Financial Institute CFA Level I Chartered Analyst® CFA Level 1 Exam Questions in PDF

Free Financial CFA Level 1 Dumps Questions (page: 93)

When creating composites, ________ returns must not be mixed with asset-plus-cash returns.

  1. model
  2. portfolio
  3. asset-only
  4. cash
  5. performance

Answer(s): C

Explanation:

To be in compliance with the PPS, a firm creating a composite must meet this requirement.



Smirlee Montero is a fixed income analyst at a small investment firm. She has been studying the subject of "Body Language" in order to gauge the effectiveness of reading into the dispositions of people. Based on her own empirical tests carried out over the past two years involving 64 different subjects, she has concluded that during the meetings with analysts, a senior management official is usually more excited and waves hands quite often when the information like earnings report (which is released a couple of days later) is very favorable. On the other hand, if the earnings are short of expectations, the official tends to be sober and appears more introspective. There are other body signs which she uses to evaluate possible signals about the quality of information that is pending. In a recent meeting with Chronotron, Inc.'s quarterly analyst meeting, she concluded using her technique that Chronotron's earnings are very likely much lower than projected earlier. This information was not actually released in the meeting whose main focus was on the company's plans for the next quarter. In her report, Smirlee presented a detailed analysis of the publicly available information which supported her hunch and wrote, "Based on this and certain other observations, it is my opinion that Chronotron's is not doing as well as we earlier estimated. Therefore, I would recommend selling this stock before the firm releases its earnings numbers." Smirlee has:

  1. violated Standard IV (1) - Reasonable Basis and Representations by using a non-conventional and controversial technique.
  2. violated Standard IV (A.2) - Research Reports by failing to distinguishing between fact and opinion.
  3. violated Standard V (A) - Prohibition against use of Material, Non-Public Information.
  4. has not violated any Standards.

Answer(s): D

Explanation:

There is no evidence that in her report, Smirlee has tried to pass off an opinion as fact. While her new technique is unconventional, using it would not be a violation of Standard IV (A.1) only if used in isolation. Since she has diligently analyzed public information on Chronotron, she cannot be accused of not having a reasonable basis for recommendation. The AIMR Standard of Ethics do not prohibit a use of new techniques but rather encourage tempering them with more orthodox analysis.



What simple annual interest rate would cause a $200 deposit to earn $15 interest in one year?

  1. 5.00%
  2. 12.50%
  3. 10.25%
  4. 7.5%
  5. 6.67%

Answer(s): D

Explanation:

To solve this question, rearrange the simple interest formula I=PRT to isolate R. On the BAII Plus, press 15 divide 200 divide 1 = to see the answer. On the HP12C, press 15 ENTER 200 divide 1 divide to see the answer.
Note that the final division by 1 (which is the time T in this question) is not necessary.



What percent of the observations will lie above the mean plus two standard deviations?

  1. 5%
  2. 68%
  3. 2.5%
  4. None of these answers
  5. 95%

Answer(s): C

Explanation:

95% of the observations lie between plus and minus two standard deviations from the mean. Therefore, 2.5% lie over and above two standard deviations on each side of the mean.



Given the following points: (-2, 0), (-1,0), (0,1), (1, 1) and (2, 3)

What is the critical value necessary to determine a confidence interval for a 90% level of confidence?

  1. 1.638
  2. 1.533
  3. None of these answers
  4. 2.132
  5. 2.353

Answer(s): E

Explanation:

Look at the t tables for n-2 degrees of freedom at the 10% level. Here, we look for a two tailed test with 5-2 = 3 degrees of freedom. This is 2.353.



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