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

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• 15-03-2011, 12:44 PM
Daulat Guru
Last chance to register for the June 2011 CFA Exams

http://www.cfainstitute.org/cfaprogr...ges/index.aspx
• 16-03-2011, 12:21 PM
DG Mod
Q 34 Ans A.

First we have to find out the Z value for the minimum return.
=> Z = (X – μ)/σ = (Rmin - Rp)/ σ= (5%- 15%)/20%
=> Z = -1.

The area under the curve from -1 sigma to +1 sigma is 68%, and it is symmetrical about the mean, 32% is divided into 2 parts, hence the probability will be 16%

The Probability is equal to N(-1) or 1 – N(1)
Roy’s Safety first ratio is given by SFRatio = (Rp – Rmin)/ σ
If you see the above Z is - SFRatio

So, the probability is given by N(-SFRatio)
It is better to visualize this diagram when you are solving the problem related to Safety First Ratio.
If you notice as the minimum return requirement increases the Z value decreases and hence the shaded area in the above diagram decreases (which implies that the probability decreases).
MindIt: Higher the SF ratio better is the portfolio and lower is the probability of not achieving client’s minimum return requirement.

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

Q 35 Suppose the growth of the internet made many travel agents lose their jobs. This would be an example of:-

A. Cyclical Unemployment
B. Structural Unemployment
C. Frictional Unemployment

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• 17-03-2011, 09:55 AM
DG Mod
Q35 Ans B:

This unemployment has happened because of a change in the structure of the economy. Frictional unemployment is when the people are looking for job but are not able to find jobs which are meeting their expectation. Cyclical unemployment happens because of business cycle in the economy.

In real world structural and frictional unemployment are always present. Please note that unemployment means when there is no cyclical unemployment.

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

Q 36 Government of India is currently facing high fiscal deficit as a result it is raising money from the market by issuing bonds. Which of the following statement is most likely correct as a result of this action by Indian government?

A. Real interest rate will increase
B. Real interest rate will decrease
C. It would be easier for the corporates to raise funds from the bond market

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• 18-03-2011, 01:19 AM
Sriram Raju
Ans 36 is A.
Real interest rate will increase
• 18-03-2011, 12:13 PM
Daulat Guru
Q36 Ans A:

The government will raise the interest rate to entice the investors. This will result in increase in real interest rate in the economy. Note that the increase in rate means that the investors would invest in government bond rather than in corporate bond because government bond has become attractive. This is known as crowding-out effect, where the borrowing by the government crowds out the private borrowing.

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

Q37. Economic profit should be considered as a better measure for profitability than accounting profit because:

A. Economic profit considers depreciation
B. Economic profit considers opportunity cost of capital
C. Unlike Accounting profit, economic profit cannot be manipulated

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• 18-03-2011, 12:14 PM
Daulat Guru
Quote:

Originally Posted by Meredith Matt
If "2nd month the interest will be paid on the reduced principal => 10,00,000 – 2,001.68
So interest = 0.01 * 997,998.31 = 9,979.983
"

Shouldn't \$10,000,000 - \$2,001.68 = \$9,997,998.32 instead of what is listed?

Dear Meredith,

We have asked the content provider, i.e. Knowledge Varsity, to clarify this issue.

Thanks,
Team DG
• 19-03-2011, 08:59 AM
Q37 Ans B:

Economic profit takes opportunity cost into consideration which is not considered in accounting profit. Manipulation can happen in both the method. Accounting profit considers depreciation. Economic profit considers economic depreciation.

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

Q38. Onida reduced the price of HDTV from Rs 75,000 to Rs 60,000 as a result the monthly demand increased from 100 units to 200 units. What is the price elasticity of demand for Onida’s HDTV?

A. -3.3
B. -3
C. -5

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• 20-03-2011, 10:26 AM
Q38 Ans B:

Change in quantity = 200 - 100 = 100
Change in price = 60,000 – 75,000 = -15,000
Percentage change in quantity = (change in quantity / average quantity) * 100

= 100/(200+100)/2 * 100 = 66.67%
Percentage change in price = (change in price / average price) * 100 = {-15,000 / (60,000 + 75,000)/2 }* 100 = -22.22%
Price Elasticity of demand = Percentage change in quantity / Percentage change in price
= 66.67%/-22.22% = -3
-ve in the elasticity means that the quantity will increase when the price will decrease. Absolute value is higher than 1 implying that the elasticity is very high and the product is likely to be luxurious.

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

Q39. In a regulated economy, government authorities have set the price ceiling below the equilibrium price and minimum wage above the equilibrium wage. What is the most likely impact of these regulations?

............Price Ceiling.........Minimum Wage
A..........Shortage................Increased Unemployment
B..........Surplus..................Increased Unemployment
C..........No Impact.............Decreased Unemployment

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• 20-03-2011, 09:01 PM
neetu
Ans to 39 is A
• 21-03-2011, 02:21 AM
Q39 Ans A:

When the price ceiling is below the equilibrium price the producers will not produce much as they will be getting lower price. Hence there will be shortage.

When the minimum wage is place above the equilibrium wage, the employer will have to pay higher wage and hence they will not hire workers, which will result in an increase in unemployment.

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

Q40. CNBC TV18 increased the subscription from Rs 25 per subscriber to Rs 30 per subscriber. A TRP survey reported that the subscriber numbers of UTVi increased from 2 million households to 2.5 million households. The cross elasticity of demand is closest to

A. 0.82
B. 1.22
C. 2.44

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