CFA Level CFA-Level-I Exam Dumps and Certification Test Engine [Q1231-Q1250]

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Topics of CFA CFA-Level-I: CFA Institute CFA Level I Chartered Financial Analyst Exam

Before preparation begins, candidates need to know the examination topics. And it’s going to help them to reach the center. CFA Level 1 exam dumps will include the following topics:

• Quantitative Methods
  In this section, we explore quantitative concepts and techniques used in financial analysis and investment decision making. We present descriptive statistics for conveying important data attributes, such as central tendency, location, and dispersion, and introduce characteristics of return distributions. The section also considers probability theory and its application in quantifying risk for investment decision making.
• Ethical and Professional Standards
  The focus of this topic is ethics, related challenges to ethical behavior, and the role ethics and professionalism play in the investment industry. We provide a framework to support ethical decision making and examine the CFA Institute Code of Ethics and Standards of Professional Conduct and Global Investment Performance Standards (GIPS).
• Economics

In this section, we introduce analysis of fundamental concepts of supply and demand for individual consumers and firms. We also cover the various market structures that firms operate in as well as macroeconomic concepts and principles, including aggregate output and income measurement, aggregate demand and supply analysis, and analysis of economic growth factors. The section concludes with coverage of the business cycle and its effect on economic activity.

• Fixed Income
  In this topic, we explain how to describe fixed income securities and their markets, yield measures, risk factors, and valuation measurements and drivers. We also cover calculating yields, values of fixed income securities, the securitization of assets, the fundamentals of bond returns and risks, and basic principles of credit analysis.

• Portfolio Management
  In this topic, we explain the fundamentals of portfolio and risk management, including return and risk measurement and portfolio planning and construction. We examine the needs of individual and institutional investors along with the range of available investment solutions. The capital asset pricing model is used to identify optimal risk in portfolios.

• Derivatives
  In this section, we build the conceptual framework for understanding the basic derivatives and derivative markets. We then introduce essential features and valuation concepts for forward commitments such as forwards, futures, swaps, and contingent claims. Finally, we examine arbitrage, a critical concept that links derivative pricing to the price of the underlying asset.

• Corporate finance
  In this topic, we provide an introduction to corporate governance as well as investing and financing decisions. We present an overview of corporate governance along with a framework for understanding and analyzing corporate governance and stakeholder management. We also highlight the growing impact of environmental and social considerations in investing. We cover how companies make use of leverage and manage their working capital to meet short-term operational needs.

• Financial Reporting and Analysis
  Here we provide a thorough explanation of financial reporting procedures and the standards that govern financial reporting disclosures, with an emphasis on basic financial statements and how alternative accounting methods affect those statements and the analysis of them. We examine primary financial statements and provide a general framework for conducting financial statement analysis.

Q1231. The key difference between the short run and the long run is that:

 The long run is a longer period of time than the short run.

 In the short run, the firm can expand its production facility as its workforce grows.

 In the long run there are no diminishing returns.

Facility expansion occurs only in the long run.

Q1232. Purchasing factory equipment on credit results in a

 debit to an asset account and a credit to a liability account.

 debit to a liability account and a credit to an asset account.

 debit to an expense account and a credit to a liability account.

This transaction results in an increase to an asset account and an increase to a liability account. Assets are increased with debits and liabilities are increased with credits.

Q1233. In a perfectly competitive market:

 price does more of the adjusting in the long run and quantity does more of the adjusting in the short run.

 price does more of the adjusting in the short run and quantity does more of the adjusting in the long run.

 only quantity adjusts in both the short run and the long run.

In the short run, the number of firms is fixed, so quantity cannot adjust as much.

Q1234. The difference between an arithmetic average and a geometric average of returns:

 increases as the variability of the returns increases.

 increases as the variability of the returns decreases.

 depends on the specific returns being averaged, but is not necessarily sensitive to their variability.

Q1235. In which of the following markets are economic profits zero in the long run?
I). price-taking markets
II). monopolistically competitive markets
III). contestable markets

 I and II.

 I and III.

 I, II and III.

In all of these markets, barriers to entry and exit are low so that abnormal economic profits cannot prevail for very long. In the long run, economic profits in all of these markets equal zero so that the firm earn only the normal rate of return on their resources.

Q1236. Your company purchased $10,000 worth of inventory on January 2nd on credit. The terms of the sale are 3/15 net 45. What is the effective annual interest rate if you pay the full amount in 35 days?

 28%.

 37.6%.

 74.3%

(1 + 0.03/0.97)(365/20) -1 = 0.7435

Q1237. A price-weighted index was constructed two months ago using 2 stocks, A and B, then priced at $10 and $17, respectively. The index is adjusted at stock splits so as to not allow splits to affect its value.
Stock B underwent a 3-for-2 split a month ago, when it was trading at $24 and A was trading at $12. Right now, A is trading at $11 and B is trading at $14. The value of the index equals ________.

 16.07

 9.375

 12.50

First note that a price weighted index is derived by summing up the prices of the constituent stocks and then dividing the sum by a divisor. When the index is first constructed with N stocks, the divisor equals N.
Later on, when changes like stock splits or index composition take place, the divisor is adjusted so as to keep the value of the index constant across the change (Dow Jones Industrial Average is adjusted in this fashion, for e.g. and hence, its divisor is no longer 30 but a much lower value, less than
1 ). Just before stock B split, the value of the index was (24+12)/2 = 18. After the split, the price of B changed to 24 / 3 * 2 = 16 per share. Hence, the divisor changes from 2 to (16+12)/18 = 1.556. Therefore, the current index value equals (11+14)/1.556 = 16.07.

Q1238. Variable X is distributed normally and has a mean of 10. If the probability that an observation of X will be negative is 0.16, what is the coefficient of variation of X?

 0.1

 1.0

 0.32

The probability that X lies a distance 10 below the mean is given to be 0.16. Since the normal distribution is symmetric about the mean, this implies that the probability that X will be 10 greater than the mean is also 0.16. Thus, the probability that X lies between 0 and 20 is 1-0.16-0.16 = 0.68. For a normal distribution, 68% of the observations lie within one standard deviation of the mean. Hence, the standard deviation of X equals 10. The coefficient of variation is then equal to standard deviation/mean =
1 0/10 = 1.

Q1239. Consider the following statements:
I). The lognormal distribution is widely used for modeling the probability distribution of stock and other asset prices.
II). A random variable Y follows a lognormal distribution if its natural logarithm is normally distributed.
III). The lognormal distribution is described by the mean and standard deviation of its associated normal distribution.
Which of the following are true?

 II and III.

 I and III.

 I, II and III.

Q1240. 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.

 I and II.

 II and III.

 None of these answers.

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.

Q1241. Which measure of dispersion does not disregard the algebraic signs (plus and minus) of each difference between X and the mean?

 Standard deviation

 Coefficient of variation

 Mean deviation

CV = s / X-bar, and x-bar can be negative or positive, or even 0.The mean deviation is the mean of the absolute values of the deviations from the mean.

Q1242. If the alternative hypothesis states that u > 6,700, what is the rejection region for the hypothesis test?

 Both tails

 Upper tail

 Lower tails

Since the alternative is that u is bigger than the mean, then it will be located at the upper tail.

Q1243. Which of the following statement(s) is/are true?
I). Cash flows is a term that describes both cash receipts and cash payments.
II). The summary of transactions for issuing bonds is shown as an investing activity on the statement of cash flows.
III). The cash sale of a plant asset for an amount greater than its book value would be shown on the statement of cash flows as a financing activity.
IV). The sale of an investment for less than its cost would be shown on the statement of cash flows as an operating activity.

 I and II.

 I only.

 I and IV.

I). Cash flows is a term describing both cash receipts (inflows) and cash payments (outflows).
II, III and IV: Investing activities are transactions involving acquisitions or sales of investments or plant assets.

Q1244. An investor is considering a 20-unit apartment building that is 10 years old and in excellent condition.
The purchase price is $700,000 with the land being valued at $50,000. The investment will be financed using a $560,000 mortgage with the balance being equity. Estimated after-tax cash flows in years 1 through 4 are $37,806, 40,285, 42,839, and 45,468, respectively. It is estimated that the building can be sold at the end of year 4 for net after-tax proceeds of $156,686. The investor has a required rate of return of 15%. The IRR would be closest to:

 13.45%

 31.01%

 34.55%

Using a financial calculator:
C0 = -$140,000 C1 = $37,806 C2 = $40,285 C3 = $42,839 C4 = $202,154
Solving for IRR => IRR = 31.01%

Q1245. You have a nest egg of $750. In order for your money to grow to $1,343.10, it must be invested at 6% for how many years?

 11

 10

 9

Years = Log(1343.10/750)/Log(1.06) = 10.

Q1246. Which of the statements is true?

 The less inelastic is the supply for a factor, the greater is the share of income that is comprised by economic rent.

 The less elastic is the supply for a factor, the greater is the share of income that is comprised by economic rent.

 The less inelastic is the demand for a factor, the greater is the share of income that is comprised by economic rent.

When the supply is perfectly inelastic, then all of the income is economic rent.

Q1247. Without the major institutional and regulatory base provided by ______, today’s large multinational corporations would be hard to conceive.

 International Monetary Fund.

 World Bank.

 World Trade Organization.

The WTO’s framework of global trade rules provides the major institutional and regulatory base.

Q1248. WePay, Inc. made the following dividend declaration:
“The Board of Directors of WePay, Inc. has declared a regular quarterly dividend of $0.25 per share payable June 13, 2001 (a Wednesday) to all stockholders-of-record as of the close of business on May 17,
2 001 (a Thursday).”
Assuming a three day settlement for WePay stock and no holidays in the weeks surrounding the record and payment dates, determine the ex-dividend date.

 Tuesday May 15, 2001

 Monday May 14, 2001

 Monday June 11, 2001

With a three day settlement, the ex-dividend date would be two days prior to the holder-of-record date, which would be Tuesday May 15, 2001. If an investor bought WePay on Monday
May 12, 2001, they would settle for it on Thursday May17, 2001 and would be the holder-of-record at the close of trading on that date. Hence they would receive the dividend. Alternatively, if they bought it on
Tuesday May 15, 2001, they would settle on Friday May 18, 2001 which is the day after the holder-of-record date. Hence they would not receive the dividend.

Q1249. If the forward rate is higher than the spot rate, the price currency is said to be trading at a ______.

 forward premium.

 forward discount.

 spot premium.

Note that the base currency, not the price currency, is said to be trading at a forward premium.

Q1250. Which statement is false regarding technical analysis?

 Some applications of technical analysis are subjective.

 Technical analysis of any financial instrument does require detailed knowledge of that instrument.

 A key shortcoming of technical analysis is that it can be late in identifying changes in trends or patterns.

A is true – the interpretation of findings is often subjective. B is false – A technician just needs the chart that represents the action in a freely traded market. C is also true.

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