CFA Level 1 Practice Question 38
Which of the below is NOT a difficulty in constructing a fixed income index
a) The constituent securities cease to exist after maturity.
b) The fixed income market is a dealer driven market
c) The values of securities will be selectively disclosed to the index managers.
Answer: C. The values of the constituents will be disclosed to index managers in case of hedge funds. Fixed income securities are listed and hence all the data are available for index managers.
CFA Level 1 Practice Question 39
Taco Ltd is electing 3 directors in the Annual general meeting scheduled next week. David holds 1000 shares of Taco Ltd. If Taco follows cumulative system of voting for electing its directors then number of votes that David can cast in the election is
a) 1000
b) 3000
c) 5000
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CFA Level 1 Practice Question 39
Taco Ltd is electing 3 directors in the Annual general meeting scheduled next week. David holds 1000 shares of Taco Ltd. If Taco follows cumulative system of voting for electing its directors then number of votes that David can cast in the election is
a) 1000
b) 3000
c) 5000
Answer B: Under Cumulative voting number of votes that a share holder can cast = Number of directors to be elected * No of shares. 1000* 3 = 3000
CFA Level 1 Practice Question 40
A Company that is in the business of purchasing electric power and distributing it to the households is MOST likely to be classified as which of the below sectors
a) Consumer Staples
b) Energy
c) Utilities
CFA Level 1 Practice Question 40
A Company that is in the business of purchasing electric power and distributing it to the households is MOST likely to be classified as which of the below sectors
a) Consumer Staples
b) Energy
c) Utilities
Answer C: Consumer staples are items which are essential for day to day living and cant be postponed like food, beverages etc . Energy are items which used to generate energy which in turn is used in other process ex, crude oil exploration, coal mining etc.
CFA Level 1 Practice Question 41
Raghav an analyst is trying to find the intrinsic value of a company using discounted cash flow method. In the process he did most of the things right except for the fact that he overestimated the cost of equity. He will most likely ------------------------- the intrinsic value
a) Overestimate
b) Under estimate
c) Correctly estimate
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CFA Level 1 Practice Question 41
Raghav an analyst is trying to find the intrinsic value of a company using discounted cash flow method. In the process he did most of the things right except for the fact that he overestimated the cost of equity. He will most likely ------------------------- the intrinsic value
a) Overestimate
b) Under estimate
c) Correctly estimate
Answer B: Underestimate. Over estimating cost of equity would lead to discounting of cash flows by a bigger denominator. This is turn would lead to estimation of intrinsic value that is lower than the correct value.
CFA Level 1 Practice Question 42
Short term capital management Ltd (STML) declared a dividend per share of $4.2 last year. Their dividends are expected to grow at 5% while the cost of equity for the company is estimated at 9.5%. STML's book value of asset is $ 622 mn and market value of these assets is estimated at $ 710 mn. The company has total debt outstanding $ 320 mn and shares outstanding of 10 mn. The minimum intrinsic value per share that the company should comment will be close to
a) $ 98.00
b) $ 30.20
c) $ 39.00
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CFA Level 1 Practice Question 42
Short term capital management Ltd (STML) declared a dividend per share of $4.2 last year. Their dividends are expected to grow at 5% while the cost of equity for the company is estimated at 9.5%. STML's book value of asset is $ 622 mn and market value of these assets is estimated at $ 710 mn. The company has total debt outstanding $ 320 mn and shares outstanding of 10 mn. The minimum intrinsic value per share that the company should comment will be close to
a) $ 98.00
b) $ 30.20
c) $ 39.00
Answer C: The minimum price that a share should comment will be driven by asset based valuation. Asset based valuation of equity = (Market value of equity €“ Debt) / Shares outstanding. Price = (710-320)/10 = 39
CFA Level 1 Practice Question 43
Raj invested $ 1500 in a two year bank Fixed Deposit. At the end of 2 years he received $ 1752. The FD's quoted interest rates are compounded quarterly. The quoted interest rate of bank would be close to
a) 8.074%
b) 7.84%
c) 8.40%
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CFA Level 1 Practice Question 43
Raj invested $ 1500 in a two year bank Fixed Deposit. At the end of 2 years he received $ 1752. The FD's quoted interest rates are compounded quarterly. The quoted interest rate of bank would be close to
a) 8.074%
b) 7.84%
c) 8.40%
[ (Final value/ Starting value)^ {1/ (no of years* Compounding frequency)} ] -1
= { (1752/ 1500) ^ (1/ [@*4])} -1 = 7.84%
CFA Level 1 Practice Question 44
A better measure to evaluate a fund manager's performance is
a) Holding period return
b) Money weighted return
c) Time weighted return
CFA Level 1 Practice Question 44
A better measure to evaluate a fund manager's performance is
a) Holding period return
b) Money weighted return
c) Time weighted return
Answer C: Time weighted return eliminates the change in return due to timing of additional investment and partial withdrawal during the holding period, hence its is considered as better measure to evaluate fund manager's performance (Book 1:Page 302)
CFA Level 1 Practice Question 45
The mean of returns of German stock markets is 9.7% and the standard deviation is 36.4%. According to Chebyshev's inequality the proportion of returns that will be in the range from (-44.9%) to + 64.30% will be closest to
a) 86.64%
b) 55.56%
c) 66.67%