# Free CFA Level 1 practice question bank for June 2011 exam

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• 21-03-2011, 04:48 PM
anita123
Ans 40: B
• 22-03-2011, 01:49 AM
Q40 Ans B:

Change in quantity for UTVi = 2.5 million
• 22-03-2011, 04:51 PM
Sriram Raju
• 23-03-2011, 11:09 AM
DG Mod
Q 41. Ans B:

Total Cost = Fixed Cost + Variable Cost

Dividing both side by the quantity produced will result in
Average Total Cost = Average Fixed Cost + Average Variable Cost

Distance between Average variable cost and average total cost curve can be written in equation form as
Average Total Cost - Average Variable Cost = Average Fixed Cost

As quantity produced increases Average Fixed cost decreases, hence the distance between average total cost curve and average variable cost curve reduces.

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 42. Marginal cost curve intersects the average variable cost curve and average total cost curve at

Points-------------Average Variable Cost-----------------Average Total Cost
A-------------------Minimum Point-------------------------Minimum Point
B-------------------Minimum Point--------------------------Maximum Point
C-------------------Doesn’t Intersect------------------------Doesn’t Intersect

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• 24-03-2011, 11:22 AM
DG Mod
Q 42 Ans A:

Marginal cost curve intersects both the average variable cost curve and the average total cost curve at the minimum point.

This can be understood by thinking that the total cost reduces initially and then it start rising, it is because the cost to produce additional good is more than the average total cost of the goods produced till now, hence the marginal cost curve will intersect the average total cost at its minimum point. Similar reasoning can be attributed to average variable cost curve also.

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 43 The purchase of 360 days treasury bills from the money market by the central bank of a country will

A. Decrease bank reserves.
B. Decrease the supply of money.
C. Increase the supply of money.

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• 25-03-2011, 11:01 AM
DG Mod
Q 43 Ans C:

A purchase by the central bank means that the bank is paying the investors, this result in increase in money supply in the economy. Purchase and sale of bonds/money market instrument is the most popular method with the central banks for changing the money supply. One of the other measures is increasing/decreasing the reserve requirement.

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 44 CPI on 30th September 2007 was 190; CPI on 30th September 2008 was 199.5. CPI on 30th September 1995 was 100. Find the inflation rate during Sept 30th , 2007 to Sept 30th, 2008.

A. 5%
B. 9.5%
C. 9%

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• 26-03-2011, 11:14 AM
DG Mod
Q 44 Ans A:

When we calculate inflation, it should be calculated by considering CPI from the start of the period to the end of the period and not consider the base year CPI value.
Here Inflation = (CPI on 30th Sept 2008 - CPI on 30th Sept 2007)/ CPI on 30th Sept 2007
= (199.5 – 190)/190 * 100
= 9.5/190 * 100 = 5%

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 45 The supply of which of the following is perfectly inelastic

A. Non renewable natural resource
B. Renewable natural resource
C. Supply of capital

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• 28-03-2011, 12:47 AM
Q45 Ans B:

Shape of supply curve of renewable sources is perfectly inelastic and that of non-renewable is perfectly inelastic. This goes counter to our reasoning where we think that the supply of oil (a non renewable source) should be inelastic as the quantity of oil is fixed in the earth.

One thing to consider over here is that even though the quantity of oil is fixed, human are not aware of the exact quantity and whatever they have explored and commercially viable is known and hence there is potential for more oil reserve as more exploration is carried out.

The supply of a non-renewable resource can be increased if there is more demand, in fact the producers take into consideration the expected future price and discount it in the present value to know the price at which they can sell, if the price increase they will drill more oil and supply now to make money rather than wait to make money in the future. Point to be noted that long term should be taken into consideration, in the short run this is unlikely to hold.

Whereas in case of renewable source, we have same amount of water, air available. The supply of it is inelastic as you can’t increase its supply whatever be the price.

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q46. An analyst makes the following statement
Statement I) Under US GAAP a firm can use LIFO for tax reporting and FIFO for financial reporting to the shareholders
Statement II) If a firm change inventory method, changes are to be reported only prospectively

What can be said about the above statements?
A. Both statements are correct
B. Statement 2 is correct and Statement 1 is wrong
C. Both statements are in-correct

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• 28-03-2011, 11:14 AM
DG Mod
Q 46 Ans C:

If a firm uses LIFO for tax reporting, it has to use the same for financial reporting. Inventory method change is change in accounting principal and hence it should be done retrospectively.

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 47 An investor invests and has returns according to the following table:-
As can be seen from the table, the entire balance is withdrawn at the end of the year (end of the 4th Quarter).The time weighted for the entire year is:

Quater---- Starting Bal. Prior to Invests.---Money Invested at Beginning of Q-- ROI during Quarter

Q1----------------------0-----------------------------------------100,000-------------------------------------5,000
Q2--------------------105,000------------------------------------20,000-------------------------------------3,000
Q3--------------------122,000---------------------------------- -25,000-------------------------------------6,000
Q4--------------------103,000------------------------------------10,000-------------------------------------5,183

Balance at---- 118,183
end of Q4

A. 0.1381
B. 0.1818
C. 0.1256

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• 29-03-2011, 11:12 AM
DG Mod
Q47 Ans B :

Here please note that the time weighted return of the entire year is being asked.
FV = 118,183;
PV = 100,000 => rate = 18.18%

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Today's Question (Questions and answers provided by Knowledge Varsity)

Q 48 At the beginning of the year gamma corp. has 100,000 common stock outstanding. Gamma corp. had issued 10,000 stock options with a strike price of \$30 per share. There were no options exercised during the year. The average stock price during the year was \$60, how many shares should Gamma corp. use in calculating the basic and diluted EPS?

Option--------------Basic EPS---------------Diluted EPS

A-------------------------100,000--------------------105,000
B-------------------------110,000--------------------110,000
C-------------------------110,000--------------------105,000

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