CFA Level 1 Questions and Answers 2022/2023

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 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 00:18 01:17 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) 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 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) 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 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 What are the 3 reasons why statistical significance does not imply economic significance? 1. Transaction Costs 2. Taxes 3. Risk What is the key assumption of technical analysis? Market prices reflect both rational and irrational investor behavior What are the 4 different types of Oscillators? 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 different types of auctions? 1. English Auction (Ascending Price Auction) 2. Vickrey Auction (Second Price Sealed Bid Auction) 3. Dutch Auction (Descending Price Auction) What are the 3 rules of indifference curves? 1. Slope downward 2. Convex towards the origin 3. Curves cannot cross