# Thread: Free CFA Level 1 Practice Questions for June 2013 exam

1. Originally Posted by Simplilearn
Question of the day: 28th Feb,2013

The price elasticity of demand for a product tends to be small (less elastic) when

A)product is inferior good.
C)there are many good substitutes for the product.
Price Elasticity Of Demand = % Change in Quantity Demanded / % Change in Price

This means if a small change in price causes a large change in quantity demanded, then the product is elastic. Businesses can charge higher prices if demand for the product is price inelastic.

Ans. B

2. The correct option is B
When a good is broadly defined, such as "automobiles", the elasticity of demand is small because all of the good substitutes have been included under the definition of the good. The fewer the substitutes and the smaller the portion of income spent on the good, the less elastic demand is likely to be.

3. Question of the day: 1st March,2013

Which of the following should best be used when forecasting sales per share figures for an entire industry?

A)Industry economy relationship
B)Life Cycle Stage of Company
C)Growth of substitute industry

4. Originally Posted by Simplilearn
Question of the day: 1st March,2013

Which of the following should best be used when forecasting sales per share figures for an entire industry?

A)Industry economy relationship
B)Life Cycle Stage of Company
C)Growth of substitute industry
A) seems to be most reasonable

5. The correct option is A

6. Question of the day: 2nd March,2013

ABC Inc. has 10 million shares outstanding, at a price of \$20. The company's shares have a beta of 0.8, ABC Inc. also has a \$100 million face value, 10'year debt issue outstanding, featuring a coupon rate of 6%.The debt is priced to yield 6%. The risk free rate is 4%, and the expected return on the market is 12%. What is the weighted average cost of capital for ABC Inc., assuming no taxes?

A)8.93%
B)6.12%
C)7.33%

7. Originally Posted by Simplilearn
Question of the day: 2nd March,2013

ABC Inc. has 10 million shares outstanding, at a price of \$20. The company's shares have a beta of 0.8, ABC Inc. also has a \$100 million face value, 10'year debt issue outstanding, featuring a coupon rate of 6%.The debt is priced to yield 6%. The risk free rate is 4%, and the expected return on the market is 12%. What is the weighted average cost of capital for ABC Inc., assuming no taxes?

A)8.93%
B)6.12%
C)7.33%
Ans: The WACC will be 7.33%

8. The correct option is A
ABC Inc. has \$200m in equity and \$100m in debt. The cost of debt is 6%, and the required rate of return on equity is given by CAPM as 4% + 0.8 x (12%-4%) = 10.4%. The WACC = 200/300 x (10.4%) + 100/300 x (6%) = 8.93%.

9. Question of the day: 4th March,2013

A company has the following results for the years ended 2010 and 2011. Which of the following is true?
2010/2011
Operating margin 20% /18%
Interest expense rate 8% /10%
Leverage multiplier 1/ 1
Tax retention rate 0.7/0.7

A)ROE rose in 2011 due to increased profit margins and leverage
B)ROE fell in 2011 due to increased net profit margins
C)ROE fell in 2011 due to over leverage

10. Originally Posted by Simplilearn
Question of the day: 4th March,2013

A company has the following results for the years ended 2010 and 2011. Which of the following is true?
2010/2011
Operating margin 20% /18%
Interest expense rate 8% /10%
Leverage multiplier 1/ 1
Tax retention rate 0.7/0.7

A)ROE rose in 2011 due to increased profit margins and leverage
B)ROE fell in 2011 due to increased net profit margins
C)ROE fell in 2011 due to over leverage
This is an application of the Dupont rule.
Ans: C