[Feb 22, 2022] Free CFA Level CFA-Level-I Exam Question
CFA-Level-I dumps & CFA Level sure practice dumps
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:
Language: English
Duration of Examination: 6 hours
Number of Questions: 120
Passing score: 70%
Difficulty in writing the CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam
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NEW QUESTION 1244
Operating expenses for closed-end funds include:
I). load fees for purchase or sale of shares.
II). large allowances for marketing.
III). the discount of security value from NAV.
- A. I and II.
- B. None of these answers.
- C. II and III.
Answer: B
Explanation:
Operating expenses for closed-end funds would not include load fees or marketing expenses since the number of shares of the fund is fixed and the shares are publicly traded. The premium/discount of the market price relative to the NAV is not an operating expense.
NEW QUESTION 1245
Which of the following is secured only by the reputation of the issuing firm?
- A. debenture
- B. bearer bond
- C. unfunded bond
Answer: A
NEW QUESTION 1246
The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they be now?
- A. 0
- B. 1
- C. 2
Answer: B
Explanation:
This means that a percentage increase in income will lead to an increase in quantity demanded that is twice as great; this means sales will increase by 40% to 7000 units.
NEW QUESTION 1247
Consider the following transactional information for the investment account of an underwriting syndicate:
1 st Quarter Ending portfolio value: $50,800,000 Total amount invested: $46,100,000
2 nd Quarter Ending portfolio value: $51,100,000 Total amount invested: $50,800,000
3 rd Quarter Ending portfolio value: $51,000,000 Total amount invested: $51,100,000
4 th Quarter Ending portfolio value: $54,500,000 Total amount invested: $50,000,000
Using this information, what is the annual time-weighted rate of return for this portfolio? Assume no taxes or transaction charges.
- A. 19.59% per year
- B. 22.14% per year
- C. 20.59% per year
Answer: C
Explanation:
The time-weighted rate of return is the preferred method of return calculation in the investment management industry, primarily because this method is not sensitive to significant additions and withdrawals of funds from portfolios under examination. The calculation of the time-weighted rate of return involves three steps, which are illustrated as follows:
Step 1:Price the portfolio immediately prior to any significant additions or withdrawals. Separate the portfolio into a series of sub-periods based on the dates of cash inflows and outflows.
Step 2:Calculate the holding period return for each sub-period.
Step 3:Determine the annualized holding period return by linking or compounding the holding period return of each sub-period. If the investment is for more than one year, use the geometric mean of the annual returns as the time-weighted rate of return. If the investment is for less than one year, compound the sub-period returns to obtain an annualized measurement.
To begin the process of determining the time-weighted rate of return, we would break the portfolio up into the subsequent series of cash flows. However, in this example, the cash flows are already aggregated for us and we can move on to the next step: determining the holding period return for each sub-period. This process is detailed as follows:
Quarter 1 holding period return = [($50,800,000 ending value - $46,100,000 invested) / $46,100,000 invested] = 10.19523%
Quarter 2 holding period return = [($51,100,000 ending value - $50,800,000 invested) / $50,800,000 invested] = 0.59055%
Quarter 3 holding period return = [($51,000,000 ending value - $51,100,000 invested) / $51,100,000 invested] = (0.1957%)
Quarter 4 holding period return = [($54,500,000 ending value - $50,000,000 invested) / $50,000,000 invested] = 9.00%
Now that the holding period return for each sub-period has been determined, we must annualize the return measure by taking the product of all four quarterly returns. This process is illustrated below:
[(1 + .10195) * (1 + .00591) * (1 - .00196) * (1 + .09) - 1] = .2059 or 20.59%
When calculating the time-weighted rate of return, remember that the total amount invested is the relevant figure, not the beginning portfolio value. Notice that during the fourth quarter, the total amount invested does not equal the ending amount for the third quarter. This differential could be explained by numerous phenomena. Perhaps the difference is due to a cash withdrawal from the account. Maybe it was used to pay expenses or meet an outstanding margin call. What is important to note is the fact that this money was not invested, and should not be included in the holding period return for the fourth quarter. So said, whenever possible you should use the total amount invested rather than the beginning portfolio value in the calculation of the sub-period holding period return. If you chose 19.59%, remember that in the calculation of the time-weighted rate of return, it is the geometric mean that is used rather than the arithmetic mean.
NEW QUESTION 1248
Starr Co. had 1997 sales of $210. Sales for 1998 increase by 15% and cost of goods sold remains
6 5% of sales. Starr Co.'s 1998 income statement will show gross profit of:
- A. $144.90.
- B. $241.50.
- C. $84.52.
Answer: C
NEW QUESTION 1249
If marginal cost is increasing but is less than average total cost, what do we know about average total cost?
- A. Any of these could be true.
- B. Average total cost is increasing.
- C. Average total cost is decreasing.
Answer: C
Explanation:
If marginal cost, the change in total cost divided by the change in quantity, is less than average total cost, the average must decrease. The fact that marginal cost is increasing is irrelevant; as long as the change is smaller than the average, the average must fall.
NEW QUESTION 1250
Which statement about portfolio diversification is correct?
- A. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.
- B. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
- C. Typically, as more securities are added to a portfolio, total risk would be expected to decrease (at a decreasing rate).
Answer: C
Explanation:
By constructing a portfolio with assets that do not move together, you create a portfolio that reduces the ups and downs in the short term but continues to grow steadily in the long term.
NEW QUESTION 1251
If a firm's average per-unit costs fall as it produces a larger output, then
- A. average variable cost must also decline as output expands.
- B. marginal cost must also decline as output expands.
- C. marginal cost must be less than average total cost.
Answer: C
Explanation:
Average total costs increase when marginal costs are greater than average total costs.
Assume the following costs: Fixed cost = 100. The marginal cost of the first unit of output equals $10
(MC1), the marginal cost of the second unit of output equals $12 (MC2), MC3 = 14. Total costs for three units of output equals FC + VC which here equals $100 + ($10 + $12 + $14) which equals $136. Average total costs equals $136/3 or $45.333. If MC4 = $16 which is smaller than average total cost the average total cost will decline. Thus, total cost becomes $136 + $16 = $152 thus making average total cost equal
$ 152/4 or $38. Thus, when marginal cost is smaller than average total cost, the average total cost will decline.
NEW QUESTION 1252
BWT, Inc. shows the following data in its financial statements at the end of the year. Assume all securities were outstanding at the beginning of the year:
6.125% convertible bond, convertible into 33 shares of common stock. Issue price $1,000, 100
*
bonds outstanding.
6.25% convertible preferred stock, $100 par, 3,710 shares outstanding. Convertible into 3.3
*
shares of common stock, Issue price $100
8% convertible preferred stock, $100 par, 5,604 shares outstanding. Convertible into 5 common
*
shares, Issue price $80
12,380 warrants are outstanding with an exercise price of $40. Each warrant is convertible into 1
*
share of common. Average market price of common is $53.00 per share. Common shares outstanding at the beginning of the year were 45,888.Net Income for the period was $200,000, while the tax rate was 40%.
What were the Diluted EPS for the year?
- A. 2.16
- B. 2.20
- C. 2.28
Answer: B
Explanation:
(100 bonds)(33 shares/bond) = 3300 shares from bonds (100 bonds)($61.25 interest per bond) = $6125 interest paid ($6125)(1-.4) = $3675 interest saved (3710)(3.3) = 12243 shares from convertible preferred stock + (5604)(5) = 28020 shares from the other convertible preferred stock = 40263 total shares common from the conversion of the preferred shares. (12,380 warrants)($40 exercise price) =
$ 495,200 $495,200/$53 ave. price = 9343 shares common 12,380 - 9343 = 3,037 new shares from the warrants Preferred dividends = 3710shares x 6.25% = $23187.5 Preferred dividends = 5604 shares x
8 .00% = $44,832.00 Total = $23188 + $44832 = $68020 Diluted EPS = [(200,000 - 68020) + 68020 +
3 675]/(45,888 + 40,263 + 3,300 + 3,037) = $203675/92488shares = 2.20
NEW QUESTION 1253
The following dataset shows the change of a consumption basket over time:
2 010 (price/quantity)- Bread: $0.77/50; Milk: $1.22/30. 2011 (price/quantity)- Bread: $0.80/52; Milk:
$ 1.24/28. The denominator of the Paasche index should be calculated as:
- A. $0.77 x 50 + 1.22 x 30.
- B. $0.77 x 52 + 1.22 x 28.
- C. $0.80 x 52 + 1.24 x 28.
Answer: B
Explanation:
A is the denominator of the Laspeyres index, and B is the numerator of both.
NEW QUESTION 1254
A mortgage loan of $250,000 is obtained for 30 years. The annual interest rate is 12%. The first month's payment is $2571. How much principal is repaid in the first month?
- A. $0.00
- B. $71.00
- C. $571.00
Answer: B
Explanation:
Interest = 0.01 x 250,000 = $2,500 Principal Repaid = $2,571 - $2,500 = $71
NEW QUESTION 1255
Increasing the frequencies in the tails of a distribution will:
- A. not affect the standard deviation as long as the increases are balanced on each side of the mean.
- B. increase the standard deviation.
- C. reduce the standard deviation.
Answer: B
NEW QUESTION 1256
A portfolio has two securities with 35% and 65% allocations by market value. The first security has a return of 8% and the second security has a return of 14%. What is the value-weighted average return for the portfolio?
- A. 10.10%
- B. 11.90%
- C. 10.96%
Answer: B
Explanation:
Value-weighted return = 0.35 x 8 + 0.65 x 14 = 11.90%
NEW QUESTION 1257
Which of the following statement is not true about treasury bills?
- A. Treasury bills have no credit risk.
- B. Treasury bills have maturities less than a year and do not pay any coupons.
- C. Treasury bills are generally issued at par.
Answer: C
NEW QUESTION 1258
A random variable, X, has a mean of 12 and a standard deviation of 14. If another variable, Y, is defined by Y = 2X - 3, the coefficient of variation of Y is ________.
- A. 1.19
- B. 0.75
- C. 1.33
Answer: C
Explanation:
You should remember two important points:
Multiplying a random variable by a constant multiplies its mean and standard deviation by the same
*
constant.
Adding a constant to a random variable increases the mean by the same constant but leaves the
*
standard deviation unchanged.
Using these two rules, the mean of Y equals 2 * 12 - 3 = 21. The standard deviation of Y equals 2 * 14 = 28.
The coefficient of variation equals the ratio of the standard deviation to the mean. Thus, the coefficient of variation of Y equals 28 / 21 = 1.33.
NEW QUESTION 1259
Quotas are more harmful than tariffs because
- A. they encourage free trade while tariffs impose restrictions that increase prosperity domestically.
- B. they generate no revenue for the government.
- C. they prohibit foreign producers from selling additional units regardless of how much lower their costs are relative to domestic producers and they generate no revenue for the government.
Answer: C
Explanation:
Quotas are more harmful than tariffs because the quota restricts supply domestically and diverts resources from efficient to inefficient use. Additionally, a tariff transfers revenue from consumers to the government while a quota transfers revenue from domestic consumers to foreign producers.
NEW QUESTION 1260
Frequency distributions are useful for ALL BUT which of the following objectives?
- A. Condensation of large sets into smaller sets.
- B. Summarization of data.
- C. Investigation of characteristics of each observation.
Answer: C
Explanation:
They are useful in illustration of the amount of variability in data as well.
NEW QUESTION 1261
Which of the following is true regarding probability?
I). 0 P(E) 1: the probability of an event E is a number between 0 and 1, exclusive.
II). The sum of the probabilities of any group of mutually exclusive events equals 1.
III). 0 = P(E) = 1: the probability of an event E is a number between 0 and 1, inclusive.
- A. I and II.
- B. III only.
- C. II and III.
Answer: B
Explanation:
Only III is true: 0 = P(E) = 1: the probability of an event E is a number between 0 and 1, inclusive. A probability can equal 1 or 0; thus, statement I is false. Statement II would only be true if it read:
The sum of the probabilities of any group of mutually exclusive and exhaustive events equals 1. Throwing a 6-sided die can lead to 6 different outcomes, each of which has probability of 1/6. However, if your group of mutually exclusive outcomes only included results 1 and 2, then the sum of those probabilities is not 1. Such a group would not be exhaustive because it excludes the outcomes 3, 4, 5, 6.
NEW QUESTION 1262
Analysts should go beyond the "bottom line" when analyzing and interpreting financial statements because
- A. math errors are sometimes made.
- B. nonrecurring items included in net income affect ratio analysis.
- C. calculations of trends and ratios are unreliable.
Answer: B
Explanation:
To avoid reaching incorrect conclusions, analysts should go beyond the "bottom line" when analyzing and interpreting financial statements because nonrecurring items included in net income affect ratio analysis. The calculations of trends and ratios are based on the assumption that net income and other components are comparable from year to year and from company to company. Going beyond the
"bottom line" means looking at the components that created the final result, in this case, net income which is used in ratio analysis. If nonrecurring items exist, they should be considered when making interpretations.
NEW QUESTION 1263
Regarding the disclosure requirements for intangible assets, which piece of information is required by
IFRS but not by U.S. GAAP?
- A. Accumulated amortization expense.
- B. Whether the useful lives are indefinite or finite.
- C. Gross carrying amount.
Answer: B
Explanation:
IFRS then have different requirements for intangible assets with indefinite or definite lives.
NEW QUESTION 1264
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