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

• Question 751:

  Most market value appraisals, when estimating the value of real estate, are ________.

  A. looking forward in time

  B. both looking backward and forward in time

  C. looking backward in time

  D. neither looking forward nor backward in time

  Correct Answer: C

  Most information that is gathered by an appraiser is based on events that have already taken place, for example, sales prices of comparable properties that have closed in the past.

• Question 752:

  When looking at demographics and psychographics, which one of the following four major determinant of real estate value categories are you in?

  A. the property

  B. none of these answers

  C. demand

  D. supply

  E. the property transfer process

  Correct Answer: C

  Demographics and psychographics are both subsets of analyzing demand.

• Question 753:

  Venture capital differs from investments from publicly held firms in that they are

  A. illiquid in the short-term.

  B. none of these are correct.

  C. for newer firms with very little operating history.

  D. difficult to value.

  E. all of these are correct.

  F. for small firms in which the venture capital firm and the subject company have personal involvement.

  Correct Answer: E

  Venture capital differs from investments from publicly held firms in that they are generally:

  1.

  For newer companies with little operating history.

  2.

  For smaller companies in which the venture capital firm and the entrepreneurial company have a high degree of personal involvement.

  3.

  Illiquid in the short-term, until the company goes public or is acquired by another company, which usually takes three to seven years.

  4.

  Difficult to value because there is no public market for these securities.

  5.

  Going to require future rounds of financing.

• Question 754:

  Which of the following describes an investment company?

  A. provides complete investment advice to clients for a fee

  B. tracks the market price performance of a sample of U.S. mutual funds

  C. invests in a pool of funds belonging to many individuals in a portfolio of investments

  D. all of these answers are correct

  E. market value of all its assets divided by shares outstanding

  Correct Answer: C

  For example, an investment company sells 20 million shares to individuals at $10 per share for a total of $200 million. The manager then invests this money in securities (according to fund objectives). Each investor owns a percentage of the investment company's total portfolio.

• Question 755:

  ________ indicates the price at which a property would sell under current market conditions.

  A. Cost approach value

  B. Income approach value

  C. Market value

  D. Appraisal

  E. Market approach value

  Correct Answer: C

  Remember though, that many properties sell for prices significantly above or below their estimated market values.

• Question 756:

  The largest obstacle to development of venture capital in emerging markets is

  A. the lack of capital to develop young companies.

  B. the lack of investor interest.

  C. the lack of a strong IPO market for fast-growing and high technology firms.

  D. government interference.

  E. the lack of accurate financial information of the young companies.

  Correct Answer: C

  The largest obstacle to development in emerging markets is the lack of a strong IPO market for fastgrowing and high technology firms. Emerging markets lack an active IPO market, which will create problems for exit strategies.

• Question 757:

  Net returns on mutual funds have tended to be

  A. much higher than the market return.

  B. slightly higher than the market return.

  C. slightly lower than the market return.

  D. much lower than the market return.

  Correct Answer: C

  Most funds have not provided net returns superior to a buy-and-hold strategy that tries to emulate the aggregate market. The shortfall of performance has been about 1 percent a year, which is roughly equal to the average cost of research and trading commissions for mutual funds.

• Question 758:

  No-load funds have traditionally been

  A. rare.

  B. distributed by a sales force.

  C. distributed by direct marketing.

  D. distributed by brokers.

  Correct Answer: C

  No-load funds have traditionally been distributed by direct marketing because brokers had little incentive to sell them. Distribution has been done through mail, telephone, bank wire, or office of the fund. More recently, some no-load funds have developed agreements with some brokerage firms to sell the funds in return for a fee.

• Question 759:

  When valuing real estate, ________ is more difficult to apply to older properties.

  A. none of these answers

  B. the comparative sales approach

  C. the cost approach

  D. the income approach

  Correct Answer: C

  The cost approach works best with new or relatively new properties.

• Question 760:

  ________ financing is used for product development and initial marketing for firms in business under one year and has not sold their product commercially.

  A. Seed

  B. First-stage

  C. Start-up

  D. Third-stage

  E. Second-stage

  Correct Answer: C

  There are three early stages of financing:

  1.

  Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research.

  2.

  Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially.

  3.

  First-stage financing. This is capital provided to initiate commercial manufacturing and sales.