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

• Question 3431:

  What quarterly payment is required beginning one period from today to pay off a $3,000 debt, if interest accrues at 6% per year, compounded quarterly, and the debt is to be retired in 10 years?

  A. $107.41

  B. $88.63

  C. $114.29

  D. $87.83

  E. $100.28

  Correct Answer: E

  On the BAII Plus, press 40 N, 6 divide 4 = I/Y, 3000 PV, 0 FV, CPT PMT. On the HP12C, press 40 n, 6 ENTER 4 divide i, 3000 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.

• Question 3432:

  Which of the following statements is false regarding confidence levels and/or tests of significance?

  A. In most hypothesis testing, the confidence level is equal to 0.10, 0.05, and 0.01.

  B. All else equal, the confidence interval of a hypothesis test with a 5% level of significance is less than the confidence interval for a hypothesis test with a 1% level of significance.

  C. In most hypothesis tests, the power of the test is equal to (1 - alpha).

  D. More than one of these answers is incorrect.

  E. The significance level of a test is equal to (1 - confidence level).

  F. The power of a test is equal to the confidence level.

  Correct Answer: D

  More than one of these answers is incorrect. Specifically, in most hypothesis tests, the significance level is equal to the probability of a Type I error (denoted by the Greek letter alpha) and the power of the test can be found by (1 - beta), where beta represents the probability of a Type II error. Remember that statisticians are much more concerned with the probability of a Type I error, which is defined as the act of incorrectly rejecting the null hypothesis. A Type II error, which is defined as the act of incorrectly failing to reject the null hypothesis, is much more difficult to predict. Second, power of a test is not equal to the confidence level of the test.

• Question 3433:

  Your investment rate of return is 6% per year and you invest according to the following schedule:

  Beginning of year 1: $100 Beginning of year 2: $200 Beginning of year 3: $300 Beginning of year 4: $400

  The amount you will have at the end of year 4 is:

  A. $1,125

  B. $640

  C. $808

  D. $845

  Correct Answer: A

  This is a future value question. The amount at the end of year 4 = 100*(1.06^4) + 200*(1.06^3) + 300* (1.06^2) + 400*1.06 = 1,125

• Question 3434:

  Each salesperson in a large department store chain is rated either below average, average, or above average with respect to sales ability. Each salesperson is also rated with respect to his or her potential for advancement either fair, good, or excellent. These traits for the 500 salespeople were cross classified into the following table. Sales Ability Potential for Advancement Fair Good Excellent Below Average 161222 Average 456045 Above Average 9372135

  What is the probability that a salesperson selected at random will have above average sales ability and excellent potential for advancement?

  A. 0.20

  B. 0.50

  C. None of these answers

  D. 0.75

  E. 0.27

  Correct Answer: E

  We need the prob(above average) = (93 + 72 + 135)/500 and prob(excellent given above average) = 135/300. Therefore 300/500*135/300 = 0.27

• Question 3435:

  What is the Net Present Value of this series of annual cash flows at an interest rate of 12% per year: Year

  0:

  <$14,000>, Year 1: $5,000, Year 2: $4,000, Year 3: $5,000, Year 4 are used to indicate a negative number).

  A.

  <$379.31>

  B.

  $114.37

  C.

  <$77.49>

  D.

  $51.21

  E.

  <$245.97>

  Correct Answer: E

  On the BAII Plus, press CF 2nd CLRWork 14000 +/- ENTER DownArrow 5000 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 5000 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 12 ENTER DownArrow CPT. On the HP12C, press these keys: 14000 CHS BlueShift CFo 5000 BlueShift CFj 4000 BlueShift CFj 5000 BlueShift CFj 4000 BlueShift CFj. Then press 12 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 value of P/Y set to 1.

• Question 3436:

  You are examining a special group of 5 stock market indices. Of these 5, the returns were 4%, 8%, 12%,

  16%, and 10%. What is the population standard deviation of this group of stock market indices?

  A. 10%.

  B. 4%.

  C. 0%.

  D. 16%.

  Correct Answer: B

  The population standard deviation is the positive square root of the population variance. The population variance is equal to the sum of the squared differences between each population member and the population mean, divided by the number of items in the population. In this case, we have a mean of 10%. The first squared difference will be (4% - 10%)^2 = 0.0036. The others will be 0.0004, 0.0004, 0.0036, and

  0. The sum of these squared differences is 0.008, and divided by 5, we get 0.0016 = 16%%. The square root of this gives us our population standard deviation of 4%.

• Question 3437:

  How much would an original deposit of $500 grow to be after 8 and a half years, if the deposit earns interest at 6.5% per year, compounded quarterly?

  A. $853.97

  B. $573.42

  C. $4,254.58

  D. $837.51

  E. $864.95

  Correct Answer: E

  On the BAII Plus, press 500 PV, 0 PMT, 34 N, 6.5 divide 4 = I/Y, then press CPT FV. On the HP12C, press 500 PV, 0 PMT, 34 n, 6.5 ENTER 4 divide i, then press FV. Note that N = 34 quarters and the answer is displayed as a negative number. Make sure that the BAII Plus has the P/Y value set to 1.

• Question 3438:

  The National Center for Health Statistics reported that of every 883 deaths in recent years, 24 resulted from an automobile accident, 182 from cancer and 333 from heart disease. Using the relative frequency approach, what is the probability that a particular death is due to an automobile accident?

  A. 182/883 or 0.206

  B. None of these answers

  C. 24/883 or 0.027

  D. 24/333 or 0.072

  E. 539/883 or 0.610

  Correct Answer: C

  The probability is the number of automobile deaths divided by the total number of deaths.

• Question 3439:

  If the level of confidence is lowered from 95% to 90%, but the allowable error and the standard deviation remain the same, what happens to the required sample size?

  A. None of these answers

  B. Decreases

  C. Increases

  D. Remain unchanged

  Correct Answer: B

  This is related to the degree or confidence and the maximum error allowed. If you want to have a lower degree of confidence, you can have a smaller sample size (given that the standard deviation is constant). If you want 100% confidence, you want to use the whole population as your sample.

• Question 3440:

  Affirmative action commitments by industrial organizations have led to an increase in the number of women in executive positions. Satellite Office Systems has vacancies for two executives, which it will fill from among four women and six men. What is the probability that no woman is selected?

  A. None of these answers

  B. 2/15

  C. 1/3

  D. 8/15

  E. 1/5

  Correct Answer: C

  Probability of both positions being filled by men = 6/10*5/9 = 1/3.