CFA-LEVEL-1 Online Practice Questions and Answers

Which of the following can be found in Standard II?

A. Members shall not participate in plagiarism.

B. Members shall maintain appropriate records to support the reasonableness of recommendations.

C. Members shall maintain knowledge of and comply with all applicable laws.

D. Members shall not undertake any independent practice in competition with employer without written consent.

E. Members shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty.

The Prudent Man Rule, as it was originally written, was clearly oriented towards ________.

A. charitable organizations

B. public pension plans

C. individual clients

D. personal trust accounts E. endowments

Standard IV (B.3) - Fair Dealing requires AIMR members to treat all clients and prospects fairly when disseminating investment information or recommendation. Which of the following is/are implied by this?

I. All clients and prospects must be treated equally i.e. the investment recommendation should be disseminated to all the clients without prejudice.

II. Amongst the eligible clients, no favoritism should be shown i.e. small investors should be treated the same as large investors.

III.

All eligible clients must be informed about new opportunities simultaneously.

A.

I and II only

B.

II and III only

C.

II only

D.

I, II and III

Amartya is currently managing the investment fund for a charitable institution and has his fiduciary duties bound by the UMIFA (Uniform Management of Institutional Funds) rules. His colleague, Bhagwati, is a trustee of a personal trust fund set up by the late R. D. Tata, a famous industrialist. Which of the following is/are true about this situation?

I. Amartya's behavior as a trustee is governed by the "Prudent Man Rule."

II. Bhagwati is held to a standard of ordinary business care.

III.

In general, Amartya is held to a lower standard of professional conduct than Bhagwati.

A.

III only

B.

I and II only

C.

I, II and III

D.

I only

You are examining a group of 6 stocks within an industry. The industry average profit margin is expected to be 30%. For these stocks, the average profit margins have been 50%, 25%, 15%, 5%, 45%, and 30%. What is the mean absolute deviation of profit margins from the industry average?

A. 13.3%.

B. 13.7%.

C. 13.5%.

D. 13.0%.

Which of the following is NOT a change in accounting?

A. Change in accounting principle

B. Change in past accounting error

C. Changing in accounts reporting entity

D. Changing in accounting estimate

Two newly hired fixed income analysts are debating the merits of federal agency backed mortgage securities, specifically mortgage passthroughs and collateralized mortgage obligations (CMOs). Analyst A and Analyst B make the following statements: Analyst A:Investors in mortgage pass-through securities backed by one mortgage pool have equal exposure to prepayment risk, whereas investors in the CMOs of one pool have different exposures to prepayment risk. Analyst B:Investors in CMOs have greater protection against default risk than investors in mortgage pass-through securities due to additional credit enhancement-Identify whether the statements of each analyst are correct or incorrect.

A. Only Analyst A is correct.

B. Only Analyst B is correct.

C. Neither analyst is correct.

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. What is the firm's cost of newly issued common stock?

A. 16.5%

B. 18.0%

C. 10.0%

D. 12.5%

E. 15.5%

Suppose the firm's WACC is stated in nominal terms, but the project's expected cash flows are expressed in real dollars. In this situation, other things held constant, the calculated NPV would

A. possibly have a bias, but it could be upward or downward.

B. more information is needed; otherwise, we can make no reasonable statement.

C. be biased upward.

D. be biased downward.

E. be correct.

The date on which a firm's directors issue a statement declaring a dividend is known as ________.

A. Ex-Dividend Date

B. Declaration Date

C. Payment Date

D. Dividend Date

E. Holder-of-Record Date