CFA Level I Practice Exam Questions and Answers, Exams of Accounting

Download CFA Level I Practice Exam Questions and Answers and more Exams Accounting in PDF only on Docsity!

CFA LEVEL I

9 Key Areas

PRACTICE EXAM

150 Qns & Ans

1. John Smith is a portfolio manager at ABC Investment Management, a firm that follows the CFA Institute Code of Ethics and Standards of Professional Conduct. He is responsible for managing the portfolios of several high-net- worth clients, including his brother-in-law, Peter Jones. Smith has a discretionary authority over Jones' portfolio and does not charge him any fees for his services. Smith also does not disclose this arrangement to his employer or his other clients. Which of the following statements is most accurate regarding Smith's actions? A) Smith is violating the Standard of Loyalty, Prudence, and Care by not charging Jones any fees. B) Smith is violating the Standard of Fair Dealing by giving preferential treatment to Jones. C) Smith is violating the Standard of Disclosure of Conflicts to Employer by not informing his employer of his relationship with Jones. D) Smith is violating the Standard of Disclosure of Conflicts to Clients by not informing his other clients of his relationship with Jones. Rationale: Smith is violating the Standard of Disclosure of Conflicts to Clients by not disclosing his relationship with Jones to his other clients, who may perceive this as a potential conflict of interest that could compromise Smith's objectivity and fairness. Smith should either terminate his relationship with Jones or obtain written consent from his other clients after disclosing the nature and scope of his arrangement with Jones.

Management, a firm that offers comprehensive financial planning services to its clients. Brown has recently completed the CFA Program and has received his charter. He wants to use his new credential to attract more clients and increase his income. He decides to advertise his services as a CFA charterholder in the local newspaper, social media, and his website. He also claims that he can help his clients achieve superior returns by applying the knowledge and skills he gained from the CFA Program. Which of the following statements is most accurate regarding Brown's actions? A) Brown is complying with the Standard of Professionalism by using his CFA designation in his advertisements. B) Brown is violating the Standard of Misrepresentation by claiming that he can help his clients achieve superior returns by applying the knowledge and skills he gained from the CFA Program. C) Brown is violating the Standard of Duties to Clients by advertising his services as a CFA charterholder. D) Brown is violating the Standard of Duties to Employers by using his CFA designation in his advertisements.

1. Which of the following statistical measures is the most appropriate for measuring the central tendency of a data set that includes outliers? a) Arithmetic mean

b) Median c) Mode d) Geometric mean Answer: b) Median Rationale: The median is the best measure of central tendency for data sets that include outliers because it is not affected by extreme values. The arithmetic mean (a) is heavily influenced by outliers, while the mode (c) and geometric mean (d) are better suited for data sets without significant outliers.

2. Which of the following correlation coefficients indicates the strongest positive relationship between variables? a) - 0. b) 0. c) 0. d) - 0. Answer: c) 0. Rationale: The correlation coefficient ranges from - 1 to +1. A value of +1 indicates a perfect positive relationship, while a value of - 1 indicates a perfect negative relationship. Among the given options, 0.95 indicates the highest positive correlation.
3. In hypothesis testing, the p-value is defined as: a) the probability of making a Type I error

of its employees with a 95% confidence level. The margin of error is determined by which of the following factors? a) Sample size and confidence level b) Sample size and standard deviation c) Confidence level and standard deviation d) Confidence level and population size Answer: a) Sample size and confidence level Rationale: The margin of error is determined by the sample size and confidence level. A larger sample size reduces the margin of error, while increasing the confidence level widens the margin of error.

6. Which regression model assumption states that the errors (residuals) are normally distributed? a) Linearity assumption b) Independence assumption c) Homoscedasticity assumption d) Normality assumption Answer: d) Normality assumption Rationale: The normality assumption in regression models states that the errors (residuals) are normally distributed. This assumption is important for making statistical inferences and conducting hypothesis tests.
7. An investment portfolio has a standard deviation of 10% and an expected return of 12%. The coefficient of variation

(CV) for the portfolio is: a) 22% b) 83% c) 1. d) 120% Answer: c) 1. Rationale: The coefficient of variation (CV) is calculated by dividing the standard deviation by the expected return and expressing it as a percentage. CV = (standard deviation / expected return) * 100. In this case, (10 / 12) * 100 = 83%.

8. Which of the following statements is true regarding a Type I error? a) It occurs when a true null hypothesis is rejected b) It occurs when a false null hypothesis is rejected c) It occurs when a true alternative hypothesis is accepted d) It occurs when a false alternative hypothesis is accepted Answer: b) It occurs when a false null hypothesis is rejected Rationale: A Type I error occurs when a false null hypothesis is wrongly rejected, indicating a false positive result. Type II error (c) occurs when a true alternative hypothesis is wrongly rejected.
9. The coefficient of determination (R-squared) measures:

be most appropriate for investigating this relationship? a) Simple linear regression b) Multiple regression c) Polynomial regression d) Correlation analysis Answer: c) Polynomial regression Rationale: Polynomial regression allows for the analysis of curvilinear relationships by introducing polynomial terms in addition to the linear term. Simple linear regression (a) and correlation analysis (d) only analyze linear relationships, while multiple regression (b) includes multiple independent variables.

12. A company wants to estimate the proportion of defective products in a production batch with a 90% confidence level. Which of the following equations must be used to calculate the required sample size, assuming no prior knowledge about the population proportion? a) n = (Z * σ) / E b) n = (Z^2 * p * q) / E^ c) n = (1 - Z^2) / E^ d) n = (Z * N) / E Answer: b) n = (Z^2 * p * q) / E^ Rationale: The formula for calculating the required sample size to estimate a population proportion is n = (Z^2 * p * q) / E^2, where Z is the Z-score corresponding to the desired

confidence level, p is the estimated proportion, q is 1 - p, and E is the desired margin of error.

13. Which of the following does NOT affect the power of a statistical test? a) Sample size b) Significance level (α) c) Effect size d) Type II error rate (β) Answer: b) Significance level (α) Rationale: The power of a statistical test is influenced by sample size (a), effect size (c), and the Type II error rate (d). The significance level (α) determines the probability of a Type I error and is set by the researcher.
14. Which of the following statements about skewness is correct? a) Skewness measures the spread of a data set around the mean b) A positive skewness value indicates that the data is symmetrically distributed c) Symmetrical distributions have zero skewness d) A highly skewed distribution indicates a high level of dispersion Answer: c) Symmetrical distributions have zero skewness Rationale: Skewness measures the asymmetry of a

Question 1: Which of the following best defines the concept of supply and demand in economics? a) The price at which the quantity demanded equals the quantity supplied b) The quantity demanded of a good or service at a given price c) The quantity supplied of a good or service at a given price d) The relationship between the quantity of a good that producers are willing to sell and the price Answer: a) The price at which the quantity demanded equals the quantity supplied Rationale: Supply and demand is a fundamental concept in economics that describes the relationship between the price of a good and the quantity demanded and supplied. Equilibrium occurs when the quantity demanded equals the quantity supplied, leading to a stable market price. Question 2: If the price of a good increases and the quantity demanded for that good decreases, what type of demand is exhibited? a) Inelastic demand b) Elastic demand c) Unitary elastic demand d) Perfectly elastic demand Answer: b) Elastic demand Rationale: When the price of a good increases and the

quantity demanded decreases significantly, it indicates elastic demand. This means that consumers are sensitive to price changes and the percentage change in quantity demanded is greater than the percentage change in price. Question 3: In the context of production, what does the term "marginal product of labor" refer to? a) The additional output produced by one additional unit of labor b) The total output produced by all units of labor c) The average output produced by all units of labor d) The output at which marginal cost is minimized Answer: a) The additional output produced by one additional unit of labor Rationale: The marginal product of labor measures the change in output when one unit of labor is added while holding all other inputs constant. It helps firms determine the most efficient level of labor to employ. Question 4: When does a price ceiling become binding in a market? a) When it is set above the equilibrium price b) When it is set below the equilibrium price c) When it is set equal to the equilibrium price d) When it is set based on consumer preferences Answer: b) When it is set below the equilibrium price Rationale: A price ceiling becomes binding when it is set below the equilibrium price, leading to excess demand and

Question 7: In the context of monetary policy, what does the term "open market operations" refer to? a) The buying and selling of government securities by the central bank b) Setting the reserve requirement for commercial banks c) Setting the discount rate for commercial banks d) Adjusting the federal funds rate Answer: a) The buying and selling of government securities by the central bank Rationale: Open market operations involve the buying and selling of government securities by the central bank to influence the money supply and interest rates in the economy. Question 8: Which of the following is a tool used by central banks to control the money supply? a) Fiscal policy b) Exchange rate policy c) Discount rate policy d) Consumer price index Answer: c) Discount rate policy Rationale: The discount rate is the interest rate at which commercial banks can borrow from the central bank. By adjusting the discount rate, central banks can influence the amount of money in circulation and control the money supply. Question 9: What is the primary goal of expansionary fiscal

policy? a) To decrease government spending and reduce budget deficits b) To increase government spending and reduce budget surpluses c) To decrease government spending and increase budget surpluses d) To increase government spending and reduce budget deficits Answer: d) To increase government spending and reduce budget deficits Rationale: Expansionary fiscal policy aims to stimulate economic growth by increasing government spending and decreasing taxes, leading to higher aggregate demand and reduced budget deficits. Question 10: In the context of international trade, what does a trade surplus indicate? a) Exports exceed imports b) Imports exceed exports c) No trade is occurring d) Exports and imports are equal Answer: a) Exports exceed imports Rationale: A trade surplus occurs when a country's exports exceed its imports, leading to a positive balance of trade. This can result in an increase in foreign exchange reserves and a stronger domestic currency.

imply in terms of market power? a) Firms have significant market power b) Firms have no market power c) Firms have moderate market power d) Firms have complete control over the market Answer: b) Firms have no market power Rationale: In a perfectly competitive market, individual firms have no market power and are price takers, meaning they cannot influence the market price and must accept the prevailing market price for their goods or services. Question 14: What is the impact of a depreciation of the domestic currency on exports and imports? a) Exports decrease, imports increase b) Exports increase, imports decrease c) Exports and imports both decrease d) Exports and imports both increase Answer: b) Exports increase, imports decrease Rationale: A depreciation of the domestic currency makes exports cheaper for foreign buyers and imports more expensive for domestic consumers, leading to an increase in exports and a decrease in imports. Question 15: In the context of economic growth, what does the term "capital deepening" refer to? a) An increase in the quantity of physical capital per worker b) An increase in the quantity of human capital per worker

c) An increase in the quantity of natural resources per worker d) An increase in the quantity of financial capital per worker Answer: a) An increase in the quantity of physical capital per worker Rationale: Capital deepening refers to the process of increasing the amount of physical capital (e.g., machinery, equipment) per worker, leading to higher productivity and economic growth.

1. In analyzing a corporate issuer, which of the following financial statements provides information about a company’s financial position at a specific point in time? a) Income statement b) Balance sheet c) Statement of cash flows d) Statement of changes in equity Answer: b) Balance sheet Rationale: The balance sheet presents the company's financial position at a specific point in time by showing its assets, liabilities, and shareholders' equity.
2. Which of the following is a measure of a company’s profitability?