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

• Question 3291:

  Assume you buy a computer for $1,450 and agree to pay for it with 36 monthly payments of $55, beginning next month. What is the size of the final payment needed at month 36 to completely pay off the computer, if the interest rate you are being charged is 16% per year, compounded monthly?

  A. $0.00

  B. $184.31

  C. $217.88

  D. $187.14

  E. $174.39

  Correct Answer: B

  This question describes a situation often called a balloon payment. On the BAII Plus, press 36 N, 16 divide 12 = I/Y, 1450 PV, 55 +/- PMT, CPT FV. On the HP12C, press 36 n, 16 ENTER 12 divide i, 1450 PV, 55 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 3292:

  A positively skewed distribution:

  A. has fat tails.

  B. is skewed to the right.

  C. has a large variance.

  D. is skewed to the left.

  Correct Answer: B

  In a positively skewed distribution, large values are more common than correspondingly small values. This skews the distribution to the right, moving the mean to the right of the median.

• Question 3293:

  Which of the following is/are true?

  I. Type I error is the event in which we reject the null when it is false.

  II. Type II error occurs when we accept the null when it is false

  III. Type I error occurs if we accept the alternative when it is false.

  IV.

  Type II error is the event where we reject the alternative when it is true.

  A.

  II, III and IV

  B.

  II only

  C.

  IV only

  D.

  I only

  E.

  II and IV

  F.

  I, II and IV

  G.

  I, II and III

  H.

  III only

  Correct Answer: A

  Type I error is the event in which we reject the null when it is true. This is the same as accepting the alternative when it is false. Type II error is the event in which we fail to reject the null when it is false. This is the same as rejecting the alternative when it is true.

• Question 3294:

  If you deposit $5,000 today and make an additional deposit of $3,000 in 3 years, how much is in the account 6 years from today, if the money earns interest at 8% per year, compounded annually?

  A. $10,077.70

  B. $13,775.16

  C. $17,335.61

  D. $11,713.51

  E. $12,695.00

  Correct Answer: D

  This question requires the solution of two problems. Find the FV of the original $5,000 deposit which equals $7,934.37, then find the FV of the $3,000 deposit 3 years from now which equals $3779.14, and add the two together. On the BAII Plus, press 6 N, 8 I/Y, 5000 PV, 0 PMT, CPT FV. Then press STO 1. Then press 3 N, 3000 PV, CPT FV. Then press + RCL 1 = for the answer. On the HP12C, press 6 n, 8 i, 5000 PV, 0 PMT, FV. Then press STO 1. Then press 3 n, 3000 PV, FV. Then press RCL 1 + for the answer.

• Question 3295:

  Ball-Bearing, Inc. produces ball bearings automatically on a Kronar BBX machine. For one of the ball bearings, the mean diameter is set at 20mm. the standard deviation of the production over a long period of time was computer to be 0.150 mm. What percent of the ball bearings will have a diameter of 20.27 mm or more?

  A. 41.00%

  B. 85.00%

  C. 12.62%

  D. None of these answers

  E. 3.59%

  Correct Answer: E

  z = (x-u)/sigma = 20.27 - 20/0.15 = 1.8. from the z-table, z = 1.8 is 0.4641. So 1.0 - 0.9641 = 0.0359.

• Question 3296:

  In an investment environment, an initial outlay of $100 grows to $156 in 7 years. The quarterly compounded rate of annual interest implicit in this is:

  A. 6.56%

  B. 6.40%

  C. 6.12%

  D. 6.73%

  Correct Answer: B

  There are 28 quarters in 7 years. If the quarterly compounded rate is r, then we have 100*(1+r/4)^28 = 156, giving r = 6.4%

• Question 3297:

  David's gasoline station offers 4 cents off per gallon if the customer pays in cash and does not use a credit card. Past evidence indicates that 40% of all customers pay in cash. During a one-hour period twenty-five customers buy gasoline at this station. What is the probability that at least ten pay in cash?

  A. None of these answers

  B. .575

  C. .425

  D. .416

  E. .586

  Correct Answer: B

  This is a binomial distribution: n!(p^r)(q^(n-r))/r!(n-r)!. n = 25, r = 10, p = 0.4 q = 0.6

  P(10) = 25!(0.4^10)(0.6^15)/10!15! = 0.1612 P(11) = 25!(0.4^11)(0.6^14)/11!14! = 0.1465 P(12) = 25!(0.4^12)(0.6^13)/12!13! = 0.1140 P(13) = 25!(0.4^13)(0.6^12)/13!12! = 0.0760 P(14) = 25!(0.4^14)(0.6^11)/14!11! = 0.0434 P(15) = 25!(0.4^15)(0.6^10)/15!10! = 0.0212 P(16) = 25!(0.4^16)(0.6^9)/16!9! = 0.0088 P(17) = 25!(0.4^17)(0.6^8)/17!8! = 0.0031

  Summing up we get close to 0.574.

  We can continue until r = 25 but the probability gets smaller and converges to 0.575.

• Question 3298:

  Consider the following three investments:

  Future valueyearsinterest rate 1.$50,000 89% per year 2.$20,000 612% per year 3.$35,000 37% per year

  The present values of the 3 investments are:

  A. $28,193, $12,145, $31,422

  B. $99,628, $39,476, $42,877

  C. $25,093, $10,133, $28,570

  D. $24,192, $11,876, $27,864

  Correct Answer: C

  Future value = Present value*(1+r)^N for annual compounding. Therefore,

  Future valueyearsratePresent Value 1.50,000 89% 50,000/(1.09)^8 = 25,093 2.20,000 612% 20,000/(1.12)^6 = 10,133 3.35,000 37% 35,000/(1.07)^3 = 28,570

  Note that the future value must always be greater than the present value.

• Question 3299:

  What is the relationship among the mean, median and mode in a symmetric distribution?

  A. Mean is always the smallest value

  B. Mean is always the largest value

  C. None of these answers

  D. Mode is the largest value

  E. All equal

  Correct Answer: E

  Since the distribution is symmetric, all three are equal.

• Question 3300:

  What is the range of values for the coefficient of determination?

  A. None of these answers

  B. 0 to +1 inclusive

  C. -1 to +1 inclusive

  D. -3 to +3 inclusive

  E. #AI -1 to 0 inclusive

  Correct Answer: B

  R-square ranges from 0-1 inclusive.