CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 3181:

  You are reviewing a list of 8 recommended securities and wish to invest in 4. You will put 40% of your capital in one, 30% in another, 20% in the third, and 10% in the last one. How many different ways can you choose among the 8 securities and invest according to your design?

  A. 1,980.

  B. 1,680.

  C. 1,774.

  D. 1,860.

  Correct Answer: B

  The combination, or binomial formula, gives the number of ways that k objects can be chosen from n items, without regard to the order of choosing. The formula is (n choose k) = n! / [k! *(n-k)!]. However, in this case, the order does matter. If we choose stocks 3, 1, 7, and 5, we don't consider that the same as choosing 5, 7, 1 and 3, because the portfolio weights would differ. We need the general permutation formula, which gives the number of ways that k objects can be chosen from n items, with regard to order. The formula is n_P_k = n! / (n-k)!. Here, it is 8! / (8-4)! = 8 * 7 * 6 * 5 = 1,680.

• Question 3182:

  What is the present value of $250 per year for 6 years, with the first cash flow occurring today, rather than 1 year from now? Assume interest is 7% per year, compounded annually.

  A. $1,209.48

  B. $1,500.00

  C. $1,191.63

  D. $1,275.05

  E. $1,293.55

  Correct Answer: D

  Recognize that this question is an annuity due situation, since the first cash flow occurs immediately or at the beginning of each period. Annuities where the first payment occurs 1 period from today (or at the end of each period) are called "ordinary" annuities. This requires placing the calculator into "Begin" mode prior to solving the question. NOTE: Be sure to place the calculator OUT OF annuity due mode after this question before going on to subsequent questions, or you will get the wrong answers! On the BAII Plus, press 2nd BGN. If the display shows END, then press 2nd SET and then 2nd Quit. This will place the BAII Plus into annuity due mode (you can tell this because the BAII Plus will display BGN in small letters). Now press 6 N, 7 I/Y, 250 PMT, 0 FV, CPT PV. Place the calculator back into End mode (for ordinary annuities) by pressing 2nd BGN and then if the calculator is displaying BGN, press 2nd SET and 2nd Quit. The BGN letters should disappear from the display. On the HP12C, press BlueShift END, which is the blue function on the front of the 8 digit key. This places the HP12C into Begin mode (the HP12C shows the word BEGIN in the display when in this mode). Then press 6 n, 7 i, 250 PMT, 0 FV, PV. To place the HP12C back into ordinary annuity mode (or END mode), press BlueShift BEG (the blue function written on the front of the 7 digit key). Note that the answer is displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3183:

  What are the critical values for a two-tailed test of hypothesis test if alpha = .01?

  A. +/- 1.645

  B. +/- 2.58

  C. +/- 1.96

  D. None of these answers

  E. +/- 2.33

  Correct Answer: B

  For a level of significance of 0.01, we can find the z value by 1.0 - 0.505 = 0.495 which is 2.58.

• Question 3184:

  A test statistic is:

  A. a value calculated from a sample and used to accept or reject the null hypothesis.

  B. all of these answers.

  C. a sample value that is used to measure a population parameter.

  D. a parameter characterizing the null hypothesis.

  Correct Answer: A

  A test statistic is a value calculated from a sample and used to accept or reject the null hypothesis concerning a population's parameter.

• Question 3185:

  If you deposit $250 a year, beginning next year, for 30 years into an account paying 6% per year, compounded annually, how much is in your account after that last deposit?

  A. $21,149.52

  B. $12,334.91

  C. $19,764.55

  D. $18,304.12

  E. $3,441.21

  Correct Answer: C

  On the BAII Plus, press 30 N, 6 I/Y, 0 PV, 250 PMT, CPT FV. On the HP12C, press 30 n, 6 i, 0 PV, 250 PMT, FV. Note that the answer is displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3186:

  If you deposit $2,000 today, how much will you have in 3 years, if interest is earned at a rate of 8% per year, compounded annually?

  A. $2,519.42

  B. $2,576.14

  C. $2,400.00

  D. $3,121.88

  E. $2,614.09

  Correct Answer: A

  On the BAII Plus, press 3 N, 8 I/Y, 2000 PV, 0 PMT, CPT FV. On the HP12C, press 3 n, 8 i, 2000 PV, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3187:

  The mean of a normal distribution is 400 pounds. The standard deviation is 10 pounds. What is the area between 415 pounds and the mean of 400 pounds?

  A. None of these answers

  B. 0.4332

  C. 0.3413

  D. 0.1932

  E. 0.5000

  Correct Answer: B

  z = (x-u)/sigma. z = 415 - 400/10 = 1.5. From the z-tables, z = 1.5 is 0.4332. Since we are considering just one side of the distribution and the area from the mean, then the area between the points is 0.4332.

• Question 3188:

  Four of your firm's analysts have been chosen as finalists for the Wealth Magazine All-Star Analysts team. They will get different bonuses depending on the order in which they finish among themselves. How many different ways could they finish?

  A. 10.

  B. 24.

  C. 16.

  D. 36.

  Correct Answer: B

  The factorial method allows you to determine the number of ways of arranging n things. Initially, there are n choices for the first item, then n-1 for the second, and so on. The number of combinations is therefore n! = n * (n-1) * (n-2) * (n-3) * ...

  * (1). Here, we wish to find out how many different orders can be made with 4 persons. The answer is 4! = 4 * 3 * 2 * 1 = 24.

• Question 3189:

  The following are the weekly amounts of welfare payments made by the federal government to a sample of six families: $139, $136, $130, $136, $147 and $136. What is the range?

  A. $52

  B. None of these answers

  C. $14

  D. $17

  E. $0

  Correct Answer: D

  Range = 147 - 130 = 17

• Question 3190:

  A board of directors consists of eight men and four women. A four member search committee is to be chosen at random to recommend a new company president. What is the probability that all four members of the search committee will be women?

  A. None of these answers

  B. 1/16 or 0.0625

  C. 1/495 or 0.002

  D. 1/8 or 0.125

  E. 1/120 or 0.00083

  Correct Answer: C

  4/12*3/11*2/10*1/9 = 1/495