  A firm has 1,000 common shares valued at 30 each outstanding. It has also issued 500 preferred shares of face value 100 and a coupon of 5% and a debt of 50,000 with a coupon rate of 6%. The firm's net income after taxes is 14,300. Then, the EPS reported by the firm is ________.

  A. 7. 87
  B. 11.8
  C. 14. 3
  D. 8.8
  B. 11.8

  ---

  Explanation

  For a simple capital structure, Basic EPS = (Net Income - Preferred dividends)/weighted # of common shares Therefore, Basic EPS = (14,300 - 500*100*5%)/1,000 = 11.8.