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CFA-Level-I PDF DEMO:

QUESTION NO: 1
In an inefficient market, if an asset's intrinsic value is estimated to be $10 while the market price is $12, the asset appears to be:
A. overvalued.
B. undervalued.
C. uncertain.
Answer: C
Explanation: This is because the market is inefficient and the intrinsic value is not a good estimate of the
market value of the asset.

QUESTION NO: 2
Which of the following will increase the aggregate demand?
I). Higher prices in stock market.
II). Higher prices in real estate market.
III). Higher real wealth.
A. III only.
B. I, II, III.
C. None of them. They will increase the quantity of aggregate demand but not the aggregate demand itself.
Answer: B
Explanation: Increase in stock and housing prices increases real wealth of households, and thus increases the aggregate demand.

QUESTION NO: 3
ABC Co. uses a defined benefit pension plan. At year-end the pension obligation is $27.4 million and
plan assets $24.5 million. ABC's balance sheet will report:
A. A net asset (prepaid pension cost) of $2.9 million.
B. A net pension liability of $2.9 million.
C. Nothing, only footnote disclosure is required.
Answer: B

QUESTION NO: 4
Which of the following statements describing options is FALSE?
A. A call option will be exercised only if the market value of the underlying asset is more than the exercise price.
B. A put option holder's profit increases when the value of the underlying asset increases.
C. A put option will be exercised only if the market value of the underlying asset is less than the exercise
price.
Answer: B

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