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

• Question 3381:

  If you were to receive $100 per year for the next 10 years, starting today, and the discount rate applicable is 9% per year, what's the value of this stream of cash flows to you?

  A. $700

  B. $600

  C. $678

  D. $642

  Correct Answer: A

  Since you receive one payment today, the stream of cash flow equals $100 plus a 9-year ordinary annuity. The value of the annuity today = (100/0.09)*(1 - 1/(1.09^9)) = 600. Thus, the total value to you is 600+100 = 700.

• Question 3382:

  You have set up a test of a suitably phrased null hypothesis. After analyzing the statistical underpinnings of the test and the stringency requirements you have imposed, you have determined that the probability of rejecting the null hypothesis equals 30%. The probability that you will reject the null hypothesis when it is true is equal to 13% and the probability that you will reject the null hypothesis when it is false is equal to 17%. The significance level of your test equals ________.

  A. 17%

  B. 6%

  C. 30% D. 13%

  Correct Answer: D

  The significance level equals the probability of making a Type I error, which is the error of rejecting the null when it is, in fact, true. In this case, this has been given to be equal to 13%.

• Question 3383:

  A study of business faculty at state supported institutions in Ohio revealed that the mean salary for nine months is $52,000 and the standard deviation of the sample is $3,000. The study also showed that the faculty had been employed an average (mean) of 15 years with a standard deviation of 4 years. How does the relative dispersion in the distribution of salaries compare with that of the lengths of service?

  A. Salaries about 6%, service about 27%

  B. Salaries about 100%, service about 50%

  C. Salaries about 2%, service about 6%

  D. None of these answers

  E. Salaries about 42%, service about 81%

  Correct Answer: A

  The coefficient of variation = (s*100)/mean. Salary: 3,000*100/52,000 = 5.7%. Service: 4*100/15 = 26.7%.

• Question 3384:

  Johnny deposited a check he received from his Aunt when he was 10 years old into an account paying 10% per year, compounded monthly. If the original check was for $100, how much does Johnny have in his account today, 50 years later?

  A. $151.43

  B. $5,905.33

  C. $58,304.28

  D. $100.00

  E. $14,536.99

  Correct Answer: E

  There are 600 months in 50 years (50 x 12). On the BAII Plus, press 600 N, 10 divide 12 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 600 n, 10 ENTER 12 divide i, 100 PV, 0 PMT, FV. 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 3385:

  If you deposit $345 into an account paying 5.45% per year simple interest, how much interest will be earned after 10 months?

  A. $15.67

  B. $360.67

  C. $188.03

  D. $$359.59

  E. $14.59

  Correct Answer: A

  The question only asks for the earned interest, not the total amount in the account. On the BAII Plus, press 345 x 0.0545 x 10 divide 12 = to see the answer. On the HP12C, press 345 ENTER 0.0545 x 10 x 12 divide to see the answer.

• Question 3386:

  If two events A and B are mutually exclusive, what does the special rule of addition state?

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

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

  C. None of these answers

  D. P(A or B) = P(A) - P(B)

  E. P(A or B) = P(A) + P(B)

  Correct Answer: E

  The key word is that these events are mutually exclusive. So P(A or B) = P(A) + P(B). The probabilities stand alone.

• Question 3387:

  Assume you deposit $300 now into an account that had nothing in it previously, make an additional deposit of $400 in 1 year, and a final deposit of $200 in 4 years. How much is in your account in 6 years, if the account earns interest at 7% per year, compounded annually?

  A. $418.29

  B. $1,431.88

  C. $1,120.04

  D. $925.51

  E. $1,240.22

  Correct Answer: E

  Solve this question by working several compound interest problems, moving each dollar amount over to year 5. On the BAII Plus, press 6 N, 7 I/Y, 300 PV, 0 PMT, CPT FV, which yields $450.22. Then press STO 1, 5 N, 400 PV, CPT FV, which yields $561.02. Then press + RCL 1 = STO 1. Then press 2 N, 200 PV, CPT FV, which yields $228.98. Then press + RCL 1 = to see the answer. On the HP12C, press 6 n, 7 i, 300 PV, 0 PMT, FV. Then press STO 1, 5 n, 400 PV, FV. Then press RCL 1 + STO 1. Then press 2 n, 200 PV, FV. Then press RCL 1 + to see the answer. Note that the answer will be displayed as a negative number. Also note that the value of "N" for each dollar amount is based on the distance from year 6.

• Question 3388:

  What is the Net Present Value of this series of annual cash flows using an interest rate of 20% per year: Year 0: <$6,000>, Year 1: $4,000, Year 2: $3,000, Year 3: $2,000, Year 4: $1,000? (Note that the <> are used to indicate a negative number).

  A. $1,077.49

  B. $1,056.33

  C. $589.11

  D. $1,134.39

  E. $981.21

  Correct Answer: B

  On the BAII Plus, press CF 2nd CLRWork 6000 +/- ENTER DownArrow 4000 ENTER DownArrow DownArrow 3000 ENTER DownArrow DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 20 ENTER DownArrow CPT. On the HP12C, press these keys: 6000 CHS BlueShift CFo 4000 BlueShift CFj 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press 20 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3389:

  What is the variable used to predict another variable called?

  A. Important

  B. Causal

  C. Independent

  D. None of these answers

  E. Dependent

  Correct Answer: C

  The dependent variable is the variable Y which is being predicted by the X variable, the independent variable. 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.

• Question 3390:

  A survey of 144 retail stores revealed that a particular brand and model of a VCR retails for $375 with a standard deviation of $20.

  If 95% and 98% confidence intervals are developed to estimate the true cost of the VCR, what difference would they have?

  A. Interval widths

  B. Z-variates

  C. None of these answers

  D. Both interval widths and z-variates

  E. Standard errors

  Correct Answer: D

  The interval widths and the z variates differ according to the rule chosen. The standard error is the same regardless.