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

• Question 3281:

  What disadvantage(s) are there of the mean deviation?

  A. None of these answers.

  B. It is based on only two observations.

  C. It is based on deviations from the mean.

  D. All of these answers.

  E. It uses absolute values, which are difficult to manipulate.

  Correct Answer: E

  Using absolute values can cause problems since they are difficult to work with.

• Question 3282:

  In a stratified random sampling method,

  A. a sample is selected by randomly generating an integer, N, and selecting every Nth member of the population.

  B. a sample is selected by first dividing the population into groups and then selecting members from each group.

  C. a sample is selected by drawing numbers from a normal probability distribution.

  D. a sample selected such that every member of the population has the same chance of being selected.

  Correct Answer: B

  The population is divided into strata or subcategories and a sample is randomly selected from each strata.

• Question 3283:

  Ten experts rated a newly developed chocolate chip cookie on a scale of 1 to 50. Their ratings were: 34, 35, 41, 28, 26, 29, 32, 36, 38 and 40. What is the mean deviation?

  A. 12.67

  B. 4.12

  C. 0.75

  D. 8.00

  E. None of these answers

  Correct Answer: B

  The mean is 33.9. The mean deviation is the absolute values of the deviation from the mean. (0.1 + 1.1 +

  7.1 + 5.9 + 7.9 + 4.9 + 1.9 + 2.1 + 4.1 + 6.1)/10 = 41.2/10 = 4.12

• Question 3284:

  Which of the following are formulas for sample variance?

  I. [1/(n-1)] * sum (as i goes from 1 to n) of (X_i - Xbar)^2.

  II. [1/n] * sum (as i goes from 1 to n) of (X_i - Xbar)^2.

  III.

  [1/(n-1)] * {sum (as i goes from 1 to n) of (X_i)^2 - (1/n) * [sum (as i goes from 1 to n) of (X_i)]^2}.

  A.

  I only.

  B.

  None of these answers is correct.

  C.

  III only.

  D.

  II only.

  Correct Answer: B

  I and III are equivalent and correct; III is the computational formula for sample variance.

• Question 3285:

  If you deposit $6,000 into an account paying 4% per year, compounded semiannually, how much do you have in the account in 20 years?

  A. $13,248.24

  B. $12,667.70

  C. $14,667.76

  D. $7,403.52

  E. $12,204.65

  Correct Answer: A

  On the BAII Plus, press 40 N, 4 divide 2 = I/Y, 6000 PV, 0 PMT, CPT FV. On the HP12C, press 40 n, 4 ENTER 2 divide i, 6000 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3286:

  How much would an original deposit of $900 grow to be after 10 and a half years, if the deposit earns interest at 6.5% per year, compounded quarterly?

  A. $1,853.97

  B. $1,254.58

  C. $1,573.42

  D. $1,771.19

  E. $1,837.51

  Correct Answer: D

  On the BAII Plus, press 42 N, 6.5 divide 4 = I/Y, 900 PV, 0 PMT, then press CPT FV. On the HP12C, press 42 n, 6.5 ENTER 4 divide i, 900 PV, 0 PMT, then press FV. Note that N = 42 quarters (10.5 x 4 =) and the answer is displayed as a negative number. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3287:

  If you owe a debt of $1,000 today and also owe $2,000 in 24 months, what single payment could you make 15 months from today that would pay off both of these debts, if interest is assessed at 8% per year, compounded monthly?

  A. $2,988.71

  B. $2,751.62

  C. $3,041.93

  D. $3,000.00

  E. $1,980.86

  Correct Answer: A

  To solve this question, set the problem up as the sum of two compound interest calculations. Move the $1,000 from today over to month 15 and add it to the $2,000 brought back from month 24 to month 15. On the BAII Plus, press 15 N, 8 divide 12 = I/Y, 1000 PV, 0 PMT, CPT FV which yields $1,104.80. Then press STO 1. Then press 9 N, 2000 FV, CPT PV, which yields $1,883.91. Finally press + RCL 1 = to see the answer. On the HP12C, press 15 n, 8 ENTER 12 divide i, 1000 PV, 0 PMT, FV. Then press STO 1. Then press 9 n, 2000 FV, PV. Finally press RCL 1 + to see the answer. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3288:

  You recently purchased a twin-engine plane after landing an ultra-lucrative job on Wall Street. The annual payments on the plane are $8,000 per year and the installment plan extends over 5 years. The payments start today. If your discount rate is 8.5% per year, how much would it have cost you to purchase the plane on an all-cash basis?

  A. $34,205

  B. $40,611

  C. $41,232

  D. $36,429

  Correct Answer: A

  The present value of the installment payments equals 8,000 + (8,000/0.085)*(1-1/(1.085^4)) = $34,205

• Question 3289:

  A normal distribution has a mean of 39 and a variance of 625. The area under the distribution between 50 and 75 equals ________.

  A. 0.745

  B. 0.319

  C. 0.212

  D. 0.255

  Correct Answer: D

  First note that the area between two numbers under a probability distribution is the same as the probability of getting a number between those two numbers. The standard deviation of the distribution equals sqrt

  (625) = 25. The z-value of 50 equals (50-39)/25 = 0.44. The z-value of 75 equals (75-39)/25 = 1.44. Using the Normal probability tables, we get P(z < 0.44) = 0.67 and P(z < 1.44) = 0.9251. The area between 50 and 75 is then given by P(0.44 < z < 1.44) = P(z < 1.44) - P (z < 0.44) = 0.9251 - 0.67 = 0.255.

• Question 3290:

  A study by the National Park Service revealed that 50% of the vacationers going to the Rocky Mountain region visit Yellowstone Park, 40% visit the Tetons and 35% visit both. What is the probability that a vacationer will visit at least one of these magnificent attractions?

  A. None of these answers

  B. 0.55

  C. 0.95

  D. 0.05

  E. 0.35

  Correct Answer: B

  0.5 + 0.4 - 0.35 = 0.55