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What is the duration, language, and format of the CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam
Format: Multiple choices, multiple answers:
Duration of Examination: 6 hours
Language: English
Passing score: 70%
Number of Questions: 120
NEW QUESTION 349
During a presentation to prospective clients, Sumanta Mitra makes the following two statements
'CFAs represent the elite of all investment professionals and are most qualified to manage your money.' and 'CFA charterholders obtain their charters after passing 3 levels of exams based on a comprehensive and rigorous study program.' Which of the above statements violates Standard VII (B): Reference to CFA
Institute, the CFA Designation, and the CFA Program?
- A. CFAs represent the elite of all investment professionals and are most qualified to manage your money.
- B. Both.
- C. CFA charterholders obtain their charters after passing 3 levels of exams based on a comprehensive and rigorous study program.
Answer: A
Explanation:
Can't speak of the CFA as 'elite', 'most qualified' etc. The second statement is however close to being factual.
NEW QUESTION 350
Which of the following is not a correct statement concerning the creation and maintenance of composites under GIPS?
- A. Asset-only returns must not be mixed with asset-plus-cash returns.
- B. Performance of the composite must be stated after investment management fees have been deducted.
- C. All actual fee-paying discretionary portfolios must be included in at least one composite.
Answer: B
Explanation:
Performance can be quoted before or after management fees, as long as the method is disclosed.
NEW QUESTION 351
Which of the following should be classified as investing cash flow?
I). purchase and sale of debt of other entities.
II). purchase and sale of equity securities of other entities.
III). loans to other entities and collection of loans to other entities.
IV). issuance and redemption of debt (bonds and notes).
V. issuance of equity securities and reacquisition of capital stock.
- A. II and V.
- B. I, II and III.
- C. I and II.
Answer: B
Explanation:
Purchase of debt and equity securities of other entities (sale of debt or equity securities of other entities), loans to other entities (collection of loans to other entities) are considered investing activities. However, issuance of debt (bonds and notes) and equity securities are financing cash inflows, and payment of dividend, redemption of debt, and reacquisition of capital stock are financing cash outflows.
NEW QUESTION 352
The economy is projected to emerge from a recession soon. The spread between AAA and CAA rated bond can be expected to
- A. diminish and increase later as the economy rebounds.
- B. increase.
- C. diminish.
Answer: C
Explanation:
As the economy expands, the risk of default due to improving cash flows would diminish and reduce the spread between higher rated and lower rated bonds.
NEW QUESTION 353
Jackie Gold owned a bond that had a Modified duration of 19.400. If the bond had a coupon of
19.00 %, and a yield to maturity of 8.50 %, then what is the change in bond price given a change in yield of - 290 basis points?
- A. 56.260%
- B. -14.741%
- C. 33.756%
Answer: A
Explanation:
Candidates beware of extraneous information and the possible trap set for you! Modified duration estimates the percentage change in bond price with a change in yield and is a very simple computation. You do not need to make the Macaulay adjustment (i.e. (Macaulay duration) - (1+YTM/2)) since the modified duration is already provided. This calculation is very straight forward however, do not forget to adjust for the " - "sign at the beginning of the formula. Just remember that bond prices and interest rates move in an inverse manner. Consequently as interest rates decrease, bond prices decrease
(and vice versa). The solution follows: The formula for a bond with a Modified duration is: % dP = -
Modified Duration * di dP/P * 100 = - Dmod * di Where dP = change in price for the bond, - Dmod = the modified duration for the bond, di = the yield change in basis points divided by 100, P = beginning price for the bond % dP = -19.400 * -2.90 = 56.260%
NEW QUESTION 354
Which of the following is NOT a price discrimination scheme?
- A. You can save $1 on a product if you clip a coupon out of the newspaper and take it to the store.
- B. Paperback and hardback books sell at prices that are much more different than the difference in their production costs.
- C. Strawberries cost more in the winter than in the summer.
Answer: C
Explanation:
Strawberries are less expensive in the summer because supply is much greater then.
NEW QUESTION 355
An analyst has a client with a $1,000,000 portfolio. The client may need to liquidate $100,000 of the portfolio at the end of a particular year. The client does not want to invade the initial capital of $1,000,000.
The table below summarizes different investment allocations.
What is the probability that the return on the safety-first optimal portfolio will be less than the shortfall level
RL? Assume normality.
- A. 33%.
- B. 27%.
- C. 30%.
Answer: A
Explanation:
The probability is 33% that the return on the safety-first optimal portfolio will be less than the shortfall level, RL. The optimal Z value on X was 0.435.Thus: P(RA 10) = N (-0.435)). The reading on table at 0.44 is 0.6700.The solution is thus 1- 0.6700 = 33%.
NEW QUESTION 356
Each of the following is a reason why the GIPS were created, except:
- A. Many countries have not established investment performance standards.
- B. GIPS were established to compete with the European-based mandatory global investment performance standards.
- C. The clients and prospective clients reside in different countries, and investment management firms have operations in multiple countries.
Answer: B
Explanation:
Compliance with GIPS is voluntary. GIPS were created to fill the void of globally recognized investment performance standards. There are no mandatory global standards.
NEW QUESTION 357
Which one of the following is the formula for the inventory turnover rate?
- A. None of the above.
- B. Average inventory divided by cost of goods sold.
- C. Cost of goods sold divided ending inventory.
Answer: A
Explanation:
The formula for the inventory turnover rate is: Cost of goods sold/Average inventory for the period.
NEW QUESTION 358
On January 1, 2003, Mill Corporation leased a machine to Ott Corporation for a 5-year term at an annual rental of $50,000. The lease is an operating lease. At the inception of the lease, Mill received
$ 100,000, covering the first year's rent of $50,000 and a security deposit of $50,000. This deposit will not be returned to Ott upon expiration of the lease but will instead be applied to payment of rent for the last year of the lease. Mill properly reported rental revenue of $100,000 in its 2003 income tax return. Mill's tax rate was 30%. In Mill's December 31, 2003, balance sheet, what portion of the $100,000 should be reported as a liability?
- A. $40,000
- B. $50,000
- C. $35,000
Answer: B
Explanation:
Deposits and prepayments received for services to be provided in the future are unearned revenues that should be recorded as a liability until earned. The first year's rent is recorded as rent revenue, but the $50,000 deposit is recorded as rent collected in advance (unearned rent) because Mill is required to render future services (use of the machine) to the lessee. The rate (30%) does not affect the amount of the liability to the lessee, although a separate future income tax asset may be recorded in certain circumstances.
NEW QUESTION 359
Which one of the following is a way that a company can increase its intensity of asset utilization?
- A. Reduce average assets
- B. Decrease sales
- C. Increase NOPAT (net operating profit after taxes)
Answer: A
Explanation:
This will increase asset turnover, and consequently will increase asset utilization.
NEW QUESTION 360
It is important for any firm to determine its appropriate target cash balance:
- A. since most firms follow flexible policies of working capital management.
- B. because there is a trade-off between the benefit and cost of liquidity.
- C. because of the fluctuation in interest rates on marketable securities.
Answer: B
NEW QUESTION 361
The marginal revenue product will shift to the right if
- A. the productivity of the resource decreases.
- B. the price of the product falls.
- C. the quantity of other inputs working with the input increases.
Answer: C
Explanation:
An increase in the use of other inputs will increase the productivity of this input, e.g. labor which has more or better capital to work with. The marginal product of the input increases, and consequently so does the marginal revenue product. Decreased product price or decreased productivity will decrease marginal revenue product for any unit of input and shift the marginal revenue product curve to the left.
NEW QUESTION 362
The market portfolio of common stocks earned 20.4% last year. Treasury bills earned 5.3% on average last year. The average inflation rate was 2.5%. What was the real return on equities?
- A. 12.6%.
- B. 17.9%.
- C. 15.1%.
Answer: B
Explanation:
20.4 - 2.5 = 17.9.
NEW QUESTION 363
Which of the following is not a valid reason for selecting a sample instead of studying the whole population?
- A. Cost of studying an entire population can be too high, or study of the population can be too time consuming
- B. Sample results have more accuracy than population results
- C. Population can be destroyed in the process of studying it
Answer: B
Explanation:
Sample results cannot be more accurate since it is based on a subset of the population.
NEW QUESTION 364
B1 is a consumer budget constraint.
Now the line moves to B2. This indicates that:
- A. The price of glasses has dropped.
- B. The price of wine has dropped.
- C. The consumer's budget has increased.
Answer: B
Explanation:
The budget line rotates out because the consumer can buy more wine.
NEW QUESTION 365
A municipal bond is callable beginning with the fifth coupon date. The call price schedule specifies call prices that decline with each passing coupon payment date from 107% of par to 100% of par on the maturity date.
I). The call provision makes the timing of the promised cash flows uncertain
II). The call provision makes the size of the promised cash flows uncertain
III). The call provision makes the tax status of the interest payments uncertain
- A. I and II.
- B. I, II and III.
- C. I and III.
Answer: A
Explanation:
For a callable bond, the maturity date is at the bond issuer's discretion. The timing of the call, if it occurs, will determine the size of the terminal cash flow.
NEW QUESTION 366
Assume a small country imposes tariff.
After the tariff, the producer surplus will:
- A. decrease by B + C
- B. increase by B
- C. decrease by B
Answer: B
Explanation:
Producer surplus will increase if the price rises.
NEW QUESTION 367
When bonds are issued at a premium, the long-term liability reported on the balance sheet for the bonds:
- A. decreases or increases each year, depending upon the current market rate
- B. increases each year during the life of the bond
- C. decreases each year during the life of the bond
Answer: C
Explanation:
When bonds are issued at a premium--an amount greater than face--the premium is amortized until it reaches zero. As the premium is decreased, the book value of the liability will decrease until it reaches face value at maturity.
NEW QUESTION 368
The price of a 15-year, semi-annual pay, 8% coupon bond increases by 9.53% if the bond's yield to maturity decreases by 100 basis points from 7% to 6%. The percentage change in the bond's price caused by a decrease in yield to maturity from 10% to 9% is:
- A. 8.21%
- B. 8.54%
- C. 7.89%
Answer: B
Explanation:
To yield 10%, this bond's price is $846.28. To yield 9%, this bond's price is $918.55.
NEW QUESTION 369
When should a rational financial manager pay a bill if 1) a discount is offered, 2) the discount has not yet expired, 3) the firm needs to borrow funds to take the discount, 4) the firm will have sufficient cash by the end of the net period, and 5) the best possible borrowing rate exceeds the cost of forgoing the discount?
- A. No sooner than six months so as to maximize the use of "free" trade credit financing.
- B. On the final due date.
- C. As soon as possible after the discount date so as to not upset the supplier.
Answer: B
Explanation:
The supplier has made only the full net period available to the firm, thus the firm should choose the least costly method which is to pay on the final due date. Taking extra time will cause supplier and possible legal problems.
NEW QUESTION 370
Your firm's EPS last year was $1.00. You expect sales to increase by 15 percent during the coming year. If your firm has a degree of operating leverage equal to 1.25 and a degree of financial leverage equal to 3.50, then what is its expected EPS?
- A. $1.3481
- B. $1.6563
- C. $2.5843
Answer: B
Explanation:
EPS(0) = $1.00. DOL = 1.25. EPS(1) = ? %Change S = 15%. DFL = 3.50. DTL = DOL(DFL)
= 1.25(3.50) = 4.375. EPS(1) = EPS(0)[1.0 + (DTL)(%Change Sales)] = $1.00[1.0 + (4.375)(0.15)] =
$ 1.00[1.6563] = $1.6563.
NEW QUESTION 371
Which of the following characteristics is not representative of an industry that's in the maturity stage of its life cycle?
- A. There are a lot of companies from other industries entering into this particular industry.
- B. Instead of product differentiation, price is the primary competitive weapon.
- C. Competition is intense among the rivals within the industry.
Answer: A
Explanation:
As an industry matures, sales are either stagnant or growing slowly. This lack of industry sales growth forces companies to increase sales by stealing market share from each other, often using price to lure away customers. All these factors make the industry a very unattractive market for new competitors to enter into.
NEW QUESTION 372
When the average loss is zero, RSI becomes:
- A. zero.
- B. 50.
- C. 100.
Answer: C
Explanation:
A "divide by zero" situation occurs for RS and RSI is set to 100 by definition. Assuming a
1 4-period RSI, this means prices moved higher or remained the same all 14 periods. There were no losses to measure.
NEW QUESTION 373
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How to Prepare For CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam
Preparation Guide for CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam
Introduction
The Chartered Financial Analyst is one of the most common designations for investment professionals (CFA). However, it is not for the weak of heart or people who are not interested in being a CFA cardholder. The journey to becoming a CFA holder is long and measures not only the competence but also the strength, dedication and stamina of the topic. According to the CFA Institute, the present curriculum is ideally described as a distance learning programme at its own rate which adopts a general approach to the study, evaluation and management of portfolios which highlights the highest ethical and technical expectations. The CFA curriculum includes three examinations: CFA Level I, Level II and Level III. The CFA applicants must pass both of these exams and they must fulfil certain work requirements defined by the CFA Institute. In December 2017, the progress rate for the Level I exam was 43 percent. For each of these three stages, the curriculum is designed to assess a broad range of skills that are most appropriate for investing professions. In this post, we will focus on the Level I CFA review. CFA Level 1 dumps and CFA Level 1 practice tests are designed to render the entire examination environment comfortable for the students.
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