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

• Question 3441:

  Which measure of central tendency is found by arranging the data from low to high and selecting the middle value?

  A. Geometric mean

  B. Median

  C. None of these answers

  D. Mean

  E. Mode

  Correct Answer: B

  This is exactly how the median is found. Make sure you know how to find the median in a frequency distribution also.

• Question 3442:

  What monthly payment, beginning next month, would pay off a debt of $1,000 over 15 months, if the interest rate on the debt is 18% per year, compounded monthly?

  A. $5.12

  B. $66.67

  C. $74.94

  D. $68.92

  E. $76.51

  Correct Answer: C

  On the BAII Plus, press 15 N, 18 divide 12 = I/Y, 1000 PV, 0 FV, CPT PMT. On the HP12C, press 15 N, 18 ENTER 12 divide i, 1000 PV, 0 FV, PMT. 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 3443:

  Suppose 1,600 of 2,000 registered voters sampled said they planned to vote for the Republican candidate for president. Using the 0.95 degree of confidence, what is the interval estimate for the population proportion (to the nearest tenth of a percent)?

  A. 77.7% to 82.3%

  B. 78.2% to 81.8%

  C. 69.2% to 86.4%

  D. None of these answers

  E. 76.5% to 83.5%

  Correct Answer: B

  Interval estimate can be found from p +/- z[p(1-p)/n]^0.5. Here we have n = 2000, p = 1600/2000 = 0.8 and

  z = 1.96 (for 95%).

  Therefore 0.8 +/- 1.96*0.008944 and we get 0.7825 and 0.8175.

• Question 3444:

  What is the present value today of these annual cash flows: $5,000, $4,000, $3,000, $2,000, $1,000? Assume the first cash flow occurs 1 year from today and an interest rate of 8% per year, compounded annually.

  A. $12,854.32

  B. $15,000

  C. $13,598.41

  D. $12,591.14

  E. $5,000

  Correct Answer: D

  You could solve this question using 5 different compound interest problems, but it is easier to solve them using the calculator's cash flow functions. On the BAII Plus, press CF 2nd CLRWork 0 ENTER DownArrow 5000 ENTER DownArrow DownArrow 4000 ENTER DownArrow DownArrow 3000 ENTER DownArrow DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 8 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 5000 BlueShift CFj 4000 BlueShift CFj 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press 8 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard.

• Question 3445:

  Which of the following are true assumptions underlying linear regression?

  (1)

  For each value of X, there is a group of Y values which are normally distributed

  (2)

  The means of these normal distributions of Y values all lie on the straight line of regression

  (3)

  The standard deviations of these normal distributions are equal

  A.

  All of them

  B.

  None of them

  C.

  Only (2) and (3)

  D.

  Only (1) and (3)

  E.

  Only (1) and (2)

  Correct Answer: A

  All are part of the assumptions of the linear regression. Make sure you know all the assumptions.

• Question 3446:

  The average cost of tuition, room and board at a small private liberal arts college is reported to be $8,500 per term, but a financial administrator at Moravian College believes that the average cost is much higher. A study was conducted using 150 small liberal arts colleges and findings showed that the average cost per term is $9,000 with a standard deviation of $1,200. Let alpha = 0.05. The Ho: Mu less than or equal to $8,500. H1: Mu is bigger than $8,500. What is the critical z-value for this test?

  A. -1.645

  B. None of these answers

  C. +1.645

  D. -1.96

  E. +1.96

  Correct Answer: C

  From the hypothesis, this is a one tailed test. Since alpha is 0.05. We have 0.05, which gives us a z value of +/1.645. From the Ho we see that the rejection region lies to the right of the mean, so the critical value is +1.645.

• Question 3447:

  Which of the following is/are true?

  I. There are as many values above the mode as below it.

  II. The sum of the differences between the observations in a sample and the mode of the sample equals zero.

  III. The mode is not affected by "outliers."

  IV.

  A sample has a unique mode.

  A.

  I only

  B.

  II, III and IV

  C.

  II only

  D.

  I, III and IV

  E.

  III only

  F.

  III and IV

  Correct Answer: E

  A sample can have multiple modes, corresponding to all the numbers which appear with the maximum frequency. Note that the mode is not affected by outliers unless an extreme value occurs frequently. In such a case, it is likely that the observed data contain large errors and hence, it must be reexamined. (I) holds for the median not the mode i.e. there are as many values above the median as below it. (II) holds for the mean i.e. the sum of the differences between the observations in a sample and the mean of the sample equals zero.

• Question 3448:

  David's gasoline station offers 4 cents off per gallon if the customer pays in cash and does not use a credit card. Past evidence indicates that 40% of all customers pay in cash. During a one hour period twenty-five customers buy gasoline at this station.

  What is the probability that more than ten and less than fifteen customers pay in cash?

  A. .401

  B. .562

  C. .541

  D. None of these answers

  E. .380

  Correct Answer: E

  Binomial distribution: n!(p^r)(q^(n-r))/r!(n-r)!. n = 25, r = 10, p = 0.4 q = 0.6 P(11) = 25!(0.4^11)(0.6^14)/11!14! = 0.1465 P(12) = 25!(0.4^12)(0.6^13)/12!13! = 0.1140 P(13) = 25!(0.4^13)(0.6^12)/13!12! = 0.0760 P(14) = 25!(0.4^14)(0.6^11)/14!11! = 0.0434 Summing up: 0.3799.

• Question 3449:

  A histogram is best described as:

  A. a collection of frequency classes in which the raw data are arranged.

  B. a bar chart of relative frequencies.

  C. a scatter plot of the raw data on the X-Y plane.

  D. a visual representation of a frequency distribution.

  Correct Answer: D

  A histogram is best described as a visual representation of a frequency distribution.

• Question 3450:

  Samples of the wires coming off the production line were tested for tensile strength. The statistical results (in PSI) were: Mean = 500 Median = 500 Mode = 500 Standard deviation = 40 Mean deviation = 32 Quartile deviation = 25 Range = 240 Number is sample = 100 The middle 95 percent of the wires tested between approximately what two values?

  A. 450 and 550

  B. 420 and 580

  C. 380 and 620

  D. 460 and 540

  E. None of these answers

  Correct Answer: B

  95% of the observations lie between plus and minus two standard deviations from the mean, so it is 500 +/- 2(40).