CFA-Level-I Dumps 2021 - New CFA CFA-Level-I Exam Questions
Free CFA-Level-I Braindumps Download Updated on Nov 20, 2021 with 2200 Questions
NEW QUESTION 677
The examination of the statistical association between stock prices and earnings of many firms at a single point of time is an example of a:
- A. cross-sectional test
- B. common-size financial statement analysis
- C. time-series analysis
Answer: A
Explanation:
This test uses regression analysis to examine the relationship between stock prices and earnings across many firms at a single point in time.
NEW QUESTION 678
Which of the following items is a credit in the U.S. balance of trade?
- A. a short-term loan extended to a South American by a U.S. resident.
- B. the sale of a life insurance policy to an Italian, by an American company.
- C. the purchase of a German car by an American.
Answer: B
Explanation:
The balance of payments is a summary of all economic transactions between a country and all other countries for a specific period of time. Transactions that create a demand for the nation's currency (or a supply of foreign currency) on the foreign exchange market are recorded as a credit or plus item. The only example of such an occurrence is when an Italian demands U.S. currency in order to purchase a life insurance policy from a U.S. company. He must pay for the policy in dollars and therefore supplies Euros to the market in exchange for U.S. dollars.
NEW QUESTION 679
If the Federal Reserve wants to lower the inflation rate, it will ____ the federal funds rate by undertaking open market ____ of government securities.
- A. lower; sales
- B. raise; purchases
- C. raise; sales
Answer: C
Explanation:
When the Fed sells securities in the open market, it reduces bank reserves. The reduced money supply will increase the interest rate.
NEW QUESTION 680
For an upcoming sight-seeing visit to India, a U.S. resident recently purchased a hundred thousand
Indian Rupees. His action
- A. created a deficit in the U.S. trade account.
- B. created a credit balance in the U.S. BOP account.
- C. created a debit balance in the U.S. BOP account.
Answer: C
Explanation:
This is a point of convention where much confusion exists. Before you answer it, you should remember two things: In International Finance, a country's reserve of foreign currency and foreign-produced goods is treated as an asset. In Accounting, by convention, increases in assets are recorded as "debit" entries and reductions are treated as "credit" entries.
In the above example, there is an inflow of Indian Rupees and is hence recorded as a debit to the U.S.
BOP account.
NEW QUESTION 681
When calculating diluted earnings per share, convertible securities are:
- A. recognized only if they are dilutive.
- B. recognized only if they are antidilutive.
- C. recognized whether they are dilutive or antidilutive.
Answer: A
Explanation:
Convertible securities are only considered if they dilute the earnings available to common shareholders.
NEW QUESTION 682
The optimal portfolio includes all of the following characteristics except which of the following?
- A. Utility curves may be different for individual investors even though the optimal portfolio for each investor is presumed to be the same.
- B. The optimal portfolio may be different for each investor, but for a given investor it has the highest utility.
- C. The optimal portfolio lies at the point of tangency between the efficient frontier and the highest possible utility curve.
Answer: A
Explanation:
The optimal portfolio varies for each investor depending on the investor's utility curve. The optimal portfolio occurs at the point of tangency between the efficient frontier and the investor's highest possible utility curve. However, some risk-averse investors may have a utility curve which demands a lower expected return/lower expected risk trade-off compared to others.
NEW QUESTION 683
Greenbelt Processors had a beginning inventory of 798 units valued at a cost of 34,895. It purchased
4 ,474 units of new inventory worth 195,402 during the year. A year-end audit revealed that it had 853 units on hand.
If Greenbelt uses the weighted average cost method, what was its COGS for the year?
- A. 193,035
- B. 193,000
- C. 193,027
Answer: A
Explanation:
Under average cost method, we price all units including those in beginning inventory and purchased during the year at an average price.
Average price = [34,895 + 195,402] / [798 + 4,474] = 43.683 Ending inventory = 853 x 43.683 = 37,262
COGS = BI + Purchases - EI = 34,895 + 195,402 - 37,262 = 193,035.
NEW QUESTION 684
In a well diversified market portfolio, the required rate of return on a security is composed of all of the following EXCEPT
I). Risk exposure.
II). Inflation premium.
III). Real risk-free rate of return.
IV). Diversifiable risk premium.
- A. IV only.
- B. II and IV.
- C. I and III.
Answer: A
Explanation:
The risk premium on a security is based on its systematic risk, not the diversifiable risk, in a well diversified investor's portfolio.
NEW QUESTION 685
Which trade policy will have no impact on government revenue?
- A. Export subsidy.
- B. VER.
- C. Import quota.
Answer: B
Explanation:
The VER allows the quota rent resulting from the decrease in trade to be captured by the exporter. For B, government revenue actually falls. For C the result is mixed as it depends on whether the quota rents are captured by the importing country through sale of licenses or by the exporters.
NEW QUESTION 686
If a researcher testing the null hypothesis H : 53 u 57 vs. H : u 53 or u > 57, found that is equal to 56
0 a
when in reality is 59, identify the type of error that has been made.
- A. None of the choices are correct.
- B. Type I
- C. Type II
Answer: C
NEW QUESTION 687
The difference between an arithmetic average and a geometric average of returns:
- A. depends on the specific returns being averaged, but is not necessarily sensitive to their variability.
- B. increases as the variability of the returns increases.
- C. increases as the variability of the returns decreases.
Answer: B
NEW QUESTION 688
A lease should be classified as a capital lease if the lease term is substantially equal to the life of the leased property. For the lease term, "substantial" was defined as:
- A. 90% or more of the leased property's estimated economic life
- B. 70% or more of the leased property's estimated economic life
- C. 75% or more of the leased property's estimated economic life
Answer: C
Explanation:
Substantial is defined by FASB as 75% or more of the leased property s estimated economic life.
NEW QUESTION 689
A corporation's free cash flow is its:
- A. Cash flow from operating activities available after basic business obligations have been met.
- B. Cash flow from operating activities that is not subject to income taxes.
- C. Cash flow from operating activities less all cash payments for investing and financing activities.
Answer: A
NEW QUESTION 690
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 691
If you believe that one should buy and sell companies in line with their accounting figures, you should use ______ to measure value of markets.
- A. float-adjusted market-capitalization weighted indices.
- B. price weighted indices.
- C. fundamentally weighted indices.
Answer: C
Explanation:
A key belief behind the fundamental index methodology is that underlying corporate accounting/valuation figures are more accurate estimators of a company's intrinsic value, rather than the listed market value of the company.
NEW QUESTION 692
As the price of a normal product drops, demand
- A. can become either more or less elastic depending on other factors.
- B. becomes more elastic.
- C. becomes more inelastic.
Answer: C
Explanation:
Elasticity falls as you move down along a linear demand curve.
NEW QUESTION 693
The market demand for an item is
- A. the horizontal summation of individual demand curves.
- B. smaller than the sum of individual demands because of competition for the same units.
- C. the vertical summation of individual demand curves.
Answer: A
Explanation:
Market demand is the sum of individual demands. Graphically, it is the horizontal summation of individual demand curves because individual quantities demanded are summed at each possible price.
NEW QUESTION 694
If a given score is at the 30th percentile for reference group A and the 60th percentile for reference group B, which of the following is most likely true?
- A. A person at the 80th percentile with reference group B will be at the 50th percentile with group A
- B. Individuals in reference group B generally scored lower on the test than those in reference group A
- C. A person at the 15th percentile with group A will be at the 30th percentile with group B
Answer: B
NEW QUESTION 695
Which of the following statements is (are) true with respect to insuring a portfolio by way of protective strategy?
I). The strategy requires the sale of put options while owning the underlying asset.
II). If the price of the underlying asset increases dramatically, then an insured portfolio will perform much better than an uninsured portfolio.
III). The cost of portfolio insurance will rise as the volatility of the underlying asset increases.
IV). The upside potential for an insured portfolio is unlimited.
- A. III only.
- B. I and IV.
- C. III and IV.
Answer: C
Explanation:
I is incorrect because this strategy requires the purchase of put options while owning the underlying asset.
II is incorrect because if the price of the underlying asset increases dramatically, then an insured portfolio will under-perform uninsured portfolio. The cause of this under-performance is that fact that an insured portfolio always lags the uninsured portfolio by the amount of the premium.
NEW QUESTION 696
If a 10 percent decline in airfares leads to a 5 percent increase in total expenditures on air travel, the price elasticity of demand for air travel in this range must be
- A. inelastic.
- B. elastic.
- C. 0.5.
Answer: B
Explanation:
Since a price decline led to an increase in total expenditures on air travel, the demand for air travel must be elastic. This is because elastic demand implies that a 10 percent decline in price will lead to a greater than 10 percent increase in demand. Thus, under elastic demand and a price decline, total expenditures are expected to rise.
NEW QUESTION 697
Which one is the most likely reason for a current account surplus?
- A. government deficit.
- B. low private investment.
- C. low private savings.
Answer: B
Explanation:
CA = Sp + Sg - I.
NEW QUESTION 698
The purchase of treasury stock
- A. affects a company's legal capital.
- B. None of these.
- C. increases total stockholders' equity and increases the number of outstanding shares.
Answer: B
Explanation:
The purchase of treasury shares decreases total stockholders' equity. It also decreases the number of outstanding shares but does not affect a company's legal capital.
NEW QUESTION 699
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. 20.59% per year
- C. 22.14% per year
Answer: B
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 700
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CFA CFA-Level-I Exam Syllabus Topics:
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