CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 701:

  Which of the following was not a guideline put forth by George Doriot?

  A. All of these were Doriot's guidelines.

  B. Be realistic.

  C. Treat the companies like you own children.

  D. Run the business because the entrepreneur does not have the skills.

  E. Don't pull the plug too soon.

  Correct Answer: D

  George Doriot had guidelines for venture capitalists, which were:

  1.

  Don't try to run the business. The entrepreneur knows best.

  2.

  Treat the portfolio companies like your own children. Kick them every now and then if they need it, but be fair.

  3.

  Be a help. Be there when needed. Be an ear, a sounding board, an alter ego, and a crying towel. Do what is necessary to allow the portfolio company the opportunity to achieve the potential you originally thought you saw was there. Don't pull the plug too soon.

  4.

  Be realistic. Don't get swept away. It is very easy to listen to an entrepreneur and start getting fired up. Entrepreneurs are persuasive people.

• Question 702:

  The major difference between venture capital and conventional financing is that

  A. the interest rate of venture capital is much higher than conventional financing.

  B. venture capital is more than investing, it builds companies.

  C. All of these answers are correct.

  D. None of these answers.

  E. venture capital will provide equity ownership, conventional financing will not.

  Correct Answer: B

  The difference between venture capital and conventional financing is that venture capital is more than investing and more than building personal wealth, it builds companies.

• Question 703:

  How will the dividend distribution and share prices react when a property's rent goes up in equity REIT?

  A. They will both stay the same.

  B. Dividend distribution will go down, share prices go up.

  C. They both will go up.

  D. They both will go down.

  E. Dividend distribution will go up, share prices go down.

  Correct Answer: C

  With an equity REIT, when the property's rent goes up, so will the dividend distribution and normally the share prices as well.

• Question 704:

  Venture capital has proved to impact economic development in the following ways:

  A. all of these are correct

  B. job development

  C. competitive adaptation

  D. formation of capital

  E. none of these is correct

  F. technological innovation

  Correct Answer: BCDF

  Several researchers have concluded that venture capital investments are critical to the economy in terms

  of capital formation, local development, economic expansion, technological growth and innovation,

  employment growth, and competitive adaptation in global markets.

  Besides adding jobs, venture capital investments have resulted in development of medical diagnostic and

  treatment equipment, and scientific improvements.

  Venture capital investments have developed entrepreneurs and have contributed to innovation and

  competitiveness.

• Question 705:

  A/An ________ imposes a front-end sales charge when buying the fund typically in the range of 3 percent.

  A. low-load fund

  B. no-load fund

  C. oversubscribed fund

  D. closed-end fund

  Correct Answer: A

  A low-load fund imposes a front-end sales charge when buying the fund typically in the range of 3 percent instead of the typical load fund charge of 7 to 8 percent.

• Question 706:

  The primary use of venture capital is

  A. to restructure a private firm's balance sheet debt.

  B. to help private firms out of possible bankruptcy proceedings.

  C. to finance production expansion.

  D. all of these answers are correct.

  E. for emerging growth business.

  Correct Answer: E

  Venture capital is financing for privately held companies, typically in the form of equity and/or longterm

  debt. Venture capital becomes available when financing from banks and public debt or equity markets is

  either unavailable or inappropriate.

  Much like mutual fund managers, venture capitalists raise capital from investors in order to manage a

  portfolio of privately held investments.

  The primary use of venture capital is for emerging growth business.

• Question 707:

  Which of the following is not an approach to real estate value, when performing an appraisal?

  A. Market approach

  B. Cost approach

  C. Income approach

  D. Property transfer approach

  Correct Answer: D

  Real estate appraisers look at each of these approaches, cost, comparative sales and income to arrive at the best estimate of value.

• Question 708:

  ________ in real estate are the additions to a site, such as building, sidewalks, and various on-site amenities.

  A. Improvements

  B. All of these answers.

  C. Enhancements

  D. Betterments

  E. None of these answers

  Correct Answer: A

  Also, building size is usually measured and expressed in terms of square footage.

• Question 709:

  The NAV and the market price of ________ are almost never the same.

  A. a low-load fund

  B. an open-end fund

  C. a no-load fund

  D. a closed-end fund

  Correct Answer: D

  The NAV and the market price of a closed-end fund are almost never the same, because closed-end funds typically have market prices that has historically been a 5 to 20 percent discount to NAV.

• Question 710:

  Which best describes venture capital?

  A. Venture capitalists exert control over the entrepreneur in order to achieve high returns.

  B. Venture capital is an extremely risky investment, whose returns are usually negative.

  C. Venture capital is method of equity financing whereby the entrepreneur loses majority ownership of his company.

  D. Venture capital is a method to take control over a young company.

  E. Venture capital is more than just capital, it is a process that fuels the growth of the venture.

  Correct Answer: E

  Venture capital is the process forces the entrepreneur to hire a management team. The venture capital firms have significant representation on the board of directors and play a major role in shaping the company's growth strategy. The process also forces entrepreneurs to prepare a business plan to describe their objectives and to specify their financial projections. Venture capitalists bring in a broad amount of experience to the venture, thereby improving management's available resources. Ideally, the venture capital process should develop better entrepreneurs and better managers.