Unique Top-selling CFA-Level-I Exams - New 2021 CFA Pratice Exam
CFA Level Dumps CFA-Level-I Exam for Full Questions - Exam Study Guide
NEW QUESTION 67
If a firm's ratio of "current assets to current liabilities" is lower than the industry average and its ratio of "long-term debt to shareholder's equity" is lower than the industry average, it would most likely indicate that the firm:
- A. has more current liabilities than the industry average.
- B. has more leased assets than the industry average.
- C. will be less profitable than the industry average.
Answer: A
Explanation:
A firm's liquidity can be measured by the long term debt to capital ratio = total long term debt
/ total long term capital, if a firm has a higher ratio than the industry it is taking on more debt than the average. Another measurement of a firm's liquidity is the current ratio = current assets / current liabilities, if a firm has a low current ratio it is taking on more debt. Long term debt to shareholders equity is measured by using the debt to equity ratio, a higher percentage means that the firm is indeed taking on more debt than the industry.
NEW QUESTION 68
Followers of technical analysis believe ALL of the following EXCEPT
- A. new information arrives randomly in the market.
- B. it is important to move quickly or be one of the first to exploit trading opportunities.
- C. there is no need to conduct fundamental analysis.
Answer: A
Explanation:
Technical analysts believe that information does not arrive randomly and the market takes time to process it. With serial correlation in new information, trends develop that can be exploited. A trader does not have to be the first one to jump into the market as the price trend tells the trader which way the market is headed.
NEW QUESTION 69
Which of the following statements is false?
- A. The optimal capital structure is where a value-maximizing firm wants to be, a long run objective.
- B. The optimal capital structure is that mixed of debt and equity (common and preferred stock) that maximizes the firm value.
- C. A value-maximizing firm will never have a capital structure different from the optimal capital structure.
Answer: C
Explanation:
Short-term deviations from the target capital structure are not uncommon and can be cause by fluctuations in interest rates and stock prices. Firms would typically adjust somewhat slowly to those target levels.
NEW QUESTION 70
Which of the following is correct about a probability distribution?
I). Sum of the probabilities of all possible outcomes must equal 1
II). Probability of each outcome must be between 0 and 1 inclusive
III). Outcomes must be mutually exclusive
- A. I and II.
- B. I and III.
- C. I, II and III.
Answer: C
Explanation:
All describes properties of a probability distribution.
NEW QUESTION 71
A project has a conventional cash flow pattern and positive NPV. If the cash flows for the project, initial outlay, and future after-tax cash flows all double, then
- A. The IRR would increase and NPV would increase.
- B. The IRR would stay the same and NPV would increase.
- C. The IRR would stay the same and NPV would stay the same.
Answer: B
Explanation:
The IRR would stay the same because the return on each dollar invested remains the same.
The NPV would increase since the difference between total present value of the future cash flows and the initial outlay also doubles.
NEW QUESTION 72
The gains from trade for consumers are measured by
- A. producer surplus.
- B. consumer surplus.
- C. external benefits.
Answer: B
NEW QUESTION 73
If you observe that number of building permits has increased steadily over the past 2 quarters, it is highly likely that an upturn:
- A. will occur sometime into the future.
- B. is just about to occur.
- C. has occurred.
Answer: A
Explanation:
This gauge is a leading indicator. It foretells new construction activity.
NEW QUESTION 74
The two general types of random variables are
- A. binomial and Poisson.
- B. discrete and continuous.
- C. Poisson and continuous.
Answer: B
NEW QUESTION 75
Which of the following most accurately measures interest rate sensitivity for bonds with embedded options?
- A. Effective duration.
- B. Macaulay duration.
- C. Convexity.
Answer: A
NEW QUESTION 76
The mean return in 1999 for a stock mutual fund of large companies was 7.2% with and the mean return for a risk-free bond was 1.0 %. If the Sharpe measure for the mutual fund is 0.50, what is the standard deviation or risk of the stock mutual fund?
- A. 16.4
- B. 12.4
- C. 3.2
Answer: B
Explanation:
(7.2 - 1 ) / 0.5 = 12.4
NEW QUESTION 77
As sample size increases,
- A. Degrees of freedom decrease.
- B. Critical values for t decrease.
- C. Confidence interval width increases.
Answer: B
Explanation:
As sample size increases, degrees of freedom increase and critical values for t decrease.
Thus, the amount added to or subtracted from the sample mean to create the confidence interval will decrease. Therefore, confidence interval width will be decrease.
NEW QUESTION 78
Of the following statements:
I). The level of significance of a hypothesis test is the probability of rejecting the null hypothesis when it is actually true.
II). Type II error is failing to reject the null hypothesis when it is actually false.
- A. I and II are true
- B. Only I is true
- C. Only II is true
Answer: A
NEW QUESTION 79
Multiple IRR are likely to appear when:
- A. the cost of capital equals the interest rate.
- B. the cost of capital is less than the modified IRR, or the cash flows of the project are large in magnitude.
- C. the cash flows change sign several times during the life of the project.
Answer: C
Explanation:
Multiple IRRs appear when the cash flows are non-normal. Non-normal cash flows occur when negative net cash flows occur during some year after the project has been placed in operation.
NEW QUESTION 80
If the Fed wants to fight inflation, it should:
I). lower the federal funds rate target.
II). raise the federal funds rate target.
III). increase the supply of money.
IV). decrease the supply of money.
- A. I and IV.
- B. II and IV.
- C. II and III.
Answer: B
Explanation:
Raising the federal funds rate target will decrease the supply of money.
NEW QUESTION 81
As the futures contract approaches maturity, a commodity will trade at lower and lower prices to finally meet the future spot price. This situation is called:
- A. Contango.
- B. Backwardation.
- C. Full Carry.
Answer: B
Explanation:
Contango is the situation where the future contract price is higher than the spot price for a commodity.
NEW QUESTION 82
Forest Glen Furniture Company has the following ratios: Days accounts payable outstanding, 55; days inventory held, 50; days receivable outstanding, 65. Which one of the following is the correct number of days that cash inflows and outflows are mismatched (i.e. the cash cycle)?
- A. 60 days
- B. 70 days
- C. 50 days
Answer: A
Explanation:
The correct computation is 65 + 50 - 55 equals 60 days. This means that Forest Glen must pay its suppliers 60 days before it collects cash from its customers.
NEW QUESTION 83
Which of the following would cause the price of a put option to increase?
I). An increase in the price of the underlying security.
II). An increase in the exercise price.
III). An increase in the volatility of the underlying security.
- A. II and III.
- B. I and III.
- C. II only.
Answer: A
NEW QUESTION 84
Assume the nominal exchange rate (CA$/US$) increases by 10%, the inflation rate in Canada is 2%, and the inflation rate in the U.S. is 5%. The change in the real exchange rate is then:
- A. 13%.
- B. 7%.
- C. 3%.
Answer: A
Explanation:
(1 + 10%) x (1+5%)/(1 + 2%) - 1 = 13%.
NEW QUESTION 85
Which of the following Treasury issues are quoted on the basis of yield in the Wall Street Journal?
- A. Treasury notes.
- B. Treasury bonds.
- C. Treasury bills.
Answer: C
Explanation:
Treasury bills are quoted on the basis of yield and discount while the other two are quoted by their price as a percentage of par value.
NEW QUESTION 86
Which bond has the longest duration?
- A. 8-year maturity, 6% coupon
- B. 15-year maturity, 6% coupon
- C. 15-year maturity, 11% coupon
Answer: B
NEW QUESTION 87
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