CFA-Level-I by CFA Actual Free Exam Questions And Answers [UPDATED 2024]
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NEW QUESTION # 681
Taylor Corporation purchased a new asset for $80,000. The asset had an estimated life of 5 years and an estimated salvage value of $20,000. What is the depreciation expense for the second year if the company uses the straight-line method?
- A. $14,440
- B. $12,000
- C. $16,000
Answer: B
Explanation:
Depreciation expense each year for five years would be $12,000 [($80,000 - $20,000)/5].
NEW QUESTION # 682
A portfolio manager who does not have access to superior analysts should focus on:
- A. minimizing turnover, transactions costs and taxes, and maintaining a specified risk level
- B. stocks with a low book value to market value ratio
- C. exploiting the known market anomalies such as calendar effects
Answer: A
Explanation:
In this case the portfolio manager must invest as if the markets were efficient. Thus, diversification, cost control, and tax management are the guiding principles to be followed.
NEW QUESTION # 683
Under the P/E method derived from the DDM, which of the following does not impact the P/E ratio?
I). the expected divided payout ratio.
II). the required rate of return.
III). the expected growth rate of dividends.
- A. None of these.
- B. I and III.
- C. II only.
Answer: A
Explanation:
All of them impact the P/E ratio: P/E1 = (D1/E1)/(k - g)
NEW QUESTION # 684
An asset that is plotted above the security market line (SML) is
- A. either over priced, correctly priced, or under priced.
- B. under priced.
- C. over priced.
Answer: B
Explanation:
An asset that is plotted above the security market line (SML) is under priced because the expected rate of return on the security would be higher than that dictated by the beta of the stock. Its risk is too low to justify the high return.
NEW QUESTION # 685
You are analyzing a consumer products firm. The management of the firm is considered to be fairly conservative. Which of the following would you likely observe?
- A. The firm's optimal debt ratio is greater than the target debt ratio.
- B. The firm will have little or no unshielded taxable income.
- C. The firm will have little financial flexibility.
Answer: A
Explanation:
If the management is fairly conservative, then they will likely have not shielded much of their taxable income and not used much of their financial flexibility. The optimal debt to equity ratio is likely to be greater than the management set target debt to equity ratio.
NEW QUESTION # 686
A venture capital investment is expected to yield of payoff of $100 million in five years if it survives.
The initial cost is $20 million and the appropriate discount rate is 20%. What is the average annual probability of failure that makes the investment's NPV = 0? In other words, what is the maximum annual average probability of failure before the investment is not acceptable?
- A. 13%
- B. 17%
- C. 20%
Answer: A
Explanation:
The NPV is equal to zero when: Discounted expected payoff = Initial cost
[(1 - Average prob)5 $100 million] / (1.20)5 = $20 million Average annual probability = 0.1303, or 13%
NEW QUESTION # 687
If John quits his job to find a new job in a different city, John is considered
- A. frictionally unemployed.
- B. structurally unemployed.
- C. naturally unemployed.
Answer: A
Explanation:
This is an example of frictional unemployment, the portion of unemployment attributable to the normal workings of the economy. It differs from structural and cyclical unemployment.
NEW QUESTION # 688
What is the value of a zero-coupon bond that pays $1,000 in five years if the market rate for this security is 7%?
- A. $ 712.99
- B. $ 708.92
- C. $ 735.43
Answer: B
Explanation:
The present value of a payment received n years hence is given by:
n
PV = FV / (1 + R)
where: PV = present value, FV = future value, R = discount rate per period, n = # of periods
Therefore, the value of this bond is:
5 x 2
PV = $ 1,000 / [1 + (0.07/2)] = $708.92.
Note that the semi-annual compounding should be assumed if not specified.
NEW QUESTION # 689
A security is trading at a price of 35.68. An investor places an order to buy the security once the price reaches 35.95. This is a
- A. stop-limit order.
- B. limit-buy order.
- C. stop-buy order.
Answer: C
Explanation:
A stop-buy order is placed above the current price. A limit-buy order is placed below the current price.
NEW QUESTION # 690
Which statement is FALSE?
- A. The welfare loss suffered by the importing country is generally greater with a quota than with an import tariff.
- B. A VER has the same impact on the importing country as an import quota.
- C. The welfare loss caused by an export subsidy is greater for a small country than for a large country.
Answer: C
Explanation:
A is true - The tax revenue that would be raised by the equivalent tariff is instead captured by foreign producers as quota rents.
B is also true - In both cases foreign producers capture all of the quota rents.
C is false - In the large country case, the world price declines as the large country increases exports. The decline in world prices implies that a part of the subsidy is transferred from large country to the foreign country.
NEW QUESTION # 691
A 30-day T-Bill is selling at a money market yield of 2.95%. What is its equivalent bank discount yield?
- A. 2.97%
- B. 2.95%
- C. 2.94%
Answer: C
Explanation:
Based on money market yield:0.0295 = [(100,000 - P)/P] x (360/30) => P =
1 00,000/[1+0.0295/12] = 99,754.8
Bank discount yield = [(100,000 - 99,754.8)/100,000] x (360/30) = 0.0294, or 2.94%.
NEW QUESTION # 692
Which of the following statements regarding the weighted average cost of capital formula is false?
- A. It requires knowledge of the required return on the firm if it is all-equity financed
- B. It assumes the project is a carbon copy of the firm
- C. It can be used to take account of issue costs and other such financing side effects
Answer: B
NEW QUESTION # 693
Which of the following statements concerning the calculation and reporting of fully-diluted earnings per share is correct?
- A. Firms are required to report fully-diluted EPS only if it differs from simple EPS by more than 5%.
- B. If some individual common stock equivalents are dilutive and others are antidilutive, their net effect should be included in the EPS calculation only if it is dilutive.
- C. If any individual common stock equivalent is antidilutive, it should be excluded from the EPS calculation.
Answer: C
NEW QUESTION # 694
When the average product is greater than the marginal product, then the average product is
- A. falling.
- B. not changing.
- C. rising.
Answer: A
NEW QUESTION # 695
An individual has a 10% probability of suffering from a headache when he has a cold versus 1% when he does not have a cold. If the individual has a probability of developing a cold equal to 5%, what is the probability that this individual suffers from a headache?
- A. 1.45%
- B. 2.23%
- C. 11%
Answer: A
Explanation:
Assume event A is the event in which the individual suffers from a headache. Using the Total
Probability Rule, P(A) = 0.1 x 0.05 + 0.01 x 0.95 = 1.45%.
NEW QUESTION # 696
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