QUESTION: 833

Which of the following are true regarding correlation?

Correlation is a number between 0 and 1.
II. Correlation is a measure of the strength of the linear relationship between two variables.
III. The higher the correlation, the higher the covariance.
All but I.
All are true.
All but III.
All but II.

Answer(s): A

Explanation:

II is true. Because the correlation between two random variables X and Y is Cov(X,Y)/[(sigma_X)*(sigma_Y)], III is true. I is false, because correlation is a number that can take on values between -1 and +1, inclusive. A value of -1 indicates perfectly negative linear correlation.

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QUESTION: 834

You are examining a portfolio composed of 10% money-market investments, 30% bonds, and 60% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 6%, and the return on stocks was 7%. What is the portfolio weighted average return?

6.50%.
6.30%.
6.40%.
None of these answers is correct.

Answer(s): C

Explanation:

The portfolio weighted-average mean return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 0.10 * 0.04 + 0.30 * 0.06 + 0.60 * 0.07 = 6.40%.

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QUESTION: 835

If you owe $4,500 today and will repay it with 8 annual payments of $900, beginning next year, what is the interest rate per year, compounded annually, that you are paying?

10.41%
19.80%
11.81%
4.4%
14.4%

Answer(s): C

Explanation:

On the BAII Plus, press 8 N, 4500 PV, 900 +/- PMT, 0 FV, CPT I/Y. On the HP12C, press 8 n, 4500 PV, 900 CHS PMT, 0 FV, i. Note that the PMT must be entered with a sign that is opposite that given the PV. Make sure the BAII Plus has the P/Y value set to 1.

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QUESTION: 836

How much will you have in an account two years from now if you start with $100 in it today and add $300 to it one year from now? Assume that interest is 6% per year, compounded annually.

$430.36
$424.00
$449.44
$372.02
$400.00

Answer(s): A

Explanation:

Solve this question by working 2 compound interest problems. On the BAII Plus, press 2 N, 6 I/Y, 100 PV, 0 PMT, CPT FV, which yields $112.36. Then press STO 1. Then press 1 N, 300 PV, CPT FV, which yields $318.00. To find the answer, press + RCL 1 =. On the HP12C, press 2 n, 6 i, 100 PV, 0 PMT, FV. Then press STO 1. Then press 1 n, 300 PV, FV. Then press RCL 1 + to show the answer.

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Free CFA-Level-I Exam Braindumps (page: 209)

QUESTION: 833

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QUESTION: 834

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QUESTION: 835

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QUESTION: 836

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