CFA-LEVEL-1 Online Practice Questions and Answers

Neeson Pacino is the senior vice president in the corporate finance arm of Hindenberry Brokerage. Neeson was recently approached by Curare Creators, a pesticide manufacturer. Curare would like to offer new equity to raise capital and has provided Neeson with its current balance sheet and details about the pending projects. Neeson carefully goes over the numbers with a couple of project managersat Curare and also two of his analysts at Hindenberry. He concludes from these discussions that the numbers presented by Curare are overly optimistic. The revised numbers would seriously lower the offering price. Not relishing this prospect, Neeson decides to go ahead with the numbers as drawn up by Curare and directs the department to prepare the IPO with the offering price. Neeson has

A. violated Standard IV (A.1) - Reasonable Basis and Representations.

B. violated Standard IV (B.3) - Fair Dealing.

C. violated Standard IV (B.1) - Fiduciary Duties.

D. violated Standard II (B) - Duty to the Employer.

To fulfill the duty to inform their employer that they must follow AIMR's Code and Standard, members must:

A. inform their immediate supervisor in writing.

B. inform their immediate supervisor either orally or in writing.

C. inform the firm's chief executive officer in writing.

D. inform the firm's chief executive officer either orally or in writing.

You are running a year-end bonus pool for your top credit analysts. You have 10 analysts, and you wish to recognize the top 3. How many different possible outcomes are there, if all three get the same bonus? How many different outcomes are there if the top analyst gets 50% of the bonus pool, the second best analyst gets 30%, and the third best gets 20%?

A. 720; 720.

B. 720; 120.

C. 120; 720.

D. 120; 120.

Which of the following is the formula for the covariance between X and Y?

A. (X - E(X))*(Y - E(Y)).

B. E[(X - E(X))*(Y - E(Y))].

C. E[(X + E(X))*(Y + E(Y))].

D. E[XY - E(XY)].

The expected value of Y is 9 and the expected value of X is 3. If X and Y are uncorrelated and you run a regression of Y against X, the intercept term will equal ________.

A. 9

B. 0

C. none of these answers

D. 3

In a period of rising prices, the inventory method that gives the highest possible value for ending inventory is:

A. weighted average

B. FIFO

C. LIFO

D. gross profit

An analyst uses a temporary supernormal growth model to value a common stock. The company paid a $2 dividend last year. The analyst expects dividends to grow at 15% each year for the next three years and then to resume a normal rate of 7% per year indefinitely. The analyst estimates that investors require a 12% return on the stock. The value of this common stock is closest to:

A. $48.

B. $53.

C. $71.

As a general rule, the capital structure that

A. Minimizes the required rate on equity also maximizes the stock price.

B. Maximizes the price per share of common stock also minimizes the weighted average cost of capital.

C. Maximizes expected EPS also maximize the price per share of common stock.

D. None of these are correct.

E. Minimizes the interest rate on debt also maximizes the expected EPS.