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CFA Level 2 — free MCQ practice

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CFA Level 2 subjects

Finance (30)

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AnnuitiesFinanceTime Value of Money

Try a CFA Level 2 question

An analyst moves a future cash flow backwards along a timeline to state it in today's money. That step is called:Read the answer and worked solution →A share pays a fixed dividend forever. Because that perpetuity never ends, you cannot compute its:Read the answer and worked solution →A preferred share pays 8 a year and investors require 10 percent. Its value today is 8 divided by:Read the answer and worked solution →The rate used to value that share is not the rate printed on the stock but the:Read the answer and worked solution →

Worked practice questions

An analyst moves a future cash flow backwards along a timeline to state it in today's money. That step is called:

  1. Discounting
  2. Compounding
  3. Converting
  4. Correcting
Show answer and solution

Correct answer: A. Discounting

1. Moving forward on a timeline builds value up and is compounding. 2. Moving backward strips the growth back out again. 3. That backward step is discounting. _Source: OpenStax Principles of Finance 2e, Chapter 8, Time Value of Money II._

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A share pays a fixed dividend forever. Because that perpetuity never ends, you cannot compute its:

  1. Dividend rate
  2. Future value
  3. Present value
  4. Payment size
Show answer and solution

Correct answer: B. Future value

1. A future value needs a fixed end point to compound towards. 2. A perpetuity has no end point at all. 3. So its future value cannot be determined, though its present value can. _Source: OpenStax Principles of Finance 2e, Chapter 8, Time Value of Money II._

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A preferred share pays 8 a year and investors require 10 percent. Its value today is 8 divided by:

  1. 0.10
  2. 0.08
  3. 1.10
  4. 8.00
Show answer and solution

Correct answer: A. 0.10

1. The price is the annual dividend divided by the rate of return. 2. The dividend is 8 and the required return is 0.10. 3. So the value is 8 divided by 0.10, which is 80. _Source: OpenStax Principles of Finance 2e, Chapter 8, Time Value of Money II._

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How to practise

  1. Choose a CFA Level 2 question and try to work out your answer.
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