Business > EXAM > CFA Level 1 Exam 58 Questions with Answers 2023,100% CORRECT (All)

CFA Level 1 Exam 58 Questions with Answers 2023,100% CORRECT

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CFA Level 1 Exam 58 Questions with Answers 2023 What are the 4 types of measurement scales? - CORRECT ANSWER 1. Nominal Scales 2. Ordinal Scales (Assigned to a category) 3. Interval Scales (Rel... ative ranking) 4. Ratio Scales (Equal differences between scale values) NOIR When do we use geometric and arithmetic means to analyze investment returns? - CORRECT ANSWER Arithmetic Mean: To estimate next year's return Geometric Mean: Measure of past performance What are the 3 different types of probabilities? - CORRECT ANSWER 1. Empirical Probability (Past data) 2. Priori Probability (Formal reasoning) 3. Subjective Probability (Use of personal judgement) What is the difference between time-series data and cross-sectional data? - CORRECT ANSWER Time-Series: Data taken over a period of time Cross-Sectional: Data taken at a single point in time What are the 3 desirable properties of an estimator? - CORRECT ANSWER 1. Unbiased (Expected value of estimator is equal to the parameter) 2. Efficient (Variance of its sampling distribution is small) 3. Consistent (Accuracy of parameter estimate increases as sample size increases) What are the steps of Hypothesis Testing? - CORRECT ANSWER 1. State the hypothesis 2. Select the appropriate test statistic 3. Specify the level of significance 4. State the decision rule regarding the hypothesis 5. Collect the sample and calculate the sample statistics 6. Make a decision regarding the hypothesis 7. Make a decision based on the results of the test What is a Type 1 and Type 2 Error? - CORRECT ANSWER Type I: Rejection of null when it is actually true Type II: Failure to reject null when it is actually false What are the 3 reasons why statistical significance does not imply economic significance? - CORRECT ANSWER 1. Transaction Costs 2. Taxes 3. Risk What is the key assumption of technical analysis? - CORRECT ANSWER Market prices reflect both rational and irrational investor behavior What are the 4 different types of Oscillators? - CORRECT ANSWER 1. Rate of Change Oscillator (100x the difference between the latest closing price and the closing price n periods earlier) 2. Relative Strength Index (Ratio of total price increases to price decreases) 3. Moving Average Convergence/Divergence 4. Stochastic Oscillator (Latest closing price and highest and lowest prices reached in a period) What are the different types of auctions? - CORRECT ANSWER 1. English Auction (Ascending Price Auction) 2. Vickrey Auction (Second Price Sealed Bid Auction) 3. Dutch Auction (Descending Price Auction) What are the 3 rules of indifference curves? - CORRECT ANSWER 1. Slope downward 2. Convex towards the origin 3. Curves cannot cross Distinguish between Normal, Inferior, Giffen and Veblen Goods? - CORRECT ANSWER Normal: Positive income effect Inferior: Income effect is negative Giffen: Negative income effect outweighs positive substitution effect Veblen: Higher price makes the good more desirable What are the 4 models of oligopoly? - CORRECT ANSWER 1. Kinked Demand Curve Model (Only a decrease in price will be followed by competitors) 2. Cournot Duopoly Model 3. Nash Equilibrium Model 4. Stackelberg Dominant Firm Model What is necessary for price discrimination to work? - CORRECT ANSWER 1. Face a downward-sloping demand curve 2. Have at least two identifiable groups of customers with different elasticities 3. Be able to prevent reselling What are the different economic theories of the business cycle? - CORRECT ANSWER 1. Neoclassical School (Driven by changes in technology) 2. Keynesian School (Cycles are due to swings in the level of optimism of business owners) 3. Monetarist School (Cycles are caused by variations in the rate of growth of the money supply) 4. Austrian School (Cycles are caused by government intervention) 5. Real Business Cycle Theory (Cycles are caused by changed in technology and external shocks) Describe the 3 types of unemployment. - CORRECT ANSWER 1. Frictional Unemployment (Results from time lag of matching employees with employers) 2. Structural Unemployment (Caused by changes in economy that eliminate some jobs and create new ones) 3. Cyclical Unemployment (Caused by changes in the level of economic activity) What are the 3 main functions of money? - CORRECT ANSWER 1. Medium of Exchange 2. Unit of Account 3. Store of Value What are the 3 reasons for holding money? - CORRECT ANSWER 1. Transaction Demand (Held to meet the need for transactions) 2. Precautionary Demand (Held for unforeseen future needs) 3. Speculative Demand (To take advantage of investment opportunities in the future) What are the 6 key roles of the central bank? - CORRECT ANSWER 1. Sole supplier of currency 2. Banker to the government and other banks 3. Regulator of payments system 4. Lender of last resort 5. Holder of gold and foreign exchange 6. Conductor of monetary policy What are the 3 main monetary policy tools of the central bank? - CORRECT ANSWER 1. Policy Rate 2. Reserve Requirements 3. Open Market Operations (Buying and selling of securities by the Central Bank) What are the 3 essential qualities of a Central Bank? - CORRECT ANSWER 1. Independence (Should be free from political interference) 2. Credibility 3. Transparency (Disclosing the state of the economy by issuing inflation reports) What are the 5 types of regional trading agreements? - CORRECT ANSWER 1. Free Trade Areas (All barriers to trade are removed) 2. Customs Union (Adopt a common set of trade restrictions with non-members) 3. Common Market (Barriers to the movement of labor and capital are removed) 4. Economic Union (Establish common economic policy) 5. Monetary Union (Adopt a single currency) What is included in the 3 balance of payment accounts? - CORRECT ANSWER 1. Current Account: Merchandise and services, foreign dividends and interest and money received from abroad 2. Capital Account: Capital transfers and sales and purchases of non-financial assets 3. Financial Account: Government owned-assets abroad and foreign owned assets in the country What are the different types of auditor opinions? - CORRECT ANSWER 1. Unqualified Opinion: Statements are free from errors 2. Qualified Opinion: Some exceptions to accounting principles 3. Adverse Opinion: Statements are not within accounting standards 4. Disclaimer of Opinion: Unable to make an opinion What are the 6 steps in the Financial Statement Analysis Framework? - CORRECT ANSWER 1. State the objective 2. Gather data 3. Process the data 4. Analyze and interpret the data 5. Report the conclusions or recommendations 6. Update the analysis What are the 3 objectives of financial market regulation? - CORRECT ANSWER 1. Protect investors 2. Ensure fairness, efficiency and transparency of markets 3. Reduce systemic risk What are the 2 main fundamental qualitative characteristics that make financial information useful? - CORRECT ANSWER 1. Relevance 2. Faithful Representation What are the 4 characteristics that enhance relevance and faithful representation? - CORRECT ANSWER 1. Comparability 2. Verifiability 3. Timeliness 4. Understandability What are the 4 capital budgeting steps? - CORRECT ANSWER 1. Idea generation 2. Analyzing project proposals 3. Create the firm-wide capital budget 4. Monitoring decisions and conducting a post-audit What are the 5 basic principles of capital budgeting? - CORRECT ANSWER 1. Decisions are based on cash flows 2. Cash flows are based on opportunity costs 3. Timing of cash flows is important 4. Cash flows are analyzed after tax 5. Financing costs are reflected in the project's required rate of return What are the 3 methods to repurchase shares? - CORRECT ANSWER 1. Buy in the open market at the market price 2. Buy a fixed number of shares at a fixed price (Tender offer) 3. Repurchase by direct negotiation (Negotiate directly with a large shareholder) What are the 3 steps in the portfolio management process? - CORRECT ANSWER 1. The Planning Step (Analysis of investor's risk tolerance, return objectives, time horizon, tax exposure, liquidity needs etc; results in IPS) 2. The Execution Step (Analysis of the risk and return of various asset classes) 3. The Feedback Step (Monitor changes and re-balance the portfolio) What are the 3 main categories of securities markets? - CORRECT ANSWER 1. Quote-Driven (Traders transact with dealers who maintain inventories of securities) 2. Order-Driven (Order-matching and trade-pricing rules are used to match orders) 3. Brokered (Brokers find the counter party in order to execute a trade) What are the 5 stages of the industry life cycle? - CORRECT ANSWER 1. Embryonic 2. Growth 3. Shakeout 4. Mature 5. Decline What are the 3 methods of internal credit enhancement? - CORRECT ANSWER 1. Overcollateralization 2. Excess spread (Yield on the financial assets supporting the debt is greater than the yield on the bond) 3. Divide the bond into tranches What are the 2 types of reserve funds? - CORRECT ANSWER 1. Cash Reserve Fund: Cash deposits that come from issuance proceeds 2. Excess Spread Fund: Funds that come from the extra return on the collateral mortgages above that required to make the promised payments to the RMBS holders What are the 4 risks of relying on credit rating agencies? - CORRECT ANSWER 1. Dynamic (Ratings change over time) 2. Not Perfect (Mistakes occur over time) 3. Event Risk (Company specific risks are difficult to predict) 4. Ratings Lag Market Pricing (Market prices and credit spreads change much faster than credit ratings) What are the 4 Cs of Credit? - CORRECT ANSWER 1. Capacity (Borrower's ability to repay its debt) 2. Collateral 3. Covenants 4. Character (Management's integrity and its commitment to repay) What are the conditions for recognizing revenue from the sale of goods? - CORRECT ANSWER 1. Revenue can be reliably measured 2. There is a probable flow of economic benefits 3. The cost can be reliably measured 4. The risk and reward of ownership is transferred 5. There is no continuing control over the goods sold What are the conditions for recognizing revenue for service? - CORRECT ANSWER 1. Revenue can be reliably measured 2. There is a probable flow of economic benefits 3. Cost can be reliably measured 4. Stage of completion can be measured What are the 3 ways to estimating the cost of equity? - CORRECT ANSWER 1. CAPM 2. Dividend Discount Model (K = Div1/Price + g) 3. Bond Yield Plus Risk Premium (YTM + Risk Premium) What are the 6 code of ethics? - CORRECT ANSWER 1. Act with integrity, competence, diligence and respect and in an ethical manner with the public 2. Place the integrity of the investment profession and the interest of clients above your own 3. Use reasonable care and exercise professional judgement when conducting investment analysis 4. Practice and encourage others to practice in a professional and ethical manner 5. Promote the integrity and viability of the global capital markets for the benefit of society 6. Maintain and improve your professional competence and strive to maintain others as well What are the 3 objectives of the International Organization of Securities Commissions? - CORRECT ANSWER 1. Protect investors 2. Ensure the fairness, efficiency and transparency of markets 3. Reduce systemic risk The principle of time value of money - CORRECT ANSWER The notion that a given sum of money is more valuable the sooner it is received, due to its capacity to earn interest. The Five Components of Interest Rates - CORRECT ANSWER 1. Real Risk-Free Rate 2. Expected Inflation 3. Default-Risk Premium 4. Liquidity Premium 5. Maturity Premium Real Risk-Free Rate - CORRECT ANSWER This assumes no risk or uncertainty, simply reflecting differences in timing: the preference to spend now/pay back later versus lend now/collect later. Expected Inflation - CORRECT ANSWER The market expects aggregate prices to rise, and the currency's purchasing power is reduced by a rate known as the inflation rate. Inflation makes real dollars less valuable in the future and is factored into determining the nominal interest rate (from the economics material: nominal rate = real rate + inflation rate). Default-Risk Premium - CORRECT ANSWER What is the chance that the borrower won't make payments on time, or will be unable to pay what is owed? This component will be high or low depending on the creditworthiness of the person or entity involved. Liquidity Premium - CORRECT ANSWER Some investments are highly liquid, meaning they are easily exchanged for cash (U.S. Treasury debt, for example). Other securities are less liquid, and there may be a certain loss expected if it's an issue that trades infrequently. Holding other factors equal, a less liquid security must compensate the holder by offering a higher interest rate. Maturity Premium - CORRECT ANSWER All else being equal, a bond obligation will be more sensitive to interest rate fluctuations the longer to maturity it is. The stated annual rate - CORRECT ANSWER (or quoted rate) is the interest rate on an investment if an institution were to pay interest only once a year. In practice, institutions compound interest more frequently, either ... - CORRECT ANSWER ...quarterly, monthly, daily and even continuously. The effective annual yield... - CORRECT ANSWER ...represents the actual rate of return, reflecting all of the compounding periods during the year. Effective annual rate (EAR) - CORRECT ANSWER = (1 + Periodic interest rate)^m - 1 (Where: m = number of compounding periods in one year, and periodic interest rate = (stated interest rate) / m) FV - CORRECT ANSWER = PV * (1 + r)^N PV of a perpetuity - CORRECT ANSWER = annuity payment A/interest rate r PV - CORRECT ANSWER = FV * (1/(1 + r)^N) [Show More]

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