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

• Question 3251:

  Under the null hypothesis, Ho, x = y. Under the alternative hypothesis, x does not equal y. If the critical z-statistic for the desired significance level is 1.68 and you find the z-statistic to be -3.2, you should:

  A. Reject the alternative hypothesis.

  B. Reject the null hypothesis.

  C. Fail to reject the null hypothesis.

  D. Accept the null hypothesis.

  Correct Answer: B

  Since the z-statistic is larger in magnitude than the critical value, you should reject the null hypothesis. Note that all the other alternatives loosely mean the same thing.

• Question 3252:

  What does a regression equation do?

  A. Predicts the value of the independent variable based on the dependent variable

  B. All of these answers

  C. None of these answers

  D. Measures the association between two variables

  E. Predicts the value of the dependent variable based on the independent variable

  Correct Answer: E

  The dependent variable is the variable Y which is being predicted by the X variable, the independent variable. The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line. Y' is the predicted value of Y given a specific value of X.

• Question 3253:

  There are 2,000 eligible voters in a precinct. Despite protests from knowledgeable persons that a sample size of 500 was too large in relation to the total, the 500 selected at random were asked to indicate whether they planned to vote for the Democratic incumbent or the Republican challenger. Of the 500 surveyed, 350 said they were going to vote for the Democratic incumbent. Using the 0.99 confidence coefficient, what is the confidence limits for the proportion who plan to vote for the Democratic incumbent?

  A. 0.060 and 0.700

  B. 0.826 and 0.926

  C. None of these answers

  D. 0.397 and 0.797

  E. 0.612 and 0.712

  Correct Answer: C

  Interval estimate can be found from p +/- z[p(1-p)/n]^0.5. Here we have n = 500, p = 350/500 = 0.7 and z =

  2.58 (for 99%). Therefore 0.7 +/- 2.58*0.02049 and we get 0.647 and 0.7529.

• Question 3254:

  Three defective electric toothbrushes were accidentally shipped to a drugstore by the manufacturer along with 17 nondefective ones. What is the probability that the first two electric toothbrushes sold will be returned to the drugstore because they are defective?

  A. 1/4 or 0.25

  B. 3/20 or 0.15

  C. None of these answers

  D. 3/17 or 0.176

  E. 3/190 or 0.01579

  Correct Answer: E

  3/20*2/19 = 3/190

• Question 3255:

  How many quarters will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 6% per year, compounded quarterly?

  A. 22.15

  B. 11.90

  C. 41.12

  D. 51.52

  E. 46.56

  Correct Answer: E

  On the BAII Plus, press 1000 PV, 2000 +/- FV, 0 PMT, 6 divided by 4 = I/Y, then CPT N. On the HP12C, press 1000 PV, 2000 CHS FV, 0 PMT, 6 ENTER 4 divide i, then press n. HP12C answer is shown as 47. Answer should be in quarters, not years. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3256:

  Given the following four points: (-2, 0), (-1,0), (0,1), (1, 1) and (2, 3) What is the standard error of the regression line estimate?

  A. None of these answers

  B. 0.135

  C. 0

  D. 0.606

  E. 0.367

  Correct Answer: C

  For this, you need to create tables with columns for X,Y,XY,X^2,Y' and Y-Y'. This will be as follows.

  XYXY X^2 Y'Y-Y' -2004-0.40.4 -10010.3-0.3 010010 11111.7-0.7 23642.40.6 Sum057100

  N=5.

  The regression equation is Y' = a + bX.

  The standard error of estimate is

  s = sq. root of [S(Y-Y')^2/n-2] where S stands for "Sum of." S = [0^2/3] = 0.

• Question 3257:

  A study of the opinion of designers with respect to the primary color most desirable for use in executive offices showed that:

  Primary Color Number of Opinions Red 92 Orange 86 Yellow 46 Green 91 Blue 37 Indigo 46 Violet 2

  What is the probability that a designer does not prefer yellow?

  A. 1.000

  B. 0.885

  C. None of these answers

  D. 0.765

  E. 0.000

  Correct Answer: B

  There are 400 opinions. 46/400 prefer yellow. So 1 - 46/400 = 177/200 = 0.885 does not prefer yellow.

• Question 3258:

  What is the median of 26, 30, 24, 32, 32, 31, 27 and 29?

  B. 30

  C. None of these answers

  D. 29

  E. 29.5

  Correct Answer: E

  Ordering the numbers we have 24,26,27,29,30,31,32,32. Since there is an even number of observations (8), the median is the average of the two middle observations (29 + 30)/2 = 29.5.

• Question 3259:

  If the significance level of a test is the probability of incorrectly rejecting the null hypothesis, then the "power of a test" is defined as which of the following? Choose the best answer.

  A. The probability of a Type II error.

  B. More than one of these answers is correct.

  C. The "power of a test" is a nonsensical term.

  D. The probability of incorrectly accepting the alternate hypothesis.

  E. The probability of correctly rejecting the null.

  F. The probability of a Type I error.

  Correct Answer: E

  If the significance level of a test is the probability of incorrectly rejecting the null hypothesis (a Type I error), then the power of the test is defined as the probability of correctly rejecting the null hypothesis. In other words, the power of a test is equal to (1 - the probability of a Type II error). The standard method of hypothesis testing involves stating only the significance level, which is equal to the probability of a Type I error.

• Question 3260:

  Management is considering adopting a bonus system to increase production. One suggestion is to pay a bonus on the highest 5 percent of production based on past experience. Past records indicate that, on the average, 4,000 units of a small assembly are produced during a week. The distribution of the weekly production is approximately normally distributed with a standard deviation of 60 units. If the bonus is paid on the upper 5 percent of production, the bonus will be paid on how many units or more?

  A. None of these answers

  B. 3196

  C. 5120

  D. 4099

  E. 6255

  Correct Answer: D

  We want the area 1.0 - 0.55 = 0.45. For this we have a z value of 1.645. Now, using z = (x-u)/sigma, we have 1.645 = (x-4000)/60. x = 4099.