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

• Question 3311:

  What monthly payment, beginning next month, would repay a $25,000 car loan over 60 months, assuming your loan has an interest rate of 6.9% per year, compounded monthly?

  A. $1,757.07

  B. $493.85

  C. $843.95

  D. $1,789.14

  E. $650.58

  Correct Answer: B

  On the BAII Plus, press 60 N, 6.9 divide 12 = I/Y, 25000 PV, 0 FV, CPT PMT. On the HP12C, press 60 n,

  6.9 ENTER 12 divide i, 25000 PV, 0 FV, PMT. 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 3312:

  A new extended life light bulb has an average service life of 750 hours, with a standard deviation of 50 hours. If the service life of these light bulbs approximates a normal distribution, about what percent of the distribution will be between 600 hours and 900 hours?

  A. 95%

  B. 68%

  C. None of these answers

  D. 34%

  E. 99.7%

  Correct Answer: E

  z = (X-u)/sigma. z1 = (600 - 750)/50 = -3.0. z2 = (900 - 750)/50 = 3.0. from the z tables, z = 3 is 0.4987. Therefore the area between z1 and z2 is 0.4987*2 = 0.9974

• Question 3313:

  The weights (in grams) of the contents of several small bottles are 4, 2, 5, 4, 5, 2 and 6. What is the sample variance?

  A. 6.92

  B. None of these answers

  C. 1.96

  D. 2.33

  E. 4.80

  Correct Answer: D

  Sample variance is given by: (Sum of squared deviation from the mean)/(n-1). Mean is 4. Sample variance = 14/6 = 2.33

  xx-mean(x-mean)^2 2-24 2-24

• Question 3314:

  What semiannual deposits are needed to accumulate $7,000 in 5 years if the account pays 6% per year, compounded semiannually, assuming that the first deposit is made in 6 months and also assuming that the account already has $1,750 in it today?

  A. $405.46

  B. $377.44

  C. $436.15

  D. $459.52

  E. $578.01

  Correct Answer: A

  On the BAII Plus, press 10 N, 6 divide 2 = I/Y, 1750 PV, 7000 +/- FV, CPT PMT. On the HP12C, press 10 n, 6 ENTER 2 divide i, 1750 PV, 7000 CHS FV, PMT. Note that the answer this time is a positive number. This means that the $405.46 is a deposit in addition to the $1,750 original deposit. The $7,000 is entered as a negative number, because the $1,750 and the $405.46 are deposits and the $7,000 is a withdrawal. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3315:

  A hypothesis test is conducted at the .05 level of significance to test whether or not the population correlation is zero. If the sample consists of 25 observations and the correlation coefficient is 0.60, then what is the computed value of the test statistic?

  A. 1.96

  B. 3.60

  C. 2.94

  D. 2.07

  E. None of these answers

  Correct Answer: B

  Using the t statistics, t = r* [sq. root of ((n-2)/(1-r_squared))]. t = r*[n-2/(1-r^2)]^0.5. So t = 0.6*[23/0.64]^0.5 = 3.60.

• Question 3316:

  You can enter a derivative contract that will pay $100 at the end of a year if the price of oil exceeds $25 per barrel, or $50 if it is equal to $25 or lower. The probability that oil will exceed $25 by the end of one year is 60%. If interest is 4% for one year, what should the fair price of the contract be?

  A. $80.00

  B. $76.92

  C. $60.00

  D. $83.20

  Correct Answer: B

  The expected payoff for the contract is $100 * 0.60 + $50 * 0.40 = $80. At 4% interest, the present value of the expected payoff is $80/1.04 = $76.92. A deviation from this value would represent an example of the investment consequences of inconsistent probabilities.

• Question 3317:

  What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$15,000>, Year 1: $8,000, Year 2: $8,000, Year 3: $1,000, Year 4: $4,000 (Note that the <> are used to indicate a negative number).

  A. 16.61%

  B. 17.12%

  C. 18.83%

  D. 15.55%

  E. 13.74%

  Correct Answer: C

  On the BAII Plus, press CF 2nd CLRWork 15000 +/- ENTER DownArrow 8000 ENTER DownArrow DownArrow 8000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 2nd Quit. Then press Irr CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo 8000 BlueShift CFj 8000 BlueShift CFj 1000 BlueShift CFj 4000 BlueShift CFj. Then press YellowShift Irr. 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 3318:

  If the cost of a hamburger is $1.99 today, what would it cost in 30 years, assuming the price increases at a rate of 8% per year, compounded annually?

  A. $2.22

  B. $17.60

  C. $6.51

  D. $20.02

  E. $31.48

  Correct Answer: D

  Consider the $1.99 as a PV and solve for the FV. On the BAII Plus, press 30 N, 8 I/Y, 1.99 PV, 0 PMT, CPT FV. On the HP12C, press 30 n, 8 i, 1.99 PV, 0 PMT, FV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3319:

  The sampling method in which a sample is selected by first dividing the population into groups and then selecting members from each group is known as:

  A. simple random sampling.

  B. stratified random sampling.

  C. cluster sampling.

  D. systematic random sampling.

  Correct Answer: B

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

• Question 3320:

  What monthly payment is required over the next 48 months to pay off a $10,000 debt today, if interest is charged at 14% per year, compounded monthly?

  A. $366.67

  B. $250.54

  C. $104.54

  D. $273.26

  E. $116.02

  Correct Answer: D

  On the BAII Plus, press 48 N, 14 divide 12 = I/Y, 10000 PV, 0 FV, CPT PMT. On the HP12C, press 48 n, 14 ENTER 12 divide i, 10000 PV, 0 FV, PMT. Make sure the BAII Plus has the P/Y value set to 1.