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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.
NEW QUESTION 451
If nonrecurring charges are really prior year expenses taken too late, then the practice of ignoring nonrecurring charges and focusing on recurring operating income results in
- A. an underestimation of the firm's assets.
- B. an overestimation of the firm's earnings trend.
- C. an overestimation of the firm's assets.
Answer: B
Explanation:
If nonrecurring charges are really prior year expenses taken too late, then the practice of ignoring nonrecurring charges and focusing on recurring operating income results in an overestimation of the firm's earnings trend.
NEW QUESTION 452
The strong form of the efficient market hypothesis states that:
I). security prices reflect all publicly available information.
II). insider information contains no special advantage.
III). major market events can be predicted.
- A. I and II.
- B. II only.
- C. I and III.
Answer: A
NEW QUESTION 453
You are studying the finances of a life insurance company. You believe that if Company X generates at least $150 million in earnings this year, they will pay a large amount of stock into a company bonus pool.
If the earnings can fall anywhere from $110 million to $165 million with equal probability, what is the likelihood they will hit the bonus pool target?
- A. 27.3%.
- B. 26.5%.
- C. 27.5%.
Answer: A
Explanation:
This is a continuous uniform distribution, where b = $165 million and a = $110 million. F(x) =
(x - a)/ (b - a) for a x b; F(x) = 0 for x = a, and F(x) = 1 for x >= b. We are solving for 1 - F(150) = 1 - (150 -
1 10)/(165 - 110) = 1 - 40/55 = 27.3%.
NEW QUESTION 454
Companies with defined benefit plans are required per SFAS No. 132 to make all of the following disclosures except:
- A. Each separate component, along with the total, for net pension expense.
- B. Estimated future contributions.
- C. The funded status of the plan and the discount rate.
Answer: B
Explanation:
The disclosure of this item is not required in SFAS No. 132. This is most likely due to the uncertainty associated with this amount along with the fact that it is a projection rather than a historical-based value.
NEW QUESTION 455
The smaller the p-value:
- A. the weaker the evidence against the null hypothesis and in favors of the alternative hypothesis.
- B. the stronger the evidence against the null hypothesis and in favor of the alternative hypothesis.
- C. the weaker the evidence against the null hypothesis and in favor of the null hypothesis.
Answer: B
NEW QUESTION 456
The reserve requirement is 10%. You take $5,000 and deposit it in your checking account. What will be the maximum total change in bank deposits resulting from this?
- A. $50,000 increase
- B. $5,000 increase
- C. $45,000 increase
Answer: A
Explanation:
The money multiplier is (1/(reserve requirement)) = 10 if c = 0, so the maximum deposit expansion is 10 x 5000 = 50,000.
NEW QUESTION 457
Which of the following is incorrect?
- A. For a sample, the Mean Absolute Deviation can never be equal to Standard Deviation.
- B. Sum of deviations from the mean always equals zero.
- C. A t-distribution does not have a finite standard deviation.
Answer: A
Explanation:
Mean Absolute Deviation will be equal to Standard Deviation for a sample with equal number of two discrete values (all deviations of equal magnitude, half positive and half negative). In other situations Standard Deviation will exceed Mean Absolute Deviation.
NEW QUESTION 458
What is a company's payables payment period if COGS are $200,000 and the average balance of accounts payable (AP) is $10,000?
- A. 10.75 days.
- B. 11.33 days.
- C. 18.25 days.
Answer: C
Explanation:
Payables turnover ratio = $200,000/$10,000 = 20 Payables payment period = 365/20 =
18.25 days
NEW QUESTION 459
______ connect buyers to sellers who are present at the same time but in different places.
- A. Arbitrageurs.
- B. Dealers.
- C. Brokers.
Answer: A
Explanation:
Arbitrageurs buy from a seller in one market while simultaneously selling to a buyer in another market. Dealers, however, connect buyers to sellers who are present at the same place but at different times.
NEW QUESTION 460
The quantity of real money that people plan to hold depends on these factors:
I). The price level.
II). The nominal interest rate.
III). Real GDP.
IV). Financial innovation.
- A. I and II.
- B. II, III and IV.
- C. All of them.
Answer: B
Explanation:
All of the 4 factors affect the quantity of nominal money people hold. However, the price level does not affect the real money people hold.
NEW QUESTION 461
The marginal benefit of going to a movie during the week is currently $6 for you. Assume that the price of going to the movies, $4, measures its marginal cost. Following the economic decision rule, you will
- A. continue going to movies until the marginal benefit of doing so falls to zero.
- B. continue going to movies until the marginal benefit of doing so falls below $4.
- C. choose not to go to any movies during the week.
Answer: B
Explanation:
You will continue to go to the movies until the marginal benefit falls beneath the marginal cost.
NEW QUESTION 462
Of letters sent through a certain post office, 20% have insufficient postage, 48% have the wrong zip code, and 58% have one or both of these problems. What is the probability that a letter has both insufficient postage and the wrong zip code?
- A. 0.10
- B. 0.30
- C. 0.68
Answer: A
Explanation:
Let A denote the event that the letter has insufficient postage and B denote the event that it has the wrong zip code. From the problem we know that P(A) = 0.20, P(B) = 0.48 and P(A or B) = 0.58, so solving by the general rule of addition for P(A and B), one obtains P(A and B) = P(A) + P(B) - P(A or B).
Thus the probability of a letter having both problems is P(A and B) = 0.20 + 0.48 - 0.58 = 0.10.
NEW QUESTION 463
Which of the following statements is true?
- A. The point where the net present value profile crosses the horizontal axis indicates a project's discounted payback period.
- B. The point where the net present value profile crosses the horizontal axis indicates a project's internal rate of return.
- C. The point where the net present value profile crosses the horizontal axis indicates a project's cost of capital.
Answer: B
Explanation:
The point where the NPV profile crosses the horizontal axis indicates the cost of capital that makes the NPV equal to zero. That cost of capital is by definition the internal rate of return.
NEW QUESTION 464
Firms in an oligopoly are less likely to collude when:
- A. market demand is relatively stable.
- B. detection of cheaters is easy.
- C. there are more firms in the industry.
Answer: C
Explanation:
If firms can easily detect cheaters, they can retaliate and this helps maintain collusive agreements. When firms bid for contracts and those bids are closed, cheaters cannot be easily detected because the winning bid is not publicly announced. When there are more firms in the industry, the costs of forming a cartel and reaching an agreement are much higher making it less likely that the firms will collude.
NEW QUESTION 465
On December 31, 2003, Numark Co. leased a machine from Hardie Ltd. for a five-year period. Equal annual payments under the lease are $315,000 (including $15,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2003, and the second payment was made on December 31, 2004. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $1,251,000. The lease is appropriately accounted for as a capital lease by
Numark. In its December 31, 2004 balance sheet, Numark should report a lease liability of:
- A. $855,900.
- B. $746,100.
- C. $951,000. B $855 900
Answer: B
Explanation:
The amount of the liability is the present value of the lease payments on December 31, 2003 less the payment made in 2003 plus the executory costs. $1,251,000 - $315,000 + $15,000 = $951,000
(2003) $951,000 - [$300,000 - ($951,000 x .10)] = $746,100 (2004)
NEW QUESTION 466
You have completed an analyst's report on a specific company. You have used significant information from an older report written by an individual no longer at your firm and an industry forecast by an economist at another firm. You also include a 52-week high/low price quote from the Wall Street Journal.
You must acknowledge
- A. All 3 sources of information.
- B. Information from the old report and the economist only.
- C. Information from the Wall Street Journal and the economist only.
Answer: B
NEW QUESTION 467
Suppose that the probability of A is 0.80 and the probability of B is 0.60, if A and B are independent events, what is the joint probability of A and B?
- A. 0.48
- B. 0.75
- C. 0.80
Answer: A
Explanation:
Since A and B are independent events P(A) = P(A|B) = 0.8 and P(AB) = P(A|B)
P(B) = 0.80 x 0.60 = 0.48.
NEW QUESTION 468
What is the value of a zero-coupon bond that has 6 years to maturity and an applicable interest rate of
9 %?
- A. $76.79
- B. $59.63
- C. $58.97
Answer: C
Explanation:
N=12, I/Y=4.5, PMT=0, FV=100, PV=?=58.97
NEW QUESTION 469
According to U.S. GAAP, which of the following pieces of information about intangible assets does not need to be disclosed in a company's financial statements and footnotes?
- A. The estimated amortization expense for the next five years.
- B. The amortization method used.
- C. Both the gross carrying amount and accumulated amortization expense.
Answer: B
Explanation:
It is required by IFRS.
NEW QUESTION 470
A hedge fund charges a base fee of 1.5% and an incentive fee of 15% on returns in excess of the risk-free rate. If the fund's gross return is 8%, and the risk-free rate is 2.5%, the net return to the investor is:
- A. 4.65%
- B. 5.68%
- C. 5.32%
Answer: B
Explanation:
Total fees expressed as a percentage equal: Fees (%) = 1.5% + 0.15 (8% - 2.5%) = 2.325%
Net return = 8% - 2.325% = 5.675%, or 5.68%
NEW QUESTION 471
An economic analyst says that the probability of Alan Greenspan announcing a rate cut next week is
0 .45 or 45%. This is an example of what type of probability?
- A. relative frequency or empirical
- B. classical or a priori
- C. subjective
Answer: C
Explanation:
The correct answer is subjective since this probability is an educated guess based on the analyst's personal belief or experience.
NEW QUESTION 472
Which best describes venture capital?
- A. Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt.
- B. Venture capital is in the form of equity.
- C. Venture capital is typically a secondary form of financing, after bank financing.
Answer: A
Explanation:
Venture capital becomes available when financing from banks and public debt or equity markets is either unavailable or inappropriate.
NEW QUESTION 473
A firm does not want to increase it financial leverage. It may resort to all of the following actions
EXCEPT:
I). It may disguise a capital lease as an operating lease.
II). It may issue convertible bonds.
III). Sell its accounts receivables through a securitization.
IV). It may set up a subsidiary and guarantee its debt.
- A. II only.
- B. All of them.
- C. I and IV.
Answer: A
Explanation:
By issuing convertible bonds a firm must immediately recognize a long-term liability increasing its leverage. Only if and when bonds are converted does debt get reclassified as equity in the distant future.
NEW QUESTION 474
Which commercial classification system classifies companies based on a company's primary business activity?
- A. GICS
- B. RGS
- C. ICB
Answer: A
Explanation:
The Global Industry Classification System (GICS) assigns each company to a sub-industry according to its principal business activity.
NEW QUESTION 475
As compared to the short-run supply curve, what should the long-run supply curve look like?
- A. steeper
- B. flatter
- C. it depends on the cost structure of the industry
Answer: B
Explanation:
The supply curve is more elastic (flatter) in the long-run, because in the long-run, all costs are variable, so firms can modify their production facilities or enter/leave the market.
NEW QUESTION 476
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