CFA Level 1 Questions with correct 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
4. Stochastic Oscillator (Latest closing price and highest and lowest prices reached in a period)
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
4. Stochastic Oscillator (Latest closing price and highest and lowest prices reached in a period)
