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

• Question 3211:

  A mortgage holding company has found that 1% of its mortgage holders default on their mortgage and lose the property. Furthermore, 90% of those who default are late on at least two monthly payments over the life of their mortgage as compared to 45% of those who do not default. What is the probability that a mortgagee with two or more late monthly payments will default on the mortgage and lose the property?

  A. None of these answers

  B. 0.019

  C. 0.009

  D. 0.020

  E. 0.018

  Correct Answer: D

  We have P(def) = 0.01. P(not def) = 0.99. P(two late payments/def) = 0.90. P(two late payments/not def) =

  0.45. Using Bayes formula: p(def/two late payments) = (0.01*0.9)/(0.01*0.9 + 0.99*0.45) = 0.0198 = 0.020.

• Question 3212:

  During the past six months, the purchasing agent bought:

  Tons of Coal 1,200 3,000 500 Price Per Ton $28.50 $87.25 $88.00

  What is the weighted mean price per ton?

  A. $89.18

  B. $68.47

  C. None of these answers

  D. $87.25

  E. $72.33

  Correct Answer: E

  (1200*28.5)+(3000*87.25)+(500*88) = 339950. Mean = 339950/4700 = 72.33

• Question 3213:

  How many months will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 7% per year, compounded monthly?

  A. 9.93

  B. 10.24

  C. 117.19

  D. 125.42

  E. 119.17

  Correct Answer: E

  On the BAII Plus, press 1000 PV, 2000 +/- FV, 0 PMT, 7 divide 12 = I/Y, then CPT N. On the HP12C, press 1000 PV, 2000 CHS FV, 0 PMT, 7 ENTER 12 divide i, then press n. HP12C answer is shown as

  120. Answer should be in months, not years. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3214:

  You are examining the return on equity ratios of the nation's commercial airlines. You have calculated the mean ROE to be 8%, and the sum of the squared ROEs is 0.27. Assuming there are 30 commercial airlines, what is the population variance of ROEs in this industry?

  A. 8%%.

  B. 12%%.

  C. 20%%.

  D. 26%%.

  Correct Answer: D

  The population variance is equal to the sum of the squared differences between each population member and the population mean, divided by the number of items in the population. There is, however, an equivalent alternate formula that is more often used for large amounts of calculation. It is equal to the average squared observation less the squared mean. In this case, we have the average squared observation will be 0.27 / 30 = 0.009, less the squared mean of 8%. We have 0.009 - 0.0064 = 0.0026 = 26%%.

• Question 3215:

  Suppose a research firm conducted a survey to determine the average amount of money steady smokers spend on cigarettes during a week. A sample of 500 steady smokers revealed that the sample mean is $20 and the sample standard deviation is $5. What is the point estimate?

  A. $20

  B. None of these answers

  C. $25

  D. $0.04

  E. $5

  Correct Answer: A

  The sample mean is a good estimate for the population mean.

• Question 3216:

  A survey of passengers on domestic flights revealed these miles:

  Miles Flown Number of Passengers 100 - 49916 500 - 89941 900 - 129981 1300 - 169911 1700 - 20999 2100 - 24996

  What is the range (in miles)?

  A. 1,100

  B. 1,999

  C. 2,499

  D. 2,399

  E. None of these answers

  Correct Answer: D

  2499 - 100 = 2399

• Question 3217:

  The coefficient of variation is useful when:

  I. The frequency distribution contains open-ended classes or overlapping classes.

  II. The data sets being compared contain data in different measurement units.

  III.

  The data sets being compared contain data with similar measurement units.

  A.

  I only

  B.

  I and II

  C.

  III only

  D.

  II only

  E.

  I and III

  Correct Answer: D

  The coefficient of variation is useful when the means of the data sets are widely different or when the observations are in different measurement units.

• Question 3218:

  If you buy an item for $475 and agree to pay for it with 24 monthly payments of $22.50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

  A. 17.53%

  B. 14.15%

  C. 12.63%

  D. 12.92%

  E. 1.05%

  Correct Answer: C

  The interest rate returned by the calculator will be the periodic interest rate. It must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 24 N, 475 PV, 22.50 +/PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 24 n, 475 PV, 22.50 CHS PMT, 0 FV, i. Then press 12 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3219:

  What is the area under the normal curve between z = 1.0 and z = 2.0?

  A. 1.0000

  B. 0.1359

  C. None of these answers

  D. 0.7408

  E. 0.4772

  Correct Answer: B

  From the z-tables, z = 1 is 0.3413 and z = 2 is 0.4772. So the area in between is 0.4772 - 0.3413 = 0.1359.

• Question 3220:

  For a one-tailed hypothesis test, the critical value of the test statistic is -2.33. Which of the following is true about the hypothesis test?

  A. alpha = .05 for a lower-tailed test

  B. alpha = .01 for an upper-tailed test

  C. alpha = .05 for an upper-tailed test

  D. alpha = .01 for a lower-tailed test

  E. none of these answers

  Correct Answer: D

  This is a one tailed test and the z-value of -2.33 suggests that it is a lower tailed test and that it is for a 1% level of significance.