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Free CFA-Level-I Exam Braindumps (page: 223)

Page 222 of 991
PDF with 3963 Questions

The monthly compounded rate is 4% quoted on an annualized basis. The equivalent semiannually compounded rate is:

  1. 4.25%
  2. 4.03%
  3. 4.12%
  4. 3.96%

Answer(s): B

Explanation:

To solve such problems, think about investing a dollar for 1 year. The final amount should be the same under both the quotations. Under semiannually compounded rate, r, $1 grows to (1+r/2)^2 in 1 year. Under monthly compounding, it grows to (1+0.04/12)^12 = 1.0407. Since these two should be equal, we get (1+r/2)^2 = 1.0407, giving r = 4.03%. Note that the semi-annually compounded rate must be larger than the monthly compounded rate, ruling out 3.96 automatically.



You are examining a portfolio composed of 33% money-market investments, 9.5% bonds, and 57.5% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 9%, and the return on stocks was -11%. What is the portfolio weighted average return?

  1. -4.05%.
  2. -4.15%.
  3. None of these answers is correct.
  4. -3.90%.

Answer(s): B

Explanation:

The portfolio weighted-average mean return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 0.33 * 0.04 + 0.095 * 0.09 + 0.575 * -0.11 = -4.15%.



You are examining the return on equity ratios of the nation's publicly owned companies. You wish to calculate a typical deviation from the average ROE, but you do not have time to gather data on all the firms. What measure should you use?

  1. Population variance.
  2. Sample variance.
  3. Population standard deviation.
  4. Sample standard deviation.

Answer(s): D

Explanation:

A typical deviation is going to be a standard deviation, not a variance. When using a sample, instead of the entire population, you have sample standard deviation, not population standard deviation.



Three banks have quoted interest rates as follows:

Bank A: 10% per year, compounded quarterly.
Bank B: 11% per year, compounded annually.
Bank C: 10.5% per year, compounded semi-annually.

Which bank should you choose to invest with for a period of one year and what's the effective annual rate?

  1. Bank B, 11%
  2. Bank A, 10.38%
  3. Bank C, 12.01%
  4. Bank A, 11.19%

Answer(s): A

Explanation:

The annual yield for Bank A is (1+10%/4)^4 - 1 = 10.38%, that for Bank B is 11% and that for Bank C is (1 +10.5%/2)^2 - 1 = 10.78%. Therefore, you should invest with Bank B.






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