CFA Level 1 Exam (2024) – 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
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
