CFA Level 1 Sample Questions Fully Solved.

The feature of a well-functioning investment industry that gives investors the ability to quickly buy and sell a significant amount of an investment without having a material impact on the price is described as: A liquidity B competitive markets C risk transfer - correct answer A According to fundamental ethical and professional principles applicable to the investment industry, which group should have its interests ranked first? A Clients B Employers C Co-workers - correct answer A Regulators often seek public consultation prior to the implementation of new regulations in order to: A ensure the new rules are favorable to those likely to be affected B educate consumers and service providers on the new rules C improve the final rules by undertaking a cost-benefit analysis - correct answer C A financial advisory firm that implements internal policies regarding information barriers, suitability standards, and restrictions on self-dealing is addressing issues related to which of the following types of regulation? A Sales practices rules B Trading rules C Disclosure rules - correct answer A The best financial statement to use to find information about what a company owns and owes others is called the: A income statement B balance sheet C cash flow statement - correct answer B If two variables do not have a strong (linear) relationship, the correlation coefficient between the two variables will be closest to: A 0 B -1 C +1 - correct answer A In contrast to forward contracts, futures contracts: A trade on organized exchanges B have contract sizes tailored to investor needs C have negotiable expiration dates - correct answer A Which type of private equity strategy is most likely used to finance a start-up company? A Growth equity B Buyout C Venture capital - correct answer C In commercial real estate investment, the amount derived from discounting future cash flows of lease and rental payments plus capital appreciation represents the value of the: A asset B equity C liability - correct answer A The type of bank that is exclusively owned by its members is a: A savings and loan bank B commercial bank C mutual bank - correct answer C A form of pension plan in which the participant has some ability to determine how pension contributions are invested is described as a(n): A defined contribution plan B endowment plan C defined benefit plan - correct answer A An investor attempting to replicate a price-weighted index would hold an equal: A percentage of outstanding shares of each security in the index B amount invested in each security in the index C number of units (shares) of each security in the index - correct answer C From the standpoint of taxes, investors will benefit from: A deferring taxes to the future if tax rates will be higher in the future B realizing gains via stock repurchases as opposed to receiving the same gains as dividends C selling appreciated shares to meet cash needs instead of borrowing against them - correct answer B If a decrease in the selling price of a company's only product results in an increase in the company's total revenue, the demand for the company's product is: A elastic B unit-elastic C inelastic - correct answer A Which of the following actions taken by a central bank is expansionary? A Increasing the reserve requirement B The purchase of government bonds C Increasing its policy rate - correct answer B Which of the following government actions will most likely lead to an increase in the level of aggregate demand? A reduction in: A transfer payments B public spending on social goods and infrastructure C the capital gains tax - correct answer C If Mexico is running a large current account deficit with Canada, which of the following will most likely occur? A Canada will reduce its imports from Mexico B The Mexican peso will depreciate relative to the Canadian dollar C There will be an increase in Canadian exports to Mexico - correct answer B If a company is liquidated, proceeds from asset sales are distributed to common shareholders: A before unsecured debt investor and preferred shareholder, claims are paid B after secured debt investor and preferred shareholder, claims are paid C after preferred shareholder claims are paid but before unsecured debt investor claims are paid - correct answer B Which of the following is not a sovereign bond issue? A State of New York municipal bond B US Treasury note C German bund - correct answer A Which of the following bonds contains an embedded option that provides the issuer certain rights? A Putable bond B Callable bond C Convertible bond - correct answer B At which stage in the trading process is cash exchanged for securities between parties in a given security trade? A Settlement B Confirmation C Clearing - correct answer A A consumer pays off a car loan held by a bank with which he has no other business. Which of the following is the most appropriate document management practice for the bank to follow? A Return all documents to the consumer B Shred all documents related to the transaction C Determine which documents to retain and which to dispose of - correct answer C Diversification will not help reduce a portfolio's: A systematic risk B specific risk C overall risk - correct answer A Compared with passive investment management, active investment management will involve: A tracking a benchmark B market timing C lower transaction costs - correct answer B Which of the following is not a factor to consider in a document classification system? A Direction in which documents flow B Ensuring that all documents are standardized C Source of the document - correct answer B A fund manager's alpha is that part of the fund's return that can be attributed to: (a) the market (b) skill (c) luck - correct answer B Which of the following is considered an institutional investor?