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  1. Home
  2. CFA Certification
  3. CFA-Level-I Exam
  4. CFA.CFA-Level-I.v2022-03-26.q499 Dumps
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Question 191

You have invested in a stock with an expected return of 14% and a standard deviation of 7%. Your target rate of return is 7%. What is the probability that you will not meet your objective, assuming stock returns are normally distributed?

Correct Answer: A
There is a 68% chance that the stock returns will be within one standard deviation of the mean i.e. with 68% chance, the stock returns will be between 7% and 21%. Hence, the probability that stock returns will lie outside this range is 100% - 68% = 32%. Since the normal distribution is symmetrically distributed about the mean, the probability that the returns will be less than 7% equals 32/2
= 16% Instead of the above, you could also solve the problem using the z-score and the normal probability distribution table. You should, however, be aware of short-cuts like the above.
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Question 192

What effect does an increase in a Deferred Tax Asset have on Income Tax Expense?

Correct Answer: A
A Deferred Tax Asset results from temporary differences that increase current taxable income compared to current pretax accounting income. This expense should not be recorded on an accrual basis until incurred in a future period. For this reason, an increase in a Deferred Tax Asset decreases the current period's Income Tax Expense.
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Question 193

Credit spread risk can be described as the risk that the price of a bond will

Correct Answer: B
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Question 194

The characteristics of an effective financial reporting framework do not include:
I). Relevance.
II). Transparency.
III). Reliability.
IV). Comprehensiveness.
V. Consistency.

Correct Answer: B
The three characteristics are transparency, comprehensiveness and consistency.
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Question 195

If an inflation is caused by a demand shock, raising interest rates will likely:

Correct Answer: A
If the central bank is sure that there is a positive demand shock, raising interest rates is appropriate to bring the inflationary pressures under control.
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