CFA-LEVEL-1 Online Practice Questions and Answers

Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

A. Supervisors

B. Employers

C. Employees

D. the Investing Public

E. None of these answers

Giorgio offers the person who purchases an 8 ounce bottle of Allure two free gifts, either an umbrella, a 1 ounce bottle of Midnight, a feminine shaving kit, a raincoat or a pair of rain boots. If you purchased Allure what is the probability you selected at random an umbrella and a shaving kit in that order?

A. None of these answers

B. 0.00

C. 0.20

D. 0.05

E. 1.00

When a marketable security's classification is changed, which of the following apply?

I. The transfer is accounted for at the amortized historical cost of the security.

II. The change in the fair value of the security is reported as part of the income statement.

III.

The switch in classification is at management's discretion.

A.

I and II

B.

I, II and III

C.

III only

D.

I and III

When the Percentage of Sales method is used, the estimated bad debt expense is calculated by

A. dividing total sales on account by the percentage

B. subtracting the percentage of net sales on account from the balance of allowance for uncollectible accounts

C. multiplying total sales on account times the percentage

D. multiplying net sales on account times the percentage

Monte Carlo simulation

A. All of the answers are correct.

B. Is capable of using probability distributions for variables as input data instead of a single numerical estimate for each variable.

C. Produces both an expected NPV (or IRR) and a measure of the riskiness of the NPV or IRR.

D. None of the answers are correct.

E. Can be useful for estimating a project's stand-alone risk.

As the capital budgeting director for Chapel Hill Coffins Company, you are evaluating construction of a new plant. The plant has a net cost of $5 million in Year 0 (today), and it will provide net cash inflows of $1 million at the end of Year 1, $1.5 million at the end of Year 2, and $2 million at the end of Years 3 through

5. Within what range is the plant's IRR?

A. 17 - 18%

B. 15 - 16%

C. 18 - 19%

D. 14 - 15%

E. 16 - 17%

As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: YearProject XProject Z 0-$100,000-$100,000 150,000 10,000 240,000 30,000 330,000 40,000 410,000 60,000 If Denver's cost of capital is 15 percent, which project would you choose?

A. Project Z, since it has the higher NPV.

B. Project X, since it has the higher NPV.

C. Neither project.

D. Project X, since it has the higher IRR.

E. Project Z, since it has the higher IRR.

Intelligent Semiconductor is considering issuing additional common stock. The firm has an after-tax cost of debt of 8.55%, with the yield to maturity on the firm's outstanding senior long-term debt at 13%. The company's combined federal/state income tax is 35%. The risk-free rate of return is 5.6%, and the annual return on the broadest market index is expected to be 13.5%. Shares of Intelligent Semiconductor have a historical beta of 1.6, and in the past, the firm has assumed a 265 basis point risk premium when calculating the cost of equity. The firm's next dividend is expected to be $0.50 per share, and the dividend has been growing at a 12% annual rate. Finally, the firm's common stock is priced at $24.78. What is the cost of equity for this firm using the Dividend-Yield-plus-Growth-Rate, or Discounted Cash Flow (DCF) approach?

A. 18.24%

B. The cost of equity using the DCF approach cannot be calculated from the information provided.

C. 16.15%

D. 14.02%

E. 15.65%

F. 11.20%

Chuck Hill, CFA, is explaining an efficient frontier analysis to one of his clients. Which of Hill's following statements regarding the efficient frontier is correct?

A. The left endpoint of the efficient frontier is represented by the portfolio with the lowest level of risk.

B. Portfolios that are further to the right on the efficient frontier dominate portfolios that are to the left.

C. Only efficient assets are on the efficient frontier.

The infinite period ________ model assumes that k is greater than g.

A. growth

B. SP

C. Dividend Discount Model

D. valuation