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Test Prep CFA-Level-I Exam Questions
CFA® Level I Chartered Financial Analyst (Page 100 )

Updated On: 24-Feb-2026
Page 100 of 793
PDF with 3963 Questions

Sweetwater & Associates write weekend trip insurance at a very nominal charge. Records show that the probability that a motorist will have an accident during the weekend and file a claim is 0.0005. Suppose they wrote 400 policies for the coming weekend, what is the probability that exactly two claims will be filed?

  1. 0.0164
  2. 0.0001
  3. 0.8187
  4. 0.2500
  5. None of these answers

Answer(s): A

Explanation:

This is a binomial probability. The probability of getting r successes out of n trials where the probability of success each trial is p and probability of failure each trial is q (where q = 1-p) is given by: n!(p^r)[q^(n-r)]/r!(n-r)!.
Here n = 400, r = 2,p = 0.0005 and q = 0.9995. Therefore we have 400!(0.0005^2)(0.9995^398)/2!398! = 0.0164.



The semiannually compounded rate is 10% quoted on an annualized basis. The equivalent annually compounded rate is:

  1. 10.25%
  2. 10.5%
  3. 9.65%
  4. 10.1%

Answer(s): A

Explanation:

To solve such problems, think about investing a dollar for a year. The final amount should be the same under both the quotations. Under annually compounded rate, r, $1 grows to 1+r in 1 year. Under semiannual compounding, it grows to (1+0.1/2)^2 = 1.1025. Since these two should be equal, we get 1+r = 1.1025, giving r = 10.25%. Note that the annually compounded rate must be larger than the semiannually rate, ruling out 9.65 automatically.



In hypotheses testing, what is the level of significance?

  1. Symbolized by the Greek letter "alpha"
  2. All of these answers are true
  3. Selected before a decision rule can be formulated
  4. Value between 0 and 1
  5. Risk of rejecting the null hypothesis when it is true

Answer(s): B

Explanation:

All the above a correct descriptions of the level of significance.



A random variable can take on four values: 12, 36, 78, 111, each with probability 0.25. The standard deviation of the random variable equals ________.

  1. 152.4
  2. 49.3
  3. 1,451
  4. 38.1

Answer(s): D

Explanation:

Since all the observations occur with equal probability, the mean of the observations is (12 + 36 + 78 + 111) *0.25 = 59.25. The variance is then given by 0.25*( [12-59.25]^2 + [36-59.25]^2 + [78-59.25]^2 + [111-59.25]^2) = 1451. The standard deviation is equal to sqrt(1451) = 38.1.



If you deposit $10,000 into an account paying 6% per year, compounded semiannually, how much do you have in the account in 8 years?

  1. $15,938.48
  2. $16,047.06
  3. $12,667.70
  4. $14,800.00
  5. $25,403.52

Answer(s): B

Explanation:

On the BAII Plus, press 16 N, 6 divide 2 = I/Y, 10000 PV, 0 PMT, CPT FV. On the HP12C, press 16 n, 6 ENTER 2 divide i, 10000 PV, 0 PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.






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