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Thread: FREE CFA Level 1 sample questions everyday for December 2010 candidates

  1. #331
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    Q#85 Answer: (A)

    If firms and households decide to reduce their currency holdings and increase their holdings of funds in their checking accounts by an equal amount, there will be no direct impact on the money supply. Nevertheless, the resulting increase in excess reserves will enable banks to increase their loans, thereby leading to an indirect increase in the money supply through the multiplier effect. Putting money in a checking account increases, not decreases, bank reserves.


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    Today's question (Question provided by Elan Guides)

    Q#86. Which of the following statements is incorrect?

    A. In response to an increase in interest rate, the duration based price estimate for a bond underestimates the actual price of the bond.
    B. In response to fall in interest rates, the duration based price estimate for a bond overestimates the change in the bond

  2. #332
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    Ans to Q#86 is C.

  3. #333
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    Q#86 Answer: (B)

    In response to fall in interest rates, the duration based price estimate for a bond underestimates the change in the bond

  4. #334
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    Q 87

    i think answer is B

    The reported book value of Bond Liability will decrease every year (Provided no defaulting with payments & interest payments)
    Using the Table (I call it Amortization Table) (Payment less Interest) provided Payment > Interest, The Excess will reduce the Liability

    Correct me if im wrong guys

  5. #335
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    Takalani, I think your logic is right.

  6. #336
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    Q#87 Answer: (B)

    For bonds issued at a premium:
    Interest expense is less than the coupon payment due to premium amortization. The book value of the liability falls each year, and the excess of the coupon payment over interest expense serves to reduce the liability balance each year.

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    Today's question (Questions and answers provided by Elan Guides)

    Q#88. In the analysis of financing liabilities, which of the following is most likely regarding premium bonds?

    A. CFO is overstated
    B. CFF is overstated
    C. CFI is overstated

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  7. #337
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    Q#88

    I think the Anwer is B.

  8. #338
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    Q#87 Answer: (B)

    For premium bonds CFO is understated and CFF is overstated.

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    Today's question (Questions and answers provided by Elan Guides)

    Q#88. Company A issued bonds with a 10 year maturity 5 years ago when market interest rates stood at 10%. Company B issues 5 year bonds today when market interest rates stand at 5%. Given that the book value of these bond-related liabilities is identical on the two companies

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    Ans to Q.88 is B.

  10. #340
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    Q#88 Answer: (B)

    Interest rates have fallen significantly since the time that Company A issued its bonds. Therefore, the actual value of Company A

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