CFA Level 1 Exam (2025) – With Complete Questions & Answers (Graded A+)

CFA Level 1 Exam (2025) – With Complete Questions & Answers (Graded A+) CFA Level 1 Exam (2025) – With Complete Questions & Answers (Graded A+) Required Rate of Return - ANSWER-minimum rate of return necessary to attract an investor to purchase or hold a security. The required rate of return is the sum of the nominal risk-free rate of return, the maturity premium, the default risk premium, and a liquidity premium. Nominal Risk Free Rate Formula - ANSWER-(1 + Nominal Risk Free Rate) / (1 + Inflation Rate) Nominal Risk Free Rate = (1 + Real Risk Free Rate) x ( 1 + Inflation Rate) -1 Real Risk Free Rate - ANSWER-the interest rate that would exist on a default-free security if no inflation were expected Modal Value Greater Than The Mean - ANSWER-The position of the mean determines the direction of the skew. A mean, median, mode arrangement under the distribution would indicate negative skewness. T Test (Pooled Variance) - ANSWER-A t-test is used with a pooled variance when the populations are at least approximately normally distributed, the samples are independent, and their variances are assumed equal. Student's T - Distribution - ANSWER-a set of distributions that, although symmetrical and bell-shaped, are not normally distributed One Sided Hypothesis Test - ANSWER-A hypothesis test that tests for a difference in a parameter in only one direction (e.g., if the mean of one group is greater than the mean of another group). This test should be used only if the researcher has strong convictions about the direction of the change. In a one-sided hypothesis test, the null hypothesis has two sides and the alternative hypothesis has one side. Basis of computing reliability factors: - ANSWER- Type II error in hypothesis testing - ANSWER-A Type II error is when the null hypothesis is false but we do not reject it, possibly because we have selected a small significance level to reduce the occurrence of Type I errors. one-tailed hypothesis test - ANSWER-A test in which the null hypothesis is rejected only if the evidence indicates that the population parameter is greater than (smaller than) θ0. The alternative hypothesis also has one side. correlation of determination - ANSWER-describes the fraction of variability in y values that is explained by least squares regression on x correlation coefficient formula - ANSWER-A correlation coefficient is a numerical measure of some type of correlation, meaning a statistical relationship between two variables. nPr (Permutations) vs. nCr (Combinations) - ANSWER-nPr (Permutations) - Used when order matters in. nPr is finding all of the permutations that exist within a given set for a given subset. (Factorials) nCr (Combinations) - Used when order does not matter. nCr, is finding all of the combinations that exist within a given set for a given subset when order doesn't matter Bayes Formula - ANSWER-Used to update a given set of prior probabilities for a given event in response to new information; (Updated Probability) = {(Probability of new information of a given event) (Unconditional probability of new information)} * (Probability of event) F Stat - ANSWER- standard error of the sample mean - ANSWER-The standard error of the mean (SEM) measures how much discrepancy is likely in a sample's mean compared with the population mean Probability Addition Rule - ANSWER- Central Limit Theorem - ANSWER-The theory that, as sample size increases, the distribution of sample means of size n, randomly selected, approaches a normal distribution. chi-square test statistic (χ2) Use - ANSWER-A chi-square test statistic is used to test for variance when we have a normally distributed population. It is always zero or a positive number and has different distributions based on the number of degrees of freedom. Stratified random sampling ensures that different subdivisions within a population are represented in the sample. Trading NAV vs NAV - ANSWER-Trading NAV does incorporate liquidity discounts (based on the size of the position held relative to the total amount outstanding in the issue and its trading volume), whereas reporting NAV is solely based on quoted market prices. Standard Deviation Steps - ANSWER-1. Calculate the mean 2. Calculate each variable (x) minus the mean. (x-x̄) 3. Square each value left over, then (Multiply by weight if weighted mean from step 1) 4. Add them all together 5. Divide by n-1 (for a sample; if it's population, just divide by n) 6. Take the square root