CFA Institute CFA Level I Chartered Financial Analyst

Question 1

If the Fed raises the federal funds rate, aggregate demand ______, real GDP growth ______ and the inflation rate ______.

A. decreases, decreases, decreases.

B. increases, increases, decreases.

C. increases, increases, increases.

Correct Answer: A

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Question 2

Why would a firm use accelerated depreciation for tax purposes and straight-line for financial reporting?

A. This reduces current taxes and increases accounting income.

B. It is required by federal law.

C. This always increases stock price, which always increases management compensation.

Correct Answer: A

Question 3

If the rates for periods 1 through 6 are all 4.25% what is the relationship between the nominal spread and the Z-spread for the 7% 5 year corporate bond and the 6.5% 5 year Treasury bond?

A. the lower the market rates are the greater the spreads

B. the Z-spread is always greater than the nominal spread

C. the spreads are equal when the yield curve is flat

Correct Answer: C

Question 4

In order to calculate a bond's present value we use the

A. current yield.

B. realized yield.

C. yield to maturity.

Correct Answer: C

Question 5

The actual yield to maturity earned at the end of the bond's life may differ from the expected yield to maturity at purchase because of:

A. interest rate risk

B. interest volatility

C. reinvestment rate risk

Correct Answer: C

Question 6

Which of the following statements concerning diversification is incorrect?

A. Diversification can reduce portfolio risk only if the security return correlation is less than 1.0.

B. Proper diversification can eliminate market risk.

C. The primary factor affecting the diversification of a portfolio is each security's covariance with the other securities in the portfolio.

Correct Answer: B

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Question 7

Which of the following will cause aggregate demand to increase?

A. a decrease in the price level

B. an increase in taxes

C. an increase in the money supply

Correct Answer: C

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Question 8

Price increases from 10 to 12 dollars and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?

A. 550.

B. 500.

C. 450.

Correct Answer: C

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Question 9

The British pound sterling has a bid price of $1.4419 and an ask price of $1.4428. What is the bid-ask spread?

A. 0.09%

B. 0.62%

C. 0.062%

Correct Answer: C

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Question 10

For the hypothesis test below, the test value is ______.

A. -0.04

B. -0.577

C. 0.577

Correct Answer: B

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Question 11

This year, Flower Buds expects to pay a dividend of $0.60 per share on the 60,000 shares outstanding. Flower Buds expects to have a payout ratio of 40%. How much income does Flower Buds expect to earn?

A. $60,000

B. $90,000

C. $14,400

Correct Answer: B

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Question 12

Regarding the reversals of impairments of long-lived assets,

A. The US GAAP allows the loss to be reversed if the asset is categorized as held for use.

B. The IFRS allows the loss to be reversed regardless of whether the asset is held for use or sale.

C. The US GAAP disallows the loss to be reversed if the asset is categorized as held for sale.

Correct Answer: B

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Question 13

A firm made donations of $50,000 this year. The donations were expensed for financial reporting purposes but not allowed so for tax purposes. The tax base and carrying amount of this item are:

A. $0 | $0.

B. $50,000 | $0.

C. $0 | $50,000.

Correct Answer: A

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Question 14

The arbitrage free valuation approach uses the __________ on a __________ to discount each cash flow of a bond.

A. spot rates; zero coupon bond of equal maturity

B. individual discount rates; premium bond

C. weighted discount rate; bond of equal maturity

Correct Answer: A

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CFA Institute CFA Level I Chartered Financial Analyst - CFA-Level-I Exam Practice Test

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