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

• Question 3241:

  If you buy an item for $500 and agree to pay for it with 24 monthly payments of $24.50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

  A. 1.34%

  B. 26.53%

  C. 16.08%

  D. 11.15%

  E. 14.92%

  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, 500 PV, 24.50 +/PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 24 n, 500 PV, 24.50 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 3242:

  Three young children approach a gum ball machine, each with a nickel to spend. The machine has just been filled with 50 black, 150 white, 100 red and 100 yellow balls that have been thoroughly mixed. Sue and Jim approached the machine first. They both said they wanted red gum balls. What is the likelihood they both will get their wish?

  A. None of these answers

  B. 0.062

  C. 0.33

  D. 0.75

  E. 0.50

  Correct Answer: B

  100/400*99/399 = 0.062

• Question 3243:

  Which of the following is not a characteristic of the normal probability distribution?

  A. Bell shaped

  B. Symmetrical

  C. All of these answers

  D. Positively skewed

  E. Asymptotic

  Correct Answer: D

  The normal probability distribution is not skewed but bell shaped and symmetric.

• Question 3244:

  What annual interest rate, compounded annually, is equivalent to 6% per year, compounded monthly?

  A. 6.01%

  B. 6.17%

  C. 6.09%

  D. 6%

  E. 5.87%

  Correct Answer: B

• Question 3245:

  What is the Net Present Value of this series of annual cash flows: Year 0: <$20,000>, Year 1: $15,000, Year 2: $5,000, Year 3: $7,500, using an interest rate of 10% per year? (Note that the <> are used to indicate a negative number).

  A. $2,851.93

  B. $3,512.81

  C. $48.12

  D. $4,116.55

  E. $3,403.46

  Correct Answer: E

  On the BAII Plus, press CF 2nd CLRWork 20000 +/- ENTER DownArrow 15000 ENTER DownArrow DownArrow 5000 ENTER DownArrow DownArrow 7500 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 10 ENTER DownArrow CPT. On the HP12C, press these keys: 20000 CHS BlueShift CFo 15000 BlueShift CFj 5000 BlueShift CFj 7500 BlueShift CFj Then press 10 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard.

• Question 3246:

  Which of the following is/are true about a standard normal distribution?

  I. It has zero skewness.

  II. It is characterized completely by exactly one parameter.

  III. It ranges from negative infinity to positive infinity.

  IV.

  It has a non-zero mean and variance.

  A.

  I, II, III and IV

  B.

  I and III

  C.

  II only

  D.

  III only

  E.

  I only

  F.

  IV only

  G.

  II and III

  H.

  III and IV

  Correct Answer: B

  A normal distribution is characterized by two parameters, the mean and the variance. The standard normal distribution, though, has a zero mean and a variance of 1 and hence, has no free parameters.

• Question 3247:

  What annual interest rate, compounded annually, is equivalent to 7% per year, compounded quarterly?

  A. 6.88%

  B. 7.19%

  C. 7%

  D. 7.03%

  E. 7.09%

  Correct Answer: B

• Question 3248:

  The following stock market return data were observed last year:

  Returns# of stocks less than -5% 129 between -5% and 0% 301 between 0% and 10% 636 between 10% and 20% 274 more than 20% 173

  The probability that a randomly selected stock had either a negative return or a return more than 20% equals ________.

  A. 0.27

  B. 0.53

  C. 0.60

  D. 0.40

  Correct Answer: D

  For a frequency distribution, the estimated probability of a particular class/event occurring equals the relative frequency of that class. Now, the number of stocks that had either a negative return or a return more than 20% equals 129 + 301 + 173 = 603. The total number of stocks equals 129 + 301 + 636 + 274 + 173 = 1513. Therefore, the estimated probability of a randomly selected stock having either a negative return or a return more than 20% equals 603/1513 = 0.40.

• Question 3249:

  Kevin wants to retire a millionaire. If he is 45 years old today and already has $80,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

  A. $1,028.58

  B. $1,760.14

  C. $407.81

  D. $1,138.45

  E. $2,119.81

  Correct Answer: A

  The total number of deposits will be 240 (20 years x 12 months/year). On the BAII Plus, press 240 N, 8 divide 12 = I/Y, 80000 PV, 1000000 +/- FV, CPT PMT. On the HP12C, press 240 n, 8 ENTER 12 divide i, 80000 PV, 1000000 CHS FV, PMT. 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 3250:

  The employees of Cartwright Manufacturing are awarded efficiency ratings. The distribution of the ratings approximates a normal distribution. The mean is 400, the standard deviation 50. What is the area under the normal curve between 400 and 482?

  A. 0.4750

  B. 0.3413

  C. 0.5000

  D. 0.4495

  E. None of these answers

  Correct Answer: D

  z = (x-u)/sigma. z1 = 400 - 400/50 = 0 and z2 = 482 - 400/50 = 1.64. Therefore for z = 1.64, the area under the curve is 0.4495.