CFA Level 1 Free Practice Test

1. The exchange rate between two currencies has decreased to 101.34. The price currency has appreciated by 7.5 percent against the base currency. The initial exchange between the two currencies was closest to:

2. Which of the following statements is/are most likely correct?

I: The demand for a country’s currency is a downward-sloping function of its exchange rate.
II: Purchasing power parity refers to the relation between interest rates for two currencies and changes in their exchange rates.
III: Interest rate parity refers to the relation between countries’ inflation rates and exchange rates of their currencies.

3. Which of the following forms of trading blocs allow for unrestricted trade of goods and services among its members?

I. Free trade areas
II. Customs unions
III. Common market

4. A portfolio manager has a tight tracking error of 50 basis points. The manager expects to be within this tracking error for a given quarter 85% of the time.

If that expectation is correct and each quarter is independent, the probability that the manager is within the tracking error for at least 7 of the next 8 quarters is closest to:

5. The market values of a firm’s capital are given below:

Total debt: USD7 million
Outstanding preferred stock: USD2 million
Outstanding common stock: USD12 million
Before-tax cost of debt: 8%
Before-tax cost of common equity: 12%
Before-tax cost of preferred stock: 9%

Assuming company’s marginal tax rate is 35%, what is the weighted average cost of capital (WACC) for the firm?