CFA Level 1 Test Questions review
Allen Jabber invested $400 at the beginning of the last 12 months in the shares of
a mutual fund that paid no dividends. Which Method will he correctly choose to
calculate his average price per share from the monthly share prices?
a) Arithmetic Mean
b) Harmonic Mean
c) Geometric Mean - Harmonic Mean - The harmonic mean of the 12 purchase
prices will be his average price paid per share.
Colonia has 2 political parties, the Wigs and the Wags. If the Wags are elected
there is a 32% probability of a tax increase over the next 4 years. If the Wigs are
elected there is a 60% probability of a tax increase. There is a 20% probability the
that the Wags will be elected. The sum of the (unconditional) probability of a tax
increase and the joint probability that the wigs will be elected and there will be no
tax increase is closest to:
a) 55%
,CFA Level 1 Test Questions review
b) 70%
c) 85% - 86.4% = C
The unconditional probability of a tax increase is: 0.2(0.32) + 0.8(0.6) = 54.4%.
The joint probability that the Wigs will be elected and there will be no tax increase
is: 0.8(0.4) = 32%. The sum is: 54.4 + 32 = 86.4%.
An analyst who wants to display the relationship between two variables
graphically is most likely to use:
a) a histogram
b) a scatterplot
c) a frequency polygon - B = Scatterplot
Scatterplots illustrate the relationship between two variables.
,CFA Level 1 Test Questions review
Histograms and frequency polygons show the distribution of observations for a
single variable.
Ralph will retire 15 years from today and has saved $121,000 in his investment
account for retirement. He believes he will need 37,000 at the beginning of each
year for 25 Years of retirement, with the first withdrawal on the day he retires.
Ralph assumes his account will earn 8%. The amount he needs to deposit at the
beginning of this year and each of the following 14 Years (15 in all) is closest to:
a) 1350
b) 1450
c) 1550 - B = 1450
Step 1:
Calculate the amount needed at retirement at t = 15, with your calculator in BGN
mode.
, CFA Level 1 Test Questions review
N = 25, FV = 0, I/Y = 8, PMT = 37,000, CPT PV = -426,564
Step 2:
Calculate the required deposits at t = 0,1,....,14 to result in a time 15 value of
426,564, with your calculator still in BGN mode.
PV = -121,000, N = 15, I/Y = 8, FV = 426,564, CPT PMT = -$1,457.21
The current price of Bosto shares is $50. Over the coming year, there is a 40%
probability that share returns will be 10%, 40% probability returns will be 12.5%,
and a 20% probability share returns will be 30%. Bostos expected return and
standard deviation of returns for the coming year are closest to:
a) E(R) = 15% Standard Dev = 7.58%
b) E(R) = 17.5% Standard Dev = 5.75%
a) E(R) = 17.5% Standard Dev = 7.58% - A
E[R] = (0.4)(10) + (0.4)(12.5) + (0.2)(30) = 15%
Allen Jabber invested $400 at the beginning of the last 12 months in the shares of
a mutual fund that paid no dividends. Which Method will he correctly choose to
calculate his average price per share from the monthly share prices?
a) Arithmetic Mean
b) Harmonic Mean
c) Geometric Mean - Harmonic Mean - The harmonic mean of the 12 purchase
prices will be his average price paid per share.
Colonia has 2 political parties, the Wigs and the Wags. If the Wags are elected
there is a 32% probability of a tax increase over the next 4 years. If the Wigs are
elected there is a 60% probability of a tax increase. There is a 20% probability the
that the Wags will be elected. The sum of the (unconditional) probability of a tax
increase and the joint probability that the wigs will be elected and there will be no
tax increase is closest to:
a) 55%
,CFA Level 1 Test Questions review
b) 70%
c) 85% - 86.4% = C
The unconditional probability of a tax increase is: 0.2(0.32) + 0.8(0.6) = 54.4%.
The joint probability that the Wigs will be elected and there will be no tax increase
is: 0.8(0.4) = 32%. The sum is: 54.4 + 32 = 86.4%.
An analyst who wants to display the relationship between two variables
graphically is most likely to use:
a) a histogram
b) a scatterplot
c) a frequency polygon - B = Scatterplot
Scatterplots illustrate the relationship between two variables.
,CFA Level 1 Test Questions review
Histograms and frequency polygons show the distribution of observations for a
single variable.
Ralph will retire 15 years from today and has saved $121,000 in his investment
account for retirement. He believes he will need 37,000 at the beginning of each
year for 25 Years of retirement, with the first withdrawal on the day he retires.
Ralph assumes his account will earn 8%. The amount he needs to deposit at the
beginning of this year and each of the following 14 Years (15 in all) is closest to:
a) 1350
b) 1450
c) 1550 - B = 1450
Step 1:
Calculate the amount needed at retirement at t = 15, with your calculator in BGN
mode.
, CFA Level 1 Test Questions review
N = 25, FV = 0, I/Y = 8, PMT = 37,000, CPT PV = -426,564
Step 2:
Calculate the required deposits at t = 0,1,....,14 to result in a time 15 value of
426,564, with your calculator still in BGN mode.
PV = -121,000, N = 15, I/Y = 8, FV = 426,564, CPT PMT = -$1,457.21
The current price of Bosto shares is $50. Over the coming year, there is a 40%
probability that share returns will be 10%, 40% probability returns will be 12.5%,
and a 20% probability share returns will be 30%. Bostos expected return and
standard deviation of returns for the coming year are closest to:
a) E(R) = 15% Standard Dev = 7.58%
b) E(R) = 17.5% Standard Dev = 5.75%
a) E(R) = 17.5% Standard Dev = 7.58% - A
E[R] = (0.4)(10) + (0.4)(12.5) + (0.2)(30) = 15%
