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Free CFA-Level-I Exam Braindumps (page: 180)

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PDF with 3963 Questions

Which of the following is/are true about a standard normal distribution?

  1. It has zero skewness.
    II. It is characterized completely by exactly one parameter.
    III. It ranges from negative infinity to positive infinity.
    IV. It has a non-zero mean and variance.
  2. I, II, III and IV
  3. I & III
  4. II only
  5. III only
  6. I only
  7. IV only
  8. II and III
  9. III and IV

Answer(s): B

Explanation:

A normal distribution is characterized by two parameters, the mean and the variance. The standard normal distribution, though, has a zero mean and a variance of 1 and hence, has no free parameters.



What annual interest rate, compounded annually, is equivalent to 7% per year, compounded quarterly?

  1. 6.88%
  2. 7.19%
  3. 7%
  4. 7.03%
  5. 7.09%

Answer(s): B

Explanation:

Questions of this type are illustrating the concept of an Effective Interest Rate, which is a rate compounded annually that has the same effect as a rate compounded more often than one time a year. As such, a depositor or a creditor is indifferent between them, since they have the same effect. To solve this question, make any deposit and see how much is in the account after one year. The ratio of the ending FV to the beginning PV will indicate the annual rate earned. On the BAII Plus, press 4 N, 7 divide 4 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 4 n, 7 ENTER 4 divide i, 100 PV, 0 PMT, FV. The number displayed will be 107.19. In other words, after one year, $100 has become $107.19. An interest rate of 7.19%, compounded annually, would cause a $100 deposit to become $107.19 in one year. Choosing an initial deposit of $100 helps a great deal in these situations. Make sure the BAII Plus has the value of P/Y set to 1.



The following stock market return data were observed last year:

Returns# of stocks
less than -5% 129
between -5% and 0% 301
between 0% and 10% 636
between 10% and 20% 274
more than 20% 173

The probability that a randomly selected stock had either a negative return or a return more than 20% equals ________.

  1. 0.27
  2. 0.53
  3. 0.60
  4. 0.40

Answer(s): D

Explanation:

For a frequency distribution, the estimated probability of a particular class/event occurring equals the relative frequency of that class. Now, the number of stocks that had either a negative return or a return more than 20% equals 129 + 301 + 173 = 603. The total number of stocks equals 129 + 301 + 636 + 274 + 173 = 1513.
Therefore, the estimated probability of a randomly selected stock having either a negative return or a return more than 20% equals 603/1513 = 0.40.



What annual interest rate, compounded annually, is equivalent to 6% per year, compounded monthly?

  1. 6.01%
  2. 6.17%
  3. 6.09%
  4. 6%
  5. 5.87%

Answer(s): B

Explanation:

Questions of this type are illustrating the concept of an Effective Interest Rate, which is a rate compounded annually that has the same effect as a rate compounded more often than one time a year. As such, a depositor or a creditor is indifferent between them, since they have the same effect. To solve this question, make any deposit and see how much is in the account after one year. The ratio of the ending FV to the beginning PV will indicate the annual rate earned. On the BAII Plus, press 12 N, 6 divide 12 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 12 n, 6 ENTER 12 divide i, 100 PV, 0 PMT, FV. The number displayed will be 106.17. In other words, after one year, $100 has become $106.17. An interest rate of 6.17%, compounded annually, would cause a $100 deposit to become $106.17 in one year. Choosing an initial deposit of $100 helps a great deal in these situations. Make sure the BAII Plus has the value of P/Y set to 1.






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