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

• Question 3261:

  A selected group of employees of Unique Buying Services is to be surveyed with respect to a new pension

  plan. In depth interviews are to be conducted with each employee selected in the sample.

  The employees are classified as follows.

  Classification Event Number of Employees

  Supervisors A 120

  Maintenance B 50

  Production C 1,460

  Management D 302

  Secretarial E 68

  What is the probability that the first person selected is classified as a maintenance employee?

  A. 0.025

  B. 0.50

  C. None of these answers

  D. 0.20

  E. 1.00

  Correct Answer: A

  There are 2000 employees of which 50 are from maintenance. So 50/2000 = 0.025.

• Question 3262:

  Which measure of central tendency is used to determine the average annual percent increase?

  A. Mode

  B. Mean

  C. Weighted mean

  D. Median

  E. Geometric mean

  Correct Answer: E

  The formulaic presentation of the geometric mean is suited for calculating percentage changes. The geometric mean of a set of n positive numbers and is defined as the nth root of the product of the n numbers The two main uses of the geometric mean (GM) are:

  1.

  To average percents, indexes, and relatives, and

  2.

  To determine the average percent increase in sales, production or other business or economic series from one time period to another.

• Question 3263:

  What is the Net Present Value of this series of annual cash flows using an interest rate of 15% per year: Year 0: <$15,000>, Year 1: $5,000, Year 2: $8,000, Year 3: $11,000? (Note that the <> are used to indicate a negative number).

  A. $2,589.11

  B. $3,104.37

  C. $2,981.21

  D. $5,077.49

  E. $2,629.65

  Correct Answer: E

  On the BAII Plus, press CF 2nd CLRWork 15000 +/- ENTER DownArrow 5000 ENTER DownArrow DownArrow 8000 ENTER DownArrow DownArrow 11000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 15 ENTER DownArrow CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo 5000 BlueShift CFj 8000 BlueShift CFj 11000 BlueShift CFj Then press 15 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3264:

  How many monthly payments of $30, beginning next month, are needed to pay off a debt of $1,000, if interest accrues at 10% per year, compounded monthly?

  A. No solution/Error

  B. 32.80

  C. 51.48

  D. 39.21

  E. 27.60

  Correct Answer: D

  On the BAII Plus, press 10 divide 12 = I/Y, 1000 PV, 30 +/- PMT, 0 FV, CPT N. On the HP12C, press 10 ENTER 12 divide i, 1000 PV, 30 CHS PMT, 0 FV, n. Note that the HP12C will display 40 as the answer. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3265:

  Which of the following is/are true?

  I. It is harder to reject the null under a two-tailed test than under a one-tailed test.

  II. To test the hypothesis: Ho: X = 0, H1: X < 0, you have to employ a left-tailed test.

  III. The acceptance region under a right tailed test extends from zero to positive infinity.

  IV.

  The critical z-statistics in one-tailed tests are always lower than the z-statistics in the corresponding two-tailed test.

  A.

  I, II, III and IV

  B.

  none of these answers

  C.

  I, II and III

  D.

  I, II and IV

  E.

  II, III and IV

  Correct Answer: D

  Under a two-tailed test, values on either side of the null can contribute to a rejection. Hence, the critical values under a two-tailed test have to be higher than under a one-tailed test for a given level of significance. This makes it harder to reject the null under a two-tailed test. This makes intuitive sense. In a one-tailed test, you are specifying a stricter alternative than under a completely general, two-tailed alternative (in the current example, you are claiming that X is less than zero as an alternative which is a stronger statement than the claim that X is non-zero). The rejection region in a right-tailed regression extends from the critical t-value associated with the given significance level and positive infinity. This critical value is greater than zero.

• Question 3266:

  What is the present value today of these annual cash flows: $3,000, $2,000, $1,000? Assume the first cash flow occurs 1 year from today and an interest rate of 10% per year, compounded annually.

  A. $5,205.67

  B. $5,131.48

  C. $6,089.92

  D. $5,067.65

  E. $6,000.00

  Correct Answer: B

  You could solve this question using 3 different compound interest problems, but it is easier to solve them using the calculator's cash flow functions. On the BAII Plus, press CF 2nd CLRWork 0 ENTER DownArrow 3000 ENTER DownArrow DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 10 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press 10 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3267:

  A stock has the following returns over 3 years: -10%, +15%, +25%. The annual geometric rate of return over the 3 years is ________.

  A. 19.36%

  B. 9.34%

  C. 10.15%

  D. 7.42%

  E. 13.31%

  F. 14.64%

  G. 12.21%

  H. 8.96%

  Correct Answer: H

  The annual geometric rate of return equals [(1-10%)(1+15%)(1+25%)]^(1/3) - 1 = (0.9 * 1.15 * 1.25)^0.33 1 = 0.0896 = 8.96%

• Question 3268:

  Monthly commissions of first-year insurance brokers are $1,270, $1,310, $1,680, $1,380, $1,410, $1,570, $1,180 and $1,420. These figures are referred to as:

  A. None of these answers

  B. Raw data

  C. Frequency distribution

  D. Ogive

  E. Histogram

  Correct Answer: B

  Data or observations that have not been organized in any form are called raw data.

• Question 3269:

  Which is true of a leptokurtic distribution?

  I. It will be more peaked than the normal distribution.

  II. It will have thinner tails than the normal distribution.

  III. It will be less peaked than the normal distribution.

  IV.

  It will have fatter tails than the normal distribution.

  A.

  I and II.

  B.

  I and IV.

  C.

  III and II.

  D.

  III and IV.

  Correct Answer: B

  I and IV are true of leptokurtic distributions. This is also called having "excess kurtosis." II and III are characteristic of platykurtic distributions.

• Question 3270:

  An experiment may have:

  A. Two or more results

  B. None of these answers

  C. Only two results

  D. Only one result

  Correct Answer: A

  Experiments may have many outcomes.