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

• Question 3331:

  What is the Net Present Value of this series of annual cash flows at an interest rate of 14% per year: Year

  0:

  <$4,000>, Year 1: $2,000, Year 2: $0, Year 3: $0, Year 4 to indicate a negative number).

  A.

  $214.37

  B.

  <$67.49>

  C.

  $122.71

  D.

  $1.21

  E.

  <$179.41>

  Correct Answer: C

  On the BAII Plus, press CF 2nd CLRWork 4000 +/- ENTER DownArrow 2000 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 14 ENTER DownArrow CPT. On the HP12C, press these keys: 4000 CHS BlueShift CFo 2000 BlueShift CFj 0 BlueShift CFj 0 BlueShift CFj 4000 BlueShift CFj. Then press 14 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 3332:

  How many monthly deposits of $50, beginning next month, will you need to make into an account that pays 6% per year, compounded monthly, before you will have $20,000?

  A. 110.59

  B. 201.49

  C. 400.00

  D. 220.27

  E. 287.71

  Correct Answer: D

  On the BAII Plus, press 6 divide 12 = I/Y, 0 PV, 50 PMT, 20000 +/- FV, CPT N. On the HP12C, press 6 ENTER 12 divide i, 0 PV, 50 PMT, 20000 CHS FV, n. Note that the HP12C will display 221 as the answer. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3333:

  How much would you need to deposit today in order to be able to withdraw $2,500 in 2 years and $1,500 in 5 years, if the account has nothing in it today and interest is 8% per year, compounded annually?

  A. $2,722.33

  B. $3,429.36

  C. $3,164.22

  D. $4,000.00

  E. $3,378.18

  Correct Answer: C

  Work this question as two compound interest problems. On the BAII Plus, press 2 N, 8 I/Y, 0 PMT, 2500 FV, CPT PV, which yields $2,143.35. Then press STO 1. Then press 5 N, 1500 FV, CPT PV, which yields $1,020.87. Then press + RCL 1 = to see the answer. On the HP12C, press 2 n, 8 i, 0 PMT, 2500 FV, PV. Then press STO 1. Then press 5 n, 1500 FV, PV. Then press RCL 1 + to see the answer. Note that the answer will be displayed as a negative number.

• Question 3334:

  A stock has the following returns over 4 years: +5%, -6%, +8%, +3%. The annual arithmetic and geometric rates of return over the 4 years are:

  A. 5%; 5.57%

  B. 2.5%; 9.79%

  C. 10%; 9.79%

  D. 2.5%; 2.36%

  Correct Answer: D

  The mean equals (5% + (-6%) + 8% + 3%)/4 = 2.5%

  The geometric mean equals (1.05 * 0.94 * 1.08 * 1.03)^(1/4) = 2.36%

  Note that the geometric mean is less than the mean.

• Question 3335:

  What is the annual Internal Rate of Return of this series of annual cash flows: 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. 27.12%

  B. 23.74%

  C. 25.55%

  D. 26.61%

  E. 24.02%

  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 Irr CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo 5000 BlueShift CFj 8000 BlueShift CFj 11000 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 3336:

  You are examining a group of 4 stock analysts within an industry. The average stock analyst correctly predicts the direction of a given stock 51% of the time. For these analysts, their accuracy has been 40%, 50%, 60%, and 70%. What is the mean absolute deviation of their accuracy from the average?

  A. 12%.

  B. 10%.

  C. 15%.

  D. 9%.

  Correct Answer: B

  The mean absolute deviation = the sum of (as i goes from 1 to n) of the absolute value of (X_i - Xbar), divided by n. Here, we have [|40% - 51%| + |50% - 51%| + |60% - 51%| + |70% - 51%|]/4 = [11% + 1% + 9% + 19%] / 4 = 40%/4 = 10%.

• Question 3337:

  Assume the least squares equation is Y' = 10 + 20X. What does the value of 20 indicate?

  A. For each unit increased in Y, X increases by 20

  B. Y intercept

  C. None of these answers

  D. For each unit increased in X, Y increases by 20

  Correct Answer: D

  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. Here b = 20.

• Question 3338:

  Two events, A and B, are independent if:

  A. P(A and B) = 1

  B. P(A and B) = P(A) + P(B)

  C. P(A and B) = 0

  D. P(A and B) = P(A) P(B)

  Correct Answer: D

  This is the definition of independence.

• Question 3339:

  If you deposit $4,250 today into a savings account paying 6% per year, compounded semiannually, how much is in your account in 4 years?

  A. $5,365.53

  B. $6,773.85

  C. $6,000.00

  D. $4,783.41

  E. $5,383.77

  Correct Answer: E

  On the BAII Plus, press 8 N, 6 divide 2 = I/Y, 4250 PV, 0 PMT, CPT FV. On the HP12C, press 8 n, 6 ENTER 2 divide i, 4250 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3340:

  The probability of the occurrence of an airplane crash and a successful resolution to a labor strike is called:

  A. a conditional probability.

  B. an unrelated probability.

  C. a joint probability.

  D. an unconditional probability.

  Correct Answer: C

  A joint probability takes the form of P(AB), the probability that an event A (an airplane crash) and an event B (the resolution of a strike) both happen.