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

• Question 3231:

  A sample of the personnel files of eight male employees revealed that during a six month period, they lost the following number of days due to illness: 2, 0, 6, 3, 10, 4, 1 and 2. What is the mean deviation (in days)?

  A. 2 3/8

  B. None of these answers

  C. 1

  D. 0

  E. 3 1/8

  Correct Answer: A

  The mean is 3.5. The mean deviation is the absolute values of the deviation from the mean. (1.5 + 3.5 +

  2.5 + 0.5 + 6.5 + 0.5 + 2.5 + 1.5)/8 = 19/8 = 2.375

• Question 3232:

  The slope coefficient in a regression measures:

  A. The significance of the regression line.

  B. The percentage change in the dependent variable caused by a 1% change in the independent variable.

  C. The rate at which the dependent variable changes with respect to the independent variable.

  D. The change in the independent variable caused by a unit change in the dependent variable.

  Correct Answer: C

  In a univariate regression, the slope coefficient gives the change in the dependent variable caused by a unit change in the independent variable. It thus measures the rate at which the dependent variable changes with respect to the independent variable.

• Question 3233:

  Which of the following is/are true?

  I. A sample is a subset of the population.

  II. The population mean is used to estimate the sample mean.

  III. The population mean equals the sum of all the available observations divided by the number of observations.

  IV.

  A sample has a unique mean.

  A.

  I, II, III and IV

  B.

  I, III and IV

  C.

  IV only

  D.

  I only

  E.

  I and III

  F.

  I and IV

  G.

  II only

  H.

  III only

  Correct Answer: F

  The sample mean is used to estimate the population mean, not the other way around. The sum of all the available observations divided by the number of observations is the sample mean, not the population mean (unless the observation set equals the entire population, which is almost never the case).

• Question 3234:

  What amount would you have in your savings account in 5 years, if it has a balance of $1,234 today and you deposit an additional $1,234 two years from today? Assume that the savings account earns 5% per year, compounded annually.

  A. $10,048.91

  B. $3,003.44

  C. $2,468.00

  D. $2,999.86

  E. $3,149.86

  Correct Answer: B

  Solve this question as two compound interest problems. The first $1,234 will be in the account for 5 years. The second $1,234 will be in the account for 3 years. Find the FV of both values 5 years from today and add them together. On the BAII Plus, press 5 N, 5 I/Y, 1234 PV, 0 PMT, CPT FV, which yields $1,574.93. Then press STO 1. Then press 3 N, CPT FV, which yields $1,428.51. Press + RCL 1 = to see the answer. On the HP12C, press 5 n, 5 i, 1234 PV, 0 PMT, FV. Then press STO 1. Then press 3 n, FV. Press RCL 1

  + to see the answer. 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 3235:

  The probability that SUV sales will decline by over 10% by June 1 if gasoline prices increase by 50% by May 1, is called:

  A. a lagged likelihood.

  B. an unconditional probability.

  C. a joint probability.

  D. a conditional probability.

  Correct Answer: D

  A conditional probability takes the form of P(A|B), the probability that a an event (A) will happen, given the occurrence of another event, B. It is conditional because it is conditioned on another event, B.

• Question 3236:

  You are examining a group of 6 stocks within an industry. The industry average profit margin is expected to be 30%. For these stocks, the average profit margins have been 50%, 25%, 15%, 5%, 45%, and 30%. What is the mean absolute deviation of profit margins from the industry average?

  A. 13.3%.

  B. 13.7%.

  C. 13.5%.

  D. 13.0%.

  Correct Answer: A

  The mean absolute deviation = the sum of (as i goes from 1 to n) of the absolute value of (X_i - Xbar), divided by n. Here, we have [|50% - 30%| + |25% - 30%| + |15% - 30%| + |5% - 30%| + |45% - 30%| + |30%

  -30%|]/6 = 13.33%

• Question 3237:

  A bank savings account offers a savings rate of 3.5% per year, compounded annually. How long would it take for an investment of $710 to grow to $1,000?

  A. 9 years

  B. 8 years

  C. 11 years

  D. 10 years

  Correct Answer: D

  If it takes n years for the growth, then 1000 = 710*(1+3.5%)^n. Solving for n gives 9.96 years.

• Question 3238:

  Assume you buy a computer for $1,350 and agree to pay for it with 24 payments of $45, beginning next month. What is the size of the final payment needed at month 24 to completely pay off the computer, if the interest rate you are being charged is 16% per year, compounded monthly?

  A. $707.88

  B. $387.14

  C. $494.39

  D. $0.00

  E. $592.21

  Correct Answer: E

  This question describes a situation often called a balloon payment. On the BAII Plus, press 24 N, 16 divide 12 = I/Y, 1350 PV, 45 +/- PMT, CPT FV. On the HP12C, press 24 n, 16 ENTER 12 divide i, 1350 PV, 45 CHS PMT, FV. The answer is shown as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3239:

  In a regression, the independent variable explains 79% of the variance in the dependent variable, leaving 21% unexplained. The slope coefficient is 0.67 and the intercept equals -10.2 The correlation coefficient between the two variables is

  A. 0.21

  B. 0.89

  C. 0.31

  D. -0.79

  Correct Answer: B

  In a univariate regression, the correlation coefficient between the dependent and the independent variables equals the square root of R-square. However, you should also be careful about the sign, which is not given by the R-square. Rather, you have to look at the sign of the slope coefficient. In this case, the slope coefficient is positive, implying that the dependent and the independent variables are positively correlated. The R-square equals 79% so the correlation coefficient equals +sqrt(0.79) = 0.89.

• Question 3240:

  RipOff Dealers, Inc. offers a financing plan for car purchases, charging 2% per month. If a car costs $30,000, what's the monthly payment you will have to make - starting a month from now - if you need 5 years to pay off the debt on the car?

  A. $824

  B. $513

  C. $863

  D. $798

  Correct Answer: C

  The payments constitute an ordinary annuity. The present value of an n-period annuity that starts paying at the end of the current period equals PV = (C/r)*[1 - 1/(1+r)^n] where C is the payment per period and r is the one-period interest rate. In this example, the annuity is over 5*12 = 60 periods and the per period rate equals 2%. So the present value of the payments equals (C/0.02)*[1 - 1/1.02^60] = 30,000 (given). Solving for C gives the per month payment equal to $863.