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Free CFA-Level-I Exam Braindumps (page: 209)

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PDF with 3963 Questions

A relative frequency distribution is

  1. all of these answers.
  2. a collection of relative frequency classes with the relative frequencies.
  3. a grouping of data into non-overlapping categories.
  4. an aggregation of raw data in the form of a probability distribution.

Answer(s): A

Explanation:

A relative frequency distribution is an aggregation of raw data in the form of a probability distribution, a collection of relative frequency classes with the relative frequencies, and a grouping of data into nonoverlapping categories.



Suppose the probability that electricity prices will rise any given quarter is 0.60, and the probability that oil prices will stay level or decline is 0.40. If electricity prices rise, corporate profits will decline by 2% with 90% probability, and increase by 0.5% with 10% probability. If electricity prices decline or stay level, corporate profits will increase 3% with a 65% probability and decline 0.5% with a 35% probability. What is the expected change in corporate profits in the next quarter?

  1. +0.34%.
  2. -0.34%.
  3. +0.43%.
  4. -0.43%.

Answer(s): B

Explanation:

We need the total probability rule for expected value, for which the formula is E(X) = E(X | S_1) * P(S_1) + E(X | S_2) * P(S_2) + ... + E(X |S_n) * P(S_n). Here, E(X) is the expected change in corporate profits. S_1 is the event that electricity prices rise, and S_2 is the event that electricity prices fall. Therefore, E(X) = 0.60 * (-2% *90% + 0.5%*10%) + 0.40 * (3%*65% - 0.5%*35%)= -0.34%, a decline.



What is the variable used to predict the value of another called?

  1. Correlation
  2. Determination
  3. Dependent
  4. None of these answers
  5. Independent

Answer(s): E

Explanation:

The dependent variable is the variable Y which is being predicted by the X variable, the independent variable.
The regression is written as Y = a + bX. The letter "a" is the Y intercept and b is the slope of the line.



A mortgage holding company has found that 3% of its mortgage holders default on their mortgage and lose the property. Furthermore, 90% of those who default are late on at least two monthly payments over the life of their mortgage as compared to 45% of those who do not default.
What is the probability that a mortgagee with two or more late monthly payments will default on the mortgage and lose the property?

  1. 0.039
  2. 0.058
  3. 0.436
  4. None of these answers
  5. 0.027

Answer(s): B

Explanation:

We have P(def)=0.03. P(not def) = 0.97. P(two late payments/def) = 0.90. P(two late payments/not def) = 0.45.
Using Bayes formula: p(def/two late payments) = (0.03*0.9)/(0.03*0.9 + 0.97*0.45) = 0.058.






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