[2022] Use Valid CFA-Level-I Exam - Actual Exam Question & Answer
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NEW QUESTION 908
Assuming all other factors remain unchanged, which one of the following would reduce a firm's price/earnings ratio?
- A. Investors become less risk averse.
- B. The dividend payout ratio increases.
- C. The yield on Treasury bills increases.
Answer: C
NEW QUESTION 909
A front-end load mutual fund with a net asset value of $12.04 is being offer to investors at $12.35. The fund load would be closest to:
- A. 2.57%
- B. 2.45%
- C. 2.51%
Answer: C
Explanation:
NAV = Offering price x (1 - load) ==> load = 1 - (NAV/Offering price) = 1 - ($12.04/$12.35) =
2 .51%
NEW QUESTION 910
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. $2.5843
- B. $1.3481
- C. $1.6563
Answer: C
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 911
In a common-size statement, the balance sheet is expressed as a percentage of ____________ while the income statement is expressed as a percentage of ____________.
- A. liabilities plus equity; sales
- B. liabilities plus equity; net income
- C. assets; net income
Answer: A
NEW QUESTION 912
Asset revaluation can improve:
I). leverage such as asset/debt ratio.
II). profitability such as ROE
III). cash flows such as CFO.
- A. II only.
- B. I and II.
- C. I, II and III.
Answer: B
NEW QUESTION 913
Which statement is true?
I). Companies try to get funding for their projects as all of them are worth funding.
II). In financial markets savers determine which projects obtain capital and which projects don't.
- A. Neither is true.
- B. I only.
- C. II only.
Answer: C
Explanation:
I is false. Not all of these projects are worth funding. The financial system makes sure that only the best projects obtain scarce capital funds. II is true. Savers determine capital allocation directly by choosing which securities they will invest in. They will buy those equities that they believe have the best prospects relative to their prices and risks.
NEW QUESTION 914
Lee sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a finance lease. According to IFRS, at the time of the sale, the gain should be reported as:
- A. a deferred gain.
- B. operating income.
- C. an extraordinary item, net of income tax.
Answer: B
Explanation:
Gains on finance leases should be recognized immediately.
NEW QUESTION 915
The industry demand curve in an oligopoly market
- A. is more elastic than the demand curve facing an individual oligopolistic firm.
- B. has the same elasticity as the demand curve facing an individual oligopolistic firm.
- C. is more inelastic than the demand curve facing an individual oligopolistic firm.
Answer: C
Explanation:
If an oligopolistic firm changes price alone, the response will be much stronger than the response to the same price change when all of the firm's rivals make the same move. The industry demand curve is relatively inelastic in comparison to the demand curve one firm faces when none of its rivals change price. That is how cheating on collusive agreements pays off, i.e. one firm gains by cutting price because the other firms have not cut price.
NEW QUESTION 916
Given a required return of 5.5%, the value of an option-free, 10%, semi-annual pay bond with 12 years to maturity is $1,391.52. An option pricing model is used to determine the value of the option to call this bond after the fifth year. The model-predicted value of the call option is $35.21. If the option-free bond was callable, its predicted value would be:
- A. $1,426.73
- B. $1,139.52
- C. $1,356.31
Answer: C
Explanation:
The value of a callable bond is less than the value of a similarly defined option-free bond by the value of the embedded call option.
NEW QUESTION 917
Which of the following is not included in investing activities?
- A. collection of the principal on a loan made to others
- B. purchases and sales of property, plant, and equipment
- C. repayment of the principal on a loan borrowed from others
Answer: C
Explanation:
Repayment of the principal on a loan borrowed from others is a financing activity.
NEW QUESTION 918
______ ADRs are intended to be purchased by qualified institutional buyers only.
- A. Level III.
- B. Level II.
- C. Rule 144A
Answer: C
Explanation:
Rule 144A ADRs are used to raise money from private institutional buyers.
NEW QUESTION 919
Consider the following information about a fund. The fund has been in existence for 3 years. Over this period it has achieved a mean monthly return of 3% with a sample standard deviation of monthly returns of 5%. It was expected to earn a 2.5% mean monthly return over the 3-year period.
You want to test a claim that the investment disciplines of the fund result in a standard deviation of monthly returns of less than 6%.
At the 0.05 level of significance:
- A. we do not reject the null hypothesis.
- B. we reject the alternative hypothesis.
- C. we are unable to make a decision.
Answer: A
Explanation:
At the 0.05 level of significance we reject the null hypothesis.
2 2 2 2 2
x = [(n - 1) s ] /o = 35 x 5 /6 = 24.306.
0
2
On the table at 35 degrees of freedom under the 0.95 column, we find the x value. We use 50 since there is no value for 35. At 50 the value is 34.764.
We will fail to reject the null if we find that chi-square is less than 34.764. 24.306 is less than 34.764, so we fail to reject the null hypothesis.
NEW QUESTION 920
Assume the following information about an equally-weighted index comprised of 3 stocks, A, B and C
Security | Price (Beginning) | Price (End) | Total Dividends A | 5 | 6 | 1 B | 8| 7 | 0 C | 10 | 15 | 2
The price return of the index is:
- A. 32.5%.
- B. 19.2%.
- C. 18.8%.
Answer: B
Explanation:
The price return of A: (6-5) / 5 = 20%. The price return of B: (7-8) / 8 = -12.5%. The price return of C: (15 - 10)/10 = 50%. Since the index is equally weighted, the price of the index is (1/3) 20% +
(1/3) (-12.5%) + (1/3) 50% = 19.2%.
NEW QUESTION 921
Consider bond XYZ with a duration of 6.33. Suppose that the market value of this bond is $3 million.
The approximate dollar price change for a 100 basis point change in yield is
- A. $189,900.
- B. $200,500.
- C. $143,987.
Answer: A
Explanation:
6.33% x $3 million = $189,900
NEW QUESTION 922
A company is in breach of a covenant in the lending facility if the interest coverage ratio,
EBITDA/Interest , falls below 3. You forecast interest of $30 million. You estimate EBITDA to be between
$ 50 and $75 million. Assume the outcomes for EBITDA are equally likely, what is the probability that the coverage ratio will fall below 1.8?
- A. 12%.
- B. 15%.
- C. 16%.
Answer: C
Explanation:
You forecast interest of $30 million. You estimate EBITDA to be between $50 and $75 million. Assume the outcomes for EBITDA are equally likely, the probability is 16%, and the coverage ratio will fall below 1.8.
EBITDA/Interest is a continuous uniform random variable because all outcomes are equally likely. The coverage ratio can have a range of values as follows:
EBITDA/Interest = 50/30 = 1.667 and, EBITDA/Interest = 75/30 = 2.5. Range = 2.5 - 1.667 = 0.833. The distance between 1.8 and 1.667 is 0.133. The value of 0.133 as a percentage of 0.833 is 0.133/0.833 =
0 .16 = 16%.
NEW QUESTION 923
Which of the following is not a valid reason for selecting a sample instead of studying the whole population?
- A. Sample results have more accuracy than population results
- B. Population can be destroyed in the process of studying it
- C. Cost of studying an entire population can be too high, or study of the population can be too time consuming
Answer: A
Explanation:
Sample results cannot be more accurate since it is based on a subset of the population.
NEW QUESTION 924
Olivia Hernandez's clients have substantial holdings of US consumer goods manufacturer PXG Ltd.
PXG has sales primarily in North America and Europe. Hernandez reviews research reports about the dollars euro exchange rate, which mostly predict that the dollar will get more expensive thus hurting
PXG's exports to Europe . She speaks with representatives of PXG and visits PXG factories where she meets production managers. Finally she visits retailers where she learns that over the last month many customers have expressed their dissatisfaction with PXG products. After reviewing her information,
Hernandez sells her clients' PXG holdings.
- A. Hernandez has violated Standard II (A) Material Nonpublic Information by using information she received from PXG's representatives and production managers.
- B. Hernandez has violated Standard III (C) Suitability by having a substantial portion of her client's wealth invested in PXG
- C. Hernandez has not violated the Standards.
Answer: C
NEW QUESTION 925
The beta is the slope of ______.
- A. security market line.
- B. capital market line.
- C. security characteristic line.
Answer: C
Explanation:
The SCL is a plot of the excess return of the security on the excess return of the market. The beta is its slope.
NEW QUESTION 926
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