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Free Test Prep CFA-Level-I Exam Questions (page: 175)

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What is the present value today of these annual cash flows: $3,000, $2,000, $1,000? Assume the first cash flow occurs 1 year from today and an interest rate of 10% per year, compounded annually.

  1. $5,205.67
  2. $5,131.48
  3. $6,089.92
  4. $5,067.65
  5. $6,000.00

Answer(s): B

Explanation:

You could solve this question using 3 different compound interest problems, but it is easier to solve them using the calculator's cash flow functions. On the BAII Plus, press CF 2nd CLRWork 0 ENTER DownArrow 3000 ENTER DownArrow DownArrow 2000 ENTER DownArrow DownArrow 1000 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 10 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 3000 BlueShift CFj 2000 BlueShift CFj 1000 BlueShift CFj. Then press 10 i, YellowShift NPV. The "DownArrow" represents the downward-pointing arrow on the top row of the BAII Plus keyboard. Make sure that the BAII Plus has the P/Y value set to 1.



A stock has the following returns over 3 years: -10%, +15%, +25%. The annual geometric rate of return over the 3 years is ________.

  1. 19.36%
  2. 9.34%
  3. 10.15%
  4. 7.42%
  5. 13.31%
  6. 14.64%
  7. 12.21%
  8. 8.96%

Answer(s): H

Explanation:

The annual geometric rate of return equals [(1-10%)(1+15%)(1+25%)]^(1/3) - 1 = (0.9 * 1.15 * 1.25)^0.33 - 1 = 0.0896 = 8.96%



Monthly commissions of first-year insurance brokers are $1,270, $1,310, $1,680, $1,380, $1,410, $1,570, $1,180 and $1,420. These figures are referred to as:

  1. None of these answers
  2. Raw data
  3. Frequency distribution
  4. Ogive
  5. Histogram

Answer(s): B

Explanation:

Data or observations that have not been organized in any form are called raw data.



Which of the following is/are true?

  1. It is harder to reject the null under a two-tailed test than under a one-tailed test.
    II. To test the hypothesis: Ho: X = 0, H1: X < 0, you have to employ a left-tailed test.
    III. The acceptance region under a right tailed test extends from zero to positive infinity.
    IV. The critical z-statistics in one-tailed tests are always lower than the z-statistics in the corresponding two- tailed test.
  2. I, II, III & IV
  3. none of these answers
  4. I, II & III
  5. I, II & IV
  6. II, III & IV

Answer(s): D

Explanation:

Under a two-tailed test, values on either side of the null can contribute to a rejection. Hence, the critical values under a two-tailed test have to be higher than under a one-tailed test for a given level of significance. This makes it harder to reject the null under a two-tailed test. This makes intuitive sense. In a one-tailed test, you are specifying a stricter alternative than under a completely general, two-tailed alternative (in the current example, you are claiming that X is less than zero as an alternative which is a stronger statement than the claim that X is non-zero). The rejection region in a right-tailed regression extends from the critical t-value associated with the given significance level and positive infinity. This critical value is greater than zero.



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