CFA Level 1 Test / Exam Questions and
Answers
1. What are the 4 types of measurement scales?: 1. Nominal Scales
2. Ordinal Scales (Assigned to a category)
3. Interval Scales (Relative ranking)
4. Ratio Scales (Equal differences between scale
values) NOIR
2. When do we use geometric and arithmetic means to analyze
investment returns?: Arithmetic Mean: To estimate next year's return
Geometric Mean: Measure of past performance
3. What are the 3 different types of probabilities?: 1. Empirical Probability
(Past data)
2. Priori Probability (Formal reasoning)
3. Subjective Probability (Use of personal judgement)
4. What is the difference between time-series data and cross-
sectional data?: -
Time-Series: Data taken over a period of time
Cross-Sectional: Data taken at a single point in time
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, 5. What are the 3 desirable properties of an estimator?: 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)
6. What are the steps of Hypothesis Testing?: 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
7. What is a Type 1 and Type 2 Error?: Type I: Rejection of null when it is
actually true Type II: Failure to reject null when it is actually false
8. What are the 3 reasons why statistical significance does not imply
economic significance?: 1. Transaction Costs
2. Taxes
3. Risk
9. What is the key assumption of technical analysis?: Market prices reflect both
rational and irrational investor behavior
2/
12
Answers
1. What are the 4 types of measurement scales?: 1. Nominal Scales
2. Ordinal Scales (Assigned to a category)
3. Interval Scales (Relative ranking)
4. Ratio Scales (Equal differences between scale
values) NOIR
2. When do we use geometric and arithmetic means to analyze
investment returns?: Arithmetic Mean: To estimate next year's return
Geometric Mean: Measure of past performance
3. What are the 3 different types of probabilities?: 1. Empirical Probability
(Past data)
2. Priori Probability (Formal reasoning)
3. Subjective Probability (Use of personal judgement)
4. What is the difference between time-series data and cross-
sectional data?: -
Time-Series: Data taken over a period of time
Cross-Sectional: Data taken at a single point in time
1/
12
, 5. What are the 3 desirable properties of an estimator?: 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)
6. What are the steps of Hypothesis Testing?: 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
7. What is a Type 1 and Type 2 Error?: Type I: Rejection of null when it is
actually true Type II: Failure to reject null when it is actually false
8. What are the 3 reasons why statistical significance does not imply
economic significance?: 1. Transaction Costs
2. Taxes
3. Risk
9. What is the key assumption of technical analysis?: Market prices reflect both
rational and irrational investor behavior
2/
12
