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

• Question 731:

  The average discount from NAV for a closed-end investment company shares ________ over time.

  A. remains constant

  B. falls

  C. rises and falls

  D. rises

  Correct Answer: C

  The average discount from NAV for a closed-end investment company shares rises and falls over time depending on investors' sentiments.

• Question 732:

  Mutual funds are distributed by

  A. three major methods: through brokers, through dedicated sales forces, or through direct purchase from the fund or direct marketing. Most no-load funds have been distributed through brokers, while most load funds have been distributed through direct marketing.

  B. two major methods: through a sales forces, or through direct purchase from the fund or direct marketing. Although most funds are currently distributed through direct marketing, there has recently been a trend toward distribution through a sales force.

  C. three major methods: through brokers, through dedicated sales forces, or through direct purchase from the fund or direct marketing. Most no-load funds have been distributed through a sales force, while most load funds have been distributed through brokers.

  D. two major methods: through a sales forces, or through direct purchase from the fund or direct marketing. Although most funds are currently distributed through a sales force, there has recently been a trend toward distribution through direct marketing.

  Correct Answer: D

  In the past, no-load funds were sold only through direct marketing because the lack of a sales fee made it difficult to compensate brokers or a dedicated sales force. More recently, some brokers have started distributing no-load funds. Currently, about 54% of funds are distributed through a sales force, while 34% are distributed through direct marketing.

• Question 733:

  Which best describes venture capitalists?

  A. They typically exert control over a firm so it will generate required returns.

  B. They usually will fire the management team of the entrepreneurial firm and replace with their own management team.

  C. They are typically passive investors and invest in a company because they like the management team.

  D. They will only invest in a firm that will provide a return of 100%+ when they cash out.

  E. They will structure financing to the liking of the entrepreneur so that the company has a better opportunity to grow.

  Correct Answer: C

  Most venture capitalists, however, have no desire to control a venture. The main reason they invest in a company in the first place is because they like the management team. Venture capitalists are typically passive investors and experts in financing companies, structuring deals and advising management on important long-term decisions.

• Question 734:

  Money market funds

  A. were first developed in 1973 when short-term interest rates were at record levels. These funds attempt to provide current income, safety of principal, and liquidity by investing in diversified portfolios of short-term securities including Treasury bills, certificates of deposit, bank acceptances, and commercial paper.

  B. were first developed in 1981 when short-term interest rates were at record levels. These funds attempt to provide current income, safety of principal, and liquidity by investing in diversified portfolios of short and medium-term securities including Treasury bills, government agency bonds, and commercial paper.

  C. were first developed in 1981. These funds attempt to provide current income, safety of principal, high returns, and liquidity by investing in diversified portfolios of short and medium-term securities including Treasury bills and notes, certificates of deposit, bank acceptances, and commercial paper.

  D. were first developed in 1973 when interest rates were at record levels. These funds attempt to provide safety of principal and liquidity by investing in diversified portfolios of short-term securities including Treasury bills, municipal bonds, certificates of deposit, and commercial paper.

  Correct Answer: A

  Money market accounts generally allow investors to write checks against them. Their growth rate is often associated with investor attitudes toward the stock market. When investors are bullish, they move funds from their money market accounts and invest in stocks. When they are bearish, they sell off stocks and put some of the proceeds in money market accounts. Municipal bonds are not included in this type of investment.

• Question 735:

  The NAV of a closed-end investment company is computed ________.

  A. twice every day of trading

  B. once every day of trading

  C. once every financial year

  D. once every financial quarter

  Correct Answer: A

  The NAV of a closed-end investment company is computed twice every day of trading when there are prevailing market prices for the portfolio securities.

• Question 736:

  When valuing real estate, ________ should rarely be used exclusively as an approach to value.

  A. none of these answers

  B. the comparative sales approach

  C. the income approach

  D. the cost approach

  Correct Answer: D

  The cost approach works best with new or relatively new properties and is a good method to use as a check of the other approaches to value.

• Question 737:

  The stock of a closed-end investment company ________.

  A. trades through private brokerage firms

  B. trades on the regular secondary market

  C. trades via the investment management company

  D. trades only between existing stock-holders

  Correct Answer: B

  A close-end investment company operates like any other public firm. Its stock trades on the regular secondary market and the market price is determined by supply and demand. Closed-end typically means the company offers no further shares, thus shares can only be bought over from existing shareholders.

• Question 738:

  Open-end investment companies

  A. will repurchase shares at their NAVs.

  B. do not typically sell shares after their initial public offerings.

  C. have shares that tend to be priced at a discount to their NAVs.

  D. do not typically repurchase shares.

  Correct Answer: A

  Open-end investment companies (also known as mutual funds) continue to sell and repurchase shares after their initial public offerings. They do so at the current NAVs, sometimes with sales or redemption fees.

• Question 739:

  The major duties of an investment management company are: I. handling of redemptions and dividends

  II. investment research and portfolio management

  III. recommending stocks and bonds to investors

  IV.

  arranging bank loans for fund investors

  A.

  II only

  B.

  I, II, III and IV

  C.

  I and II

  D.

  I, II and III

  Correct Answer: C

  The major duties of an investment management company are investment research and portfolio management, handling of redemptions and dividends and issuing securities.

• Question 740:

  ________ refers to measurable characteristics, such as household size, age structure, occupation, gender, and marital status.

  A. Characgraphics

  B. Socialgraphics

  C. Psychographics

  D. Demographics

  Correct Answer: D

  By comparing demographic and psychographic trends to the features of a property, you can judge whether it is likely to gain or lose favor among potential buyers or tenants.