CFA Level 1 Questions with verified complete solutions

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