CFA Level 1 Test Exam Questions and
Answers
Step 1:
Calculate the amount needed at retirement at t = 15, with your calculator in BGN mode.
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% - Answer-A
E[R] = (0.4)(10) + (0.4)(12.5) + (0.2)(30) = 15%
Variance = (0.4)(10 − 15)2 + (0.4)(12.5 − 15)2 + (0.2)(30 − 15)2 = 57.5
Standard deviation=√57.5=7.58%
Nikki Ali and Donald Ankard borrowed $15,000 to finance their wedding and reception.
The fully amortizing loan at 11% requires equal payments at the end of each of the next
seven years. The principle portion of the first payment is closest to:
A) 1500
B) 1530
C) 1560 - Answer-B
The interest portion of the first payment is simply principal × interest rate = (15,000 ×
0.11) = 1,650.
Using a financial calculator: PV = 15,000, FV = 0, I/Y = 11, N = 7, CPT PMT= $3,183
Principal = payment − interest = 3,183 − 1,650 = 1,533
Which of the following statements about probability distributions is least accurate?
, A) Continuous uniform distributions have cumulative distribution functions that are
straight lines from 0 to 1.
B) The probability that a continuously distributed random variable will take on a specific
value is always 0.
C) A normally distributed random variable divided by its standard deviation will follow a
standard normal probability distribution. - Answer-C
A standard normal probability distribution has a mean of zero, so subtracting the mean
from a normal random variable before dividing by its standard deviation is necessary to
produce a standard normal probability distribution.
An analyst wants to construct a hypothesis test to determine whether the mean weekly
return on a stock is positive. The null hypothesis for this test should be that the mean
return is:
A) Greater than zero
B) Less than or equal to 0
C) Greater than or equal to 0 - Answer-B = Less than or equal to 0.
Null hypothesis = condition if rejected would lend evidence to true alternative
hypothesis.
Alternative = Mean is Greater than 0.
Null = Less than or = 0.
X, Y, and Z are independently distributed random variables. The probability of X is 30%,
the probability of Y is 40%, and the probability of Z is 20%. Which is closest to the
probability that X or Y will occur?
A) 70%
B) 58%
C) 12% - Answer-B = 58%
The probability of X or Y is P(X) + P(Y) − P(XY).
0.3 + 0.4 − (0.3)(0.4) = 58%
An analyst should use a t-test with n-1 degrees of freedom to test a null hypothesis that
two variables have:
A) equal means
B) equal variances
c) no linear relationship - Answer-A = Equal Means
Differences in Means = T-Tests (N-1)
Tests of Correlation = T-Tests (N-2)
Answers
Step 1:
Calculate the amount needed at retirement at t = 15, with your calculator in BGN mode.
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% - Answer-A
E[R] = (0.4)(10) + (0.4)(12.5) + (0.2)(30) = 15%
Variance = (0.4)(10 − 15)2 + (0.4)(12.5 − 15)2 + (0.2)(30 − 15)2 = 57.5
Standard deviation=√57.5=7.58%
Nikki Ali and Donald Ankard borrowed $15,000 to finance their wedding and reception.
The fully amortizing loan at 11% requires equal payments at the end of each of the next
seven years. The principle portion of the first payment is closest to:
A) 1500
B) 1530
C) 1560 - Answer-B
The interest portion of the first payment is simply principal × interest rate = (15,000 ×
0.11) = 1,650.
Using a financial calculator: PV = 15,000, FV = 0, I/Y = 11, N = 7, CPT PMT= $3,183
Principal = payment − interest = 3,183 − 1,650 = 1,533
Which of the following statements about probability distributions is least accurate?
, A) Continuous uniform distributions have cumulative distribution functions that are
straight lines from 0 to 1.
B) The probability that a continuously distributed random variable will take on a specific
value is always 0.
C) A normally distributed random variable divided by its standard deviation will follow a
standard normal probability distribution. - Answer-C
A standard normal probability distribution has a mean of zero, so subtracting the mean
from a normal random variable before dividing by its standard deviation is necessary to
produce a standard normal probability distribution.
An analyst wants to construct a hypothesis test to determine whether the mean weekly
return on a stock is positive. The null hypothesis for this test should be that the mean
return is:
A) Greater than zero
B) Less than or equal to 0
C) Greater than or equal to 0 - Answer-B = Less than or equal to 0.
Null hypothesis = condition if rejected would lend evidence to true alternative
hypothesis.
Alternative = Mean is Greater than 0.
Null = Less than or = 0.
X, Y, and Z are independently distributed random variables. The probability of X is 30%,
the probability of Y is 40%, and the probability of Z is 20%. Which is closest to the
probability that X or Y will occur?
A) 70%
B) 58%
C) 12% - Answer-B = 58%
The probability of X or Y is P(X) + P(Y) − P(XY).
0.3 + 0.4 − (0.3)(0.4) = 58%
An analyst should use a t-test with n-1 degrees of freedom to test a null hypothesis that
two variables have:
A) equal means
B) equal variances
c) no linear relationship - Answer-A = Equal Means
Differences in Means = T-Tests (N-1)
Tests of Correlation = T-Tests (N-2)
