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

• Question 3351:

  In computing skewness, which of the following is true?

  I. It uses the cubed deviation from the mean.

  II. It raises the deviation from the mean to the third power.

  III.

  The formula preserves the direction of the deviation.

  A.

  I and III

  B.

  II and III

  C.

  I, II, and III

  D.

  None of these answers is correct.

  Correct Answer: C

  I and II are true and equivalent. III is true because the cube of a negative number is still a negative number: -2 * -2 * -2 = -8.

• Question 3352:

  How much must you deposit today if you wish to have $30,000 in 20 years, assuming that interest accumulates at 8% per year, compounded annually?

  A. $6,436.45

  B. $7,046.51

  C. $3,000.00

  D. $5,045.65

  E. $6,604.73

  Correct Answer: A

  On the BAII Plus, press 20 N, 8 I/Y, 0 PMT, 30000 FV, CPT PV. On the HP12C, press 20 n, 8 i, 0 PMT, 30000 FV, PV. Note that the answer is displayed as a negative number. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3353:

  An investment of $2,300 grows to $2,904 in 4 years. The annually compounded rate of return is:

  A. 6.00%

  B. 6.25%

  C. 5.90%

  D. 6.37%

  Correct Answer: A

  Let r be the annually compounded rate. Then, 2904 = 2300*(1+r)^4. Hence, r = (2904/2300)^(1/4) - 1 = 6%

• Question 3354:

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

  A. None of these answers

  B. For each unit increased in X, Y increases by 10

  C. Y intercept

  D. For each unit increased in Y, X increases by 10

  Correct Answer: C

  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 a=10.

• Question 3355:

  Suppose you are modeling GNP, and you believe that the probability that GNP will expand if interest rates fall is 70%; if interest rates stay constant, you believe that there is a 29% chance of expanding GNP; if interest rates increase, you believe that there is a 1% chance of GNP expanding. You think that the likelihood of interest rates falling is 60%; of staying the same is 30%; of increasing is 10%. What is the unconditional probability of GNP expanding?

  A. 49.8%.

  B. 50.0%.

  C. 50.8%.

  D. 50.9%.

  Correct Answer: C

  We use the total probability rule: P(A), the unconditional probability, = P(A|S_1)*P(S_1) + P(A|S_2) *P (S_3) + P(A|S_3) *P(S_3), where the S_i represent mutually exclusive and exhaustive events. So the likelihood of interest rates increasing is 0.70 * 0.60 + 0.29 * 0.30 + 0.01 * 0.10 = 0.42 + 0.087 + 0.001 =

  0.508.

• Question 3356:

  The marketing department of a nationally known cereal maker plans to conduct a national survey to find out whether or not consumers of flake cereals can distinguish one of their favorite flake cereals. To test the questionnaire and procedure to be used, eight persons were asked to cooperate in an experiment. Five very small bowls of flake cereals were placed in front of a person. The bowls were labeled A, B, C, D, and

  E. The person was informed that only one bowl contained his or her favorite flake cereal. Suppose that the eight persons in the experiment were unable to identify their favorite cereal and just guessed which bowl it was in. What is the probability that none of the eight guessed correctly?

  A. 0.168

  B. 0.788

  C. 0.125

  D. None of these answers

  E. 0.009

  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 = 8, r = 0,p = 0.2 and q = 0.80. Therefore we have 8!(0.2^0)(0.8^8)/0!8! = 0.168.

• Question 3357:

  You are examining a group of 20 mutual funds. You find that 10 have a 5% cash position, 4 have a 10% cash position, and 6 have a 2% cash position. What is the weighted average cash position of these 20 mutual funds?

  A. 4.80%.

  B. 5.10%.

  C. 5.00%.

  D. 4.90%.

  Correct Answer: B

  A weighted-average is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight of the ith item, and X_i is the value of the ith item. Here, we get a weighted mean of 10/20 * 0.05 + 4/20 * 0.10 + 6/20 * 0.02 = 5.10%.

• Question 3358:

  What is the critical z-value for a one tailed lower test at the 1% level of risk?

  A. + 2.58

  B. +2.33

  C. -2.58

  D. None of these answers

  E. -2.33

  Correct Answer: E

  This is found by subtracting the 0.01 from 0.5 and then finding the z-value for 0.49.

• Question 3359:

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

  A. 25.29%

  B. 18.91%

  C. 30.04%

  D. 22.49%

  E. 25.42%

  Correct Answer: E

  On the BAII Plus, press CF 2nd CLRWork 15000 +/- ENTER DownArrow 2000 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 15000 ENTER DownArrow DownArrow 0 ENTER DownArrow DownArrow 18000 ENTER DownArrow DownArrow 2nd Quit. Then press Irr CPT. On the HP12C, press these keys: 15000 CHS BlueShift CFo 2000 BlueShift CFj 0 BlueShift CFj 15000 BlueShift CFj 0 BlueShift CFj 18000 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 3360:

  A random sample of 85 group leaders, supervisors, and similar personnel revealed that on the average a person spent 6.5 years on the job before being promoted. The standard deviation of the sample was 1.7 years. Using the 0.95 degree of confidence, what is the confidence interval within which the population mean lies?

  A. 6.99 and 7.99

  B. 6.49 and 7.49

  C. None of these answers

  D. 4.15 and 7.15

  E. 6.14 and 6.86

  Correct Answer: E

  Interval estimate can be found from x_bar +/-z*s/(n^0.5). Here we have n = 85, x_bar = 6.5 and z = 1.96 (for 95%) and s = 1.7. Therefore 6.5+/-1.96*1.7/9.22 and we get 6.14 and 6.86.