CFA Level 1 Practice Pack
Enhance your practice for CFA assessment with this CFA Level 1 Practice Pack, and featuring all the sections on the actual exams. This book provides insight into what to expect, and helps you develop effective study strategies. Kick off your preparation with our (All-in-one pack) CFA prep bundle CFA Level 1 Practice Pack Includes :
- Quantitative Methods
- Equity Investments
- Portfolio Management
- Corporate Finance
- Financial Reporting and Analysis
- Fixed Income
- Alternative Investments
- Ethical and Professional Standards
With step by step explanations on every questions, and hints on how to solve them faster.
CFA Aptitude tests formats; What to expect:
CFA Level 1 Practice Pack mostly uses CEB/Gartner (SHL) style tests for its candidate selection. The sections on the assessments may include any of the following test sections, depending on the role that you applied to and also the country you are applying from:
- Numerical Reasoning
- Verbal Reasoning
- Personality Test
Sample CFA Level 1 Practice Pack
CFA Level 1 Practice Pack DERIVATIVES 1.Which of the following statements about options is most accurate?
- The holder of a put option has the right to sell to the writer of the option.
- The holder of a call option has the obligation to sell to the option writer if the stock’s price rises above the strike price.
- The writer of a put option has the obligation to sell the asset to the holder of the put option.
Explanation The holder of a put option has the right to sell to the writer of the option. The writer of the put option has the obligation to buy, and the holder of the call option has the right, but not the obligation to buy. 2.Over-the- counter derivatives:
- have good liquidity in the over-the-counter (OTC) market.
- are customized contracts.
- are backed by the OTC Clearinghouse.
Explanation OTC derivative contracts (securities) are customized and have poor liquidity. The contract is with a specific counterparty and there is default risk since there is no clearinghouse to guarantee performance. 3. A derivative security:
- is like a callable bond.
- has a value dependent on the shape of the yield curve.
- is one that is based on the value of another security.
Explanation A derivative security is one that ‘derives’ its value from that of another security.
- Polington Aircraft Co. just announced a sale of 30 aircraft to Cuba, a project with a net present value of $10 million. Investors did not anticipate the sale because government approval to sell to Cuba had never before been granted. The share price of Polington should:
- increase by the NPV × (1 – corporate tax rate) divided by the number of common shares outstanding.
- not necessarily change because new contract announcements are made all the time.
- increase by the project NPV divided by the number of common shares outstanding.
Explanation Since the sale was not anticipated by the market, the share price should rise by the NPV of the project per common share. NPV is already calculated using after-tax cash flows. 2. One of the basic principles of capital budgeting is that:
- decisions are based on cash flows, not accounting income.
- opportunity costs should be excluded from the analysis of a project.
- cash flows should be analyzed on a pre-tax basis.
Explanation The five key principles of the capital budgeting process are: Decisions are based on cash flows, not 1. accounting income. 2. Cash flows are based on opportunity costs. 3. The timing of cash flows is important. 4. Cash flows are analyzed on an after-tax basis. 5. Financing costs are reflected in the project’s required rate of return. 3. The effect of a company announcement that they have begun a project with a current cost of $10 million that will generate future cash flows with a present value of $20 million is most likely to:
- increase value of the firm’s common shares by $10 million.
- increase the value of the firm’s common shares by $20 million.
- only affect value of the firm’s common shares if the project was unexpected.
Explanation Stock prices reflect investor expectations for future investment and growth. A new positive-NPV project will increase stock price only if it was not previously anticipated by investors.
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