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

• Question 3341:

  How much interest would an original $500 deposit earn at 5% per year simple interest after 14 months?

  A. $29.17

  B. $28.14

  C. $583.33

  D. $350.00

  E. $30.04

  Correct Answer: A

  The question only asks for the interest, not the ending balance. On the BAII Plus, press 500 x 0.05 x 14 divide 12 = to see the answer. On the HP12C, press 500 ENTER 0.05 x 14 x 12 divide to see the answer.

• Question 3342:

  In the regression equation, what does the letter "a" represent?

  A. Slope of the line

  B. Y intercept

  C. Any value of the independent variable that is selected

  D. None of these answers

  Correct Answer: B

  The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line.

• Question 3343:

  Suppose you have two assets, A and B. Over the past 3 periods, A has returned 8%, 2%, and 6%, while B has returned 11%, -5%, and 20%. What is the return covariance between assets A and B?

  A. 0.0%%

  B. 19.79%%

  C. 10.21%%

  D. 31.38%%

  Correct Answer: B

  First we must find the expected returns for A and B. These are 5.33% and 8.67%. Second, we find the difference between each observation and the average: (8% - 5.33%), (2% - 5.33%), and (6% - 5.33%) for A, and (11% - 8.67%), (-5% - 8.67%), and (20% - 8.67%) for B. Next, we multiply these together and sum them: (8% - 5.33%)*(11% - 8.67%) + (2% - 5.33%)*(-5% - 8.67%) + (6% - 5.33%)*(20% - 8.67%). The sum of these is 59.33%. The covariance is the probability weighted average of these cross products, so we divide by 3 to get 19.78%%. Note, we could have divided each cross product by 3 rather than the sum of the cross products. If the observations did not have the same probability or frequency, we would need to treat each cross product separately rather than divide at the end.

• Question 3344:

  The mean amount of gasoline and services charged by Key Refining Company credit customers is $70 per month. The distribution of amounts spent is approximately normal with a standard deviation of $10. What is the probability of selecting a credit card customer at random and finding the customer charged between $70 and $83?

  A. 0.4032

  B. None of these answers

  C. 0.1962

  D. 0.3413

  E. 0.4750

  Correct Answer: A

  z = (x-u)/sigma. z1 = 70 - 70/10 = 0 and z2 = 83 - 70/10 = 1.3. For z = 1.3, the area under the curve is 0.4032.

• Question 3345:

  The following is a distribution of monthly commissions:

  Monthly Commissions Class Frequencies $600 - $7993 $800 - $9997 $1,000 - $1,19911 $1,200 - $1,39922 $1,400 - $1,59940 $1,600 - $1,79924 $1,800 - $1,9999 $2,000 - $2,1994

  Referring to the table above, what is the relative frequency of those salespersons that earn more than $1,599?

  A. 25.5%

  B. None of these answers

  C. 29.5%

  D. 27.5%

  E. 30.8%

  Correct Answer: E

  This is found by adding up all the frequencies of the classes above $1599. In this case 24 + 9 + 4 = 37. Then we divide this by the total frequencies, which is 120. Therefore, 37/120 = 30.8%

• Question 3346:

  If you deposit $1,202.50 into an account paying 6% per year simple interest, how much interest will you have earned in 2 years?

  A. $124.00

  B. $126.80

  C. $120.50

  D. $112.50

  E. $144.30

  Correct Answer: E

  Since this is a simple interest question, the formula is I=PRT, with T here being 2, since the timeframe is 2 years. On the BAII Plus, press 1202.50 x 0.06 x 2 = to see the answer. On the HP12C, press 1202.50 ENTER 0.06 x 2 x to see the answer. Since the question asks for the amount of interest earned, the original deposit should not be added to this value.

• Question 3347:

  In a large metropolitan area, past records revealed that 30 percent of all the high school graduates go to college. From 20 graduates selected at random, what is the probability that exactly 8 will go to college?

  A. 0.114

  B. 0.400

  C. 0.231

  D. 0.887

  E. None of these answers

  Correct Answer: A

  This is a binomial probability. The probability of getting r successes out of n trials where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p) is given by: n!(p^r)[q^(n-r)]/r! (n-r)!. Here n = 20, r = 8,p = 0.3 and q = 0.7. Therefore we have 20!(0.3^8)(0.7^12)/8!12! = 0.114.

• Question 3348:

  What quarterly payment would you have to make to pay off a $5,000 debt in 7 years, assuming the first payment is made 3 months from today and interest accrues at 6% per year, compounded quarterly?

  A. $220.01

  B. $72.96

  C. $145.01

  D. $372.96

  E. $757.78

  Correct Answer: A

  On the BAII Plus, press 28 N, 6 divide 4 = I/Y, 5000 PV, 0 FV, CPT PMT. On the HP12C, press 28 n, 6 ENTER 4 divide i, 5000 PV, 0 FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/ Y value set to 1. The value of "N" is set to 28 since there are 28 quarters in 7 years (7 x 4 = 28).

• Question 3349:

  Which of the following is true?

  A. If the geometric return is zero, the arithmetic return must be negative.

  B. All of these answers are false.

  C. If the annual returns have zero volatility, the geometric return is equal to the arithmetic return.

  D. The geometric return is always less than the arithmetic return.

  Correct Answer: C

  The mean and the geometric mean are equal when volatility in the rate of return is zero. For a non- zero volatility, the mean exceeds the geometric mean and the difference is larger the higher the volatility.

• Question 3350:

  If you deposit $900 a year, beginning next year, for 20 years into an account paying 8% per year, compounded annually, how much is in your account after that last deposit?

  A. $40,598.15

  B. $50,003.98

  C. $530,118.37

  D. $48,304.12

  E. $41,185.77

  Correct Answer: E

  On the BAII Plus, press 20 N, 8 I/Y, 0 PV, 900 PMT, CPT FV. On the HP12C, press 20 n, 8 i, 0 PV, 900 PMT, FV. On the BAII Plus, make sure the value of P/Y is set to 1. Note that the answer is displayed as a negative number.