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CFA-Level-I: CFA® Level I Chartered Financial Analyst
Free Practice Exam Questions (page: 67)
Updated On: 2-Jan-2026

Page 67 of 496
PDF with 3963 Questions

The following information is provided about Jacko Industries.
Using the method of average return on equity, Jacko's P/E ratio is closest to:

  1. 10.0
  2. 16.67
  3. 20.0

Answer(s): A



An analyst has stated that, holding all else constant, an increase in the maturity of a coupon bond will increase its interest rate risk, and that a decrease in the coupon rate of a coupon bond will decrease its interest rate risk.
The analyst is correct:

  1. only with respect to the effect of the increase in the maturity
  2. only with respect to the effect of the decrease in the coupon rate
  3. with respect to both the effect of the increase in maturity and the effect of the decrease in the coupon rate

Answer(s): A



Rocky Johnson, CFA, manages a large capitalization equity mutual fund. His superiors have requested that he provide them the appropriate benchmarks to compare future performance against. Johnson makes the following statements:
Statement 1:We should use an unweighted index because it would best reflect the large company bias in the portfolio.
Statement 2:Stocks in the portfolio frequently split the number of shares outstanding. Therefore, in the long run, the Dow Jones Industrial Average would best reflect these events.
Are Johnson's two statements correct?

  1. No. Both statements are incorrect.
  2. Statement 1 is correct and Statement 2 is incorrect.
  3. Statement 1 is incorrect and Statement 2 is correct.

Answer(s): A



In a common size statement, a firm shows average receivables of 9.3%. Its receivables turnover equals 1.23.

What's the average receivables collection period?

  1. 296.8 days
  2. insufficient information
  3. 321.6 days
  4. 184.3 days

Answer(s): A

Explanation:

Average receivables collection period = 365/receivables turnover. In this case, the collection period = 365/1.23 = 296.8 days.



What is the purpose of information presented in notes to the financial statements?

  1. To provide disclosures required by generally accepted accounting principles.
  2. To present management's responses to auditor comments.
  3. To provide recognition of amounts not included in the totals of the financial statements.
  4. To correct improper presentation in the financial statements.
  5. None of these answers.

Answer(s): A

Explanation:

Users of the financial information are the focus of financial reporting. GAAP requires disclosures in the notes to facilitate the users' understanding of the financial statements.



A firm has to pay 1,000 to its suppliers in one year. The interest rate on this liability is 9%. The current liability recorded by the firm is ________.

  1. 1,090
  2. 90
  3. 1,000
  4. 917

Answer(s): C

Explanation:

Current liabilities, in general, are recorded at the principal portion of the payment. Hence, even though the firm in this case will have to pay 1,090 in 1 year, the current liability equals the principal portion = 1,000.



If the estimated life of a long-term asset is increased, which of the following is true?

  1. The depreciation expense increases
    II. Taxes decrease
    III. Income increases
    IV. Cashflow decreases
  2. I & II
  3. III & IV
  4. I & III
  5. I, III & IV

Answer(s): B

Explanation:

The increase in the asset's life estimate decreases the depreciation expense. Hence, income increases, taxes increase and cashflow decreases (due to higher taxes).



When merchandise inventory is purchased under a perpetual system, which account is debited?

  1. Cash
  2. Merchandise Inventory
  3. Accounts Payable
  4. Purchases

Answer(s): B

Explanation:

The perpetual inventory system records purchases of merchandise inventory directly into a balance sheet account called Merchandise Inventory.



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