52 Effective CFA Level 1 Practice Exam Free Questions and Answers on Equity Investments

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1) allow entities to save and borrow money, raise capital, manage risk, trade assets currently or in the future, and trade based on their estimates of value (2) Determine the returns that equate the total supply of savings with the total demand for borrowing (3) Allocate capital to its most efficient uses.

• What are the three main methods of valuing equity?
• What are the three ways commodities trade?
• What are included in alternative markets?
• What are the three main functions of financial markets?

investors use brokers to locate counter party. Examples are blocks, real estate, artwork etc.

• What is an order drive market?
• What is a shelf offering?
• What is a brokered market?
• What are quote driven markets?

(1) escrow services (2) Guarantees of contract completion (3) Assurance that margin traders have adequate capital (4) limits on the aggregate net order quantity of members.

• What are the four roles of clearing houses?
• What are five ways of weighting an index?
• What is the book value of an equity?
• What are the five classes of assets?

Debt and equity

• What is an order drive market?
• What are quote driven markets?
• What are included in alternative markets?
• What securities are considered traditional investment markets?

Level III and Rule 144A

• What types of ADRs can raise money in the US?
• What are the five classes of assets?
• What is the call money rate?
• What type of efficiency are markets most likely?

Adding or taking away securities that no longer fit in the definition of the index.

• What is the price return.
• What is index reconstitution?
• What are validity instructions?
• What is the total return?

(1) discounted cash flow (2) price multiples (3) asset-based models for stock valuation.

• What is the book value of an equity?
• What are the three main methods of valuing equity?
• What are the three main functions of financial markets?
• What are the three ways commodities trade?

hedge funds, commodities, real estate, collectibles, gemstones, lease, equipment.

• What are quote driven markets?
• What are included in alternative markets?
• What are validity instructions?
• What is an order drive market?

the hedge funds themselves, bc they don't have to report if they don't want to.

• What are the five classes of assets?
• What are constituent securities?
• For hedge funds, who decides the constituents of a fund?
• What is index reconstitution?

prices fully reflect all publicly available info.

• What is weak form market efficiency.
• What is the strong form market efficiency?
• What is the book value of an equity?
• What is the semi-strong form of market efficiency?

semi-strong

• What type of pricing does value tilt apply to?
• What is the strong form market efficiency?
• What type of efficiency are markets most likely?
• What do financial assets include?

(1) secuirites (2) currencies (3) contracts (4) commodities (5) real assets

• What is the book value of an equity?
• What are quote driven markets?
• What are the five classes of assets?
• What are the five life cycle stages of industries?

listing expenses are high.

• If an ADR trades on an exchange (Level II and III), what are its expenses compared to an ADR that trades OTC?
• What types of ADRs can raise money in the US?
• What securities are considered traditional investment markets?
• What is the process of gathering indications of interest called?

Specifications of when an order can be filled. AKA time in force Day orders, GTC, fill-or-kill.

• What are credit default swaps?
• What are securitizers?
• What are validity instructions?
• What are constituent securities?

Price

• What type of pricing does value tilt apply to?
• What types of ADRs can raise money in the US?
• What type of weighting do you have to adjust for stock splits?
• What type of efficiency are markets most likely?

Growth and defensive.

• What are two sub classifications of non-cyclical stocks?
• What are the three main functions of financial markets?
• What are the three main methods of valuing equity?
• What are the five classes of assets?

EV = Market value of common and preferred shares + market value of debt - cash and short-term investments

• Equation for the leverage ratio.
• Equation for the margin call price.
• Equation for the justified PE ratio
• Equation for Enterprise Value (EV)

Forwards are not standardized, nor do the trade on exchanges or in dealer markets.

• What is the price return.
• What are the five life cycle stages of industries?
• What is the difference between a future and a forward?
• What is the book value of an equity?

market cap.

• how is the SP 500 weighted?
• What is the total return?
• What is the call money rate?
• What is the price return.

a form of insurance that makes a payment if an issuer defaults on a bond.

• What are credit default swaps?
• What are validity instructions?
• What are securitizers?
• What are quote driven markets?

Market prices reflect all currently available security market info.

• What is the book value of an equity?
• What is weak form market efficiency.
• What is the strong form market efficiency?
• What is a brokered market?

(1) cost leadership (2) product or service differentiation

• What are Porter's two competitive strategies?
• What are constituent securities?
• What are included in alternative markets?
• What are the three ways commodities trade?

Securities that are in an index.

• What are constituent securities?
• What are validity instructions?
• What are credit default swaps?
• What are securitizers?

arithmetic mean of the price.

• What is the price return.
• how is the SP 500 weighted?
• How do calculate price weighted average?
• How to calculate equal weighted average?

(1) Rivalry among existing competitors (2) threat of new entrants (3) threat of substitute products (4) bargaining power of buyers (5) Bargaining power of suppliers

• What is an order drive market?
• What are Porter's five forces?
• What are quote driven markets?
• What are Porter's two competitive strategies?

The return based solely on the price movement.

• What is the total return?
• What is index reconstitution?
• What is the price return.
• What is the call money rate?