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CFA-Level-I PDF DEMO:

QUESTION NO: 1
Service cost recognized in an employer-sponsored defined benefit plan and included in the net pension expense calculation represents the:
A. Increase in the projected benefit obligation resulting from the passage of time.
B. Actuarial present value of benefits attributed by the pension benefit formula to an employee during a period.
C. Amortization of the discount on unrecognized prior service costs.
Answer: B
Explanation: Per SFAS No. 87, service cost is defined as the actuarial present value of benefits attributed
by the pension benefit formula to an employee during a period.

QUESTION NO: 2
The British pound sterling has a bid price of $1.4419 and an ask price of $1.4428. What is the bid-ask spread?
A. 0.62%
B. 0.09%
C. 0.062%
Answer: C
Explanation: The bid-ask spread is computed as follows: Percent spread = (Ask price - Bid price)/Ask price X 100, or 1.4428 - .4419/1.4428 X 100 = 0.062%.

QUESTION NO: 3
A corporation's free cash flow is its:
A. Cash flow from operating activities that is not subject to income taxes.
B. Cash flow from operating activities available after basic business obligations have been met.
C. Cash flow from operating activities less all cash payments for investing and financing activities.
Answer: B

QUESTION NO: 4
Which of the following calculations can be successfully performed without knowing the required rate of return?
I). Net Present Value
II). Internal Rate of Return
III). Modified Internal Rate of Return
IV). Time-weighted Rate of Return
V. Dollar-weighted Rate of Return
VI). Valuing a common stock using the Dividend Discount Model
VII). Valuing a common stock using the Free-cash-flow-to-equity Model
A. II, IV, V
B. II, V, VI
C. II, IV, V, VI, VII
Answer: A
Explanation: Of the financial figures listed, only the Internal Rate of Return, which is also known as the
"Dollar-Weighted Rate of Return," and the Time-Weighted Rate of Return, can be calculated without knowing the required rate of return.

QUESTION NO: 5
A firm should cease to do business when:
A. Price average variable cost
B. Price marginal cost
C. Price average total cost
Answer: A
Explanation: A firm should cease to do business when P AVC. In this case the company is not even making incremental revenue for each additional product sold. When AVC P ATC, the firm while not profitable will be making money above its variable costs. If P MC or ATC MC, the firm may be profitable
but not maximizing profit potential.

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Updated: May 26, 2022