CFA Level 1 Questions with verified detailed ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answers
What are the 4 types of measurement scales? - correct answer✔✔1. Nominal Scales
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Ordinal Scales (Assigned to a category)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Interval Scales (Relative ranking)
||\\//|| ||\\//|| ||\\//|| ||\\//||
4. Ratio Scales (Equal differences between scale values)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
NOIR
When do we use geometric and arithmetic means to analyze investment returns? - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔Arithmetic Mean: To estimate next year's return ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Geometric Mean: Measure of past performance ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 different types of probabilities? - correct answer✔✔1. Empirical Probability
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
(Past data) ||\\//||
2. Priori Probability (Formal reasoning)
||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Subjective Probability (Use of personal judgement)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What is the difference between time-series data and cross-sectional data? - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔Time-Series: Data taken over a period of time ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Cross-Sectional: Data taken at a single point in time ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 desirable properties of an estimator? - correct answer✔✔1. Unbiased
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
(Expected value of estimator is equal to the parameter) ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Efficient (Variance of its sampling distribution is small)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Consistent (Accuracy of parameter estimate increases as sample size increases)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
, What are the steps of Hypothesis Testing? - correct answer✔✔1. State the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Select the appropriate test statistic
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Specify the level of significance
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
4. State the decision rule regarding the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
5. Collect the sample and calculate the sample statistics
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
6. Make a decision regarding the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
7. Make a decision based on the results of the test
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What is a Type 1 and Type 2 Error? - correct answer✔✔Type I: Rejection of null when it is
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
actually true ||\\//||
Type II: Failure to reject null when it is actually false
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 reasons why statistical significance does not imply economic significance? -
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
correct answer✔✔1. Transaction Costs ||\\//|| ||\\//|| ||\\//||
2. Taxes
||\\//||
3. Risk
||\\//||
What is the key assumption of technical analysis? - correct answer✔✔Market prices reflect
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
both rational and irrational investor behavior
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 4 different types of Oscillators? - correct answer✔✔1. Rate of Change
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Oscillator (100x the difference between the latest closing price and the closing price n
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
periods earlier) ||\\//||
2. Relative Strength Index (Ratio of total price increases to price decreases)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Moving Average Convergence/Divergence
||\\//|| ||\\//|| ||\\//||
answers
What are the 4 types of measurement scales? - correct answer✔✔1. Nominal Scales
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Ordinal Scales (Assigned to a category)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Interval Scales (Relative ranking)
||\\//|| ||\\//|| ||\\//|| ||\\//||
4. Ratio Scales (Equal differences between scale values)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
NOIR
When do we use geometric and arithmetic means to analyze investment returns? - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔Arithmetic Mean: To estimate next year's return ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Geometric Mean: Measure of past performance ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 different types of probabilities? - correct answer✔✔1. Empirical Probability
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
(Past data) ||\\//||
2. Priori Probability (Formal reasoning)
||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Subjective Probability (Use of personal judgement)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What is the difference between time-series data and cross-sectional data? - correct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
answer✔✔Time-Series: Data taken over a period of time ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Cross-Sectional: Data taken at a single point in time ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 desirable properties of an estimator? - correct answer✔✔1. Unbiased
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
(Expected value of estimator is equal to the parameter) ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Efficient (Variance of its sampling distribution is small)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Consistent (Accuracy of parameter estimate increases as sample size increases)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
, What are the steps of Hypothesis Testing? - correct answer✔✔1. State the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Select the appropriate test statistic
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Specify the level of significance
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
4. State the decision rule regarding the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
5. Collect the sample and calculate the sample statistics
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
6. Make a decision regarding the hypothesis
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
7. Make a decision based on the results of the test
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What is a Type 1 and Type 2 Error? - correct answer✔✔Type I: Rejection of null when it is
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
actually true ||\\//||
Type II: Failure to reject null when it is actually false
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 3 reasons why statistical significance does not imply economic significance? -
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
correct answer✔✔1. Transaction Costs ||\\//|| ||\\//|| ||\\//||
2. Taxes
||\\//||
3. Risk
||\\//||
What is the key assumption of technical analysis? - correct answer✔✔Market prices reflect
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
both rational and irrational investor behavior
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are the 4 different types of Oscillators? - correct answer✔✔1. Rate of Change
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Oscillator (100x the difference between the latest closing price and the closing price n
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
periods earlier) ||\\//||
2. Relative Strength Index (Ratio of total price increases to price decreases)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Moving Average Convergence/Divergence
||\\//|| ||\\//|| ||\\//||
