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

• Question 3391:

  What is a Type II error?

  A. Rejecting a false alternative hypothesis

  B. Accepting a false null hypothesis

  C. None of these answers

  D. Accepting a false alternative hypothesis

  E. Rejecting a false null hypothesis

  Correct Answer: B

  The type II error is accepting the null hypothesis when it is actually false.

• Question 3392:

  Which of the following statements regarding hypothesis testing is false?

  A. If the population standard deviation is known, then the standard deviation of the sample is found by dividing the population standard deviation by the square root of "n."

  B. The test statistic is also known as the "critical value."

  C. A Type II error is defined as the act of incorrectly failing to reject the null hypothesis.

  D. The level of significance is denoted by the Greek letter alpha.

  E. Despite the different ways to formulate a hypothesis, the null hypothesis is always tested at the point of equality.

  F. More than one of these answers is incorrect.

  Correct Answer: B

  The test statistic is measured AGAINST the critical value. The test statistic is defined as "...a quantity,

  calculated on the basis of sample, whose value is the basis for deciding whether to reject or not reject the

  null hypothesis." The critical value is found by referencing the probability distribution for the series (zdistribution, t-distribution, Chi-squared distribution, F-distribution, etc.).

  The remaining answers are correct.

• Question 3393:

  Suppose you need $1,500 in 15 months. How much must you deposit today, if the deposit will earn interest at 8% per year, compounded monthly?

  A. $472.86

  B. $1,249.93

  C. $1,357.71

  D. $291.77

  E. $341.55

  Correct Answer: C

  On the BAII Plus, press 15 N, 8 divide 12 = I/Y, 0 PMT, 1500 FV, CPT PV. On the HP12C, press 15 n, 8 ENTER 12 divide i, 0 PMT, 1500 FV, PV. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3394:

  Where does the coefficient of variation (CV) generally lie between?

  A. -1 and +1

  B. -3 and +3

  C. None of these answers

  D. 0% and infinity

  E. Unlimited values

  Correct Answer: D

  CV always lies between 0% and infinity. The larger the CV, the larger the dispersion.

• Question 3395:

  What deposit would you need to make today in order to withdraw $200 a month, beginning next month, for the next 5 years, if the deposit will accrue interest at 8% per year, compounded monthly?

  A. $7,237.66

  B. $9,863.69

  C. $11,492.59

  D. $8,399.27

  E. $9,141.23

  Correct Answer: B

  On the BAII Plus, press 60 N, 8 divide 12 = I/Y, 200 PMT, 0 FV, CPT PV. On the HP12C, press 60 n, 8 ENTER 12 divide i, 200 PMT, 0 FV, PV. The answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3396:

  How many deposits of $450 a month, beginning next month, are needed before an account has $200,000 in it, assuming it had a balance of $0 at the beginning and that interest is 6% per year, compounded monthly?

  A. 166.79

  B. 234.6

  C. 119.48

  D. No solution/Error

  E. 444.44

  Correct Answer: B

  One of the two dollar amounts must be entered as a negative number and the other as a positive number or an error will result. On the BAII Plus, press 6 divide 12 = I/Y, 0 PV, 450 PMT, 200000 +/- FV, CPT N. On the HP12C, press 6 ENTER 12 divide i, 0 PV, 450 PMT, 200000 CHS FV, n. Note that the HP12C returns a result of 235. Make sure the BAII Plus has the P/Y value set to 1.

• Question 3397:

  If you deposit $123 into an account paying 6% per year simple interest, what is the balance in your account 8 months later?

  A. $182.04

  B. $246.00

  C. $123.92

  D. $127.92

  E. $131.51

  Correct Answer: D

  Calculate the simple interest earned and add it to the original deposit. On the BAII Plus, press 123 x 0.06 x 8 divide 12 = + 123 = to see the answer. On the HP12C, press 123 ENTER 0.06 x 8 x 12 divide 123 + to see the answer.

• Question 3398:

  Suppose you were given $10,000 today and deposited it into an account paying 10% per year, compounded monthly. If you know that you will need $5,000 in the account 5 years from now, what monthly withdrawal can you make from the account, beginning one month from now, that will leave the account with exactly $5,000 in it in 5 years?

  A. $147.90

  B. $83.33

  C. $1,066.81

  D. $140.04

  E. $1,001.65

  Correct Answer: A

  On the BAII Plus, press 60 N, 10 divide 12 = I/Y, 10000 PV, 5000 +/- FV, CPT PMT. On the HP12C, press 60 n, 10 ENTER 12 divide i, 10000 PV, 5000 CHS FV, PMT. Note that the answer is a negative number. This is because it is a withdrawal from the account balance, just as the $5,000 is. Make sure the BAII Plus has the value of P/Y set to 1.

• Question 3399:

  Milton Samuel, a quantitative analyst with Middle Road Brokerage, is examining a data sample and has amassed the following information:

  Standard deviation of the sample: 12.37 Number of observations: 100 Sample mean: 231

  Assume that Mr. Samuel formulates a null hypothesis stating that the population mean is equal to 212. Additionally, assume that the population standard deviation is unknown. Given this information, what is the standard error of the estimate? Further, what is the test statistic? Choose the best answer.

  A. 1.530; 10.19

  B. 1.250; 15.20

  C. 1.250; 16.91

  D. 1.237; 5.40

  E. None of these answers is correct.

  F. 1.530; 12.42

  G. 1.237; 15.36

  Correct Answer: G

  If the population standard deviation is unknown, as in this example, the standard error of the estimate is found by using the following equation:

  {Standard error = s / square root of n} where s = the sample standard deviation and n = the number of observations in the sample.

  In this example, all of the necessary information has been provided, and the determination of the standard error of the estimate is found as:

  {Standard error = [12.37 / 10] = 1.237}

  Now that the standard error of the estimate has been calculated, the test statistic can be found by using the following equation:

  {Test statistic = [sample statistic - value of the population parameter under the null hypothesis] / standard error of the sample statistic].

  Again, all of the necessary information has been provided, and the calculation of the test statistic is found as follows:

  {Test statistic = [231 - 212] / 1.237 = 15.360}

• Question 3400:

  A cumulative frequency distribution on days absent during a calendar year by employees of a manufacturing company is shown below.

  Days AbsentCumulative ## of Employees 0 - 260 3 - 531 6 - 814 9 - 116 12 - 142

  How many employees were absent between 6 and 11 days?

  A. 12

  B. 17

  C. 20

  D. None of these answers

  E. 8

  Correct Answer: A

  This is found by the difference between the 6-8 class and the 12-14 class. In this case: 14 - 2 = 12.