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Free CFA-Level-I Exam Braindumps (page: 140)

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PDF with 3963 Questions

The formula for conditional probability is given by:

  1. P(A | B) = P(AB) / P(B)
  2. P(A | B) = P(AB) / P(A)
  3. P(A | B) = P(AB) * P(A)
  4. P(A | B) = P(AB) * P(B)

Answer(s): A

Explanation:

A conditional probability takes the form of P(A | B) = P(AB) / P(B), where P(B) does not equal 0. Note that this is just a rearranged form of the formula for joint probability.



The closing prices of a common stock have been 61 1/2, 62, 61 1/4, 60 7/8, and 61 1/2 for the past week. What is the range?

  1. None of these answers
  2. $1.750
  3. $1.875
  4. $1.250
  5. $1.125

Answer(s): E

Explanation:

62 - 60.875 = 1.125



You run a mutual fund that holds 24 stocks. Each week, you intend to comprehensively review 3 of them. Assuming this is the first week you are doing this, how many ways can you choose 3 from the 24?

  1. 2,024.
  2. 1,492.
  3. 1,024.
  4. 2,048.

Answer(s): A

Explanation:

The combination, or binomial formula, gives the number of ways that k objects can be chosen from n items, without regard to the order of choosing. The formula is n_C_k = (n choose k) = n! / [k! *(n-k)!]. In this case, we have (24 choose 3) = 24! / [3! * 21!] = (24 * 23 * 22 ) / (6!) = 2,024.



An empirical finance professor estimates the following regression between the return on a stock, R, and the return on S&P 500 index, Rsp:

R = 5% + 1.1 Rsp + error term

If the regression R-square is 0.25, estimate the change in the return on the stock when the return on the S&P 500 index changes from 12% to 15%.

  1. 19.5%
  2. 8.8%
  3. 18.2%
  4. 3.3%

Answer(s): D

Explanation:

With the given regression, the change in the return on the stock when the return on the S&P 500 index changes by one unit equals the slope coefficient, 1.1. Hence, when the return on the S&P 500 index changes by 3% from 12% to 15%, the return on the stock will change by 1.1*3% = 3.3%






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