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Free CFA-Level-I Exam Braindumps (page: 156)

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PDF with 3963 Questions

The probability of the occurrence of an airplane crash and a successful resolution to a labor strike is called:

  1. a conditional probability.
  2. an unrelated probability.
  3. a joint probability.
  4. an unconditional probability.

Answer(s): C

Explanation:

A joint probability takes the form of P(AB), the probability that an event A (an airplane crash) and an event B (the resolution of a strike) both happen.



How much interest would an original $500 deposit earn at 5% per year simple interest after 14 months?

  1. $29.17
  2. $28.14
  3. $583.33
  4. $350.00
  5. $30.04

Answer(s): A

Explanation:

The question only asks for the interest, not the ending balance. On the BAII Plus, press 500 x 0.05 x 14 divide 12 = to see the answer. On the HP12C, press 500 ENTER 0.05 x 14 x 12 divide to see the answer.



In the regression equation, what does the letter "a" represent?

  1. Slope of the line
  2. Y intercept
  3. Any value of the independent variable that is selected
  4. None of these answers

Answer(s): B

Explanation:

The regression is written as Y' = a + bX. The letter "a" is the Y intercept and b is the slope of the line.



Suppose you have two assets, A and B. Over the past 3 periods, A has returned 8%, 2%, and 6%, while B has returned 11%, -5%, and 20%. What is the return covariance between assets A and B?

  1. 0.0%%
  2. 19.79%%
  3. 10.21%%
  4. 31.38%%

Answer(s): B

Explanation:

First we must find the expected returns for A and B. These are 5.33% and 8.67%. Second, we find the difference between each observation and the average: (8% - 5.33%), (2% - 5.33%), and (6% - 5.33%) for A, and (11% - 8.67%), (-5% - 8.67%), and (20% - 8.67%) for B. Next, we multiply these together and sum them:
(8% - 5.33%)*(11% - 8.67%) + (2% - 5.33%)*(-5% - 8.67%) + (6% - 5.33%)*(20% - 8.67%). The sum of these is 59.33%. The covariance is the probability weighted average of these cross products, so we divide by 3 to get 19.78%%. Note, we could have divided each cross product by 3 rather than the sum of the cross products. If the observations did not have the same probability or frequency, we would need to treat each cross product separately rather than divide at the end.






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