Which of the following statements is false in reference to confidence intervals and/or tests of significance? Choose the best answer.
Answer(s): D
The significance level is denoted by the Greek letter alpha. The significance level is equal to the probability of a Type I error, and can be found by subtracting the confidence level from the letter one. The relationship between the confidence level and the significance level is illustrated as follows:Confidence level = (1 - significance level)which can also be expressed as:Confidence level = (1 - probability of a Type I error).The Greek letter theta is used to represent the population parameter in the null and alternate hypotheses.The remaining answers are all correct. It is important to remember that the level of significance should be determined prior to the calculation of the test statistic. Specifying the significance level after the calculation of the test statistic can detract from the objectivity of the test.
A mortgage holding company has found that 2% 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?
We have P(def) = 0.02. P(not def) = 0.98. P(two late payments/def) = 0.90. P(two late payments/not def) = 0.45. Using Bayes formula: p(def/two late payments) = (0.02*0.9)/(0.02*0.9 + 0.98*0.45) = 0.039.
How many monthly payments of $40 are needed to pay off a debt of $1,000, if interest accrues at 10% per year, compounded monthly?
Answer(s): B
On the BAII Plus, press 10 divide 12 = I/Y, 1000 PV, 40 +/- PMT, 0 FV, CPT N. On the HP12C, press 10 ENTER 12 divide i, 1000 PV, 40 CHS PMT, 0 FV, n. Note that the HP12C will display 29 as the answer. Make sure the BAII Plus has the value of P/Y set to 1.
What is the present value today of these annual cash flows: $2,500, $1,200, $300? Assume the first cash flow occurs 1 year from today and an interest rate of 9% per year, compounded annually.
Answer(s): A
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 2500 ENTER DownArrow DownArrow 1200 ENTER DownArrow DownArrow 300 ENTER DownArrow DownArrow 2nd Quit. Then press NPV 9 ENTER DownArrow CPT. On the HP12C, press these keys: 0 BlueShift CFo 2500 BlueShift CFj 1200 BlueShift CFj 300 BlueShift CFj. Then press 9 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.
How much is in your account in 5 years, if you start with a balance of $1,000 and add $3,500 in 18 months and add an additional $1,000 in 48 months, if the money earns interest at 6% per year, compounded monthly?
Solve this question by working three compound interest problems. On the BAII Plus, press 60 N, 6 divide 12 = I/ Y, 1000 PV, 0 PMT, CPT FV, which yields $1,348.85. Then press STO 1. Then press 42 N, 3500 PV, CPT FV, which yields $4,315.61. Then press + RCL 1 = STO 1. Then press 12 N, 1000 PV, CPT FV, which yields $1,061.68. Then press + RCL 1 = for the final answer. On the HP12C, press 60 n, 6 ENTER 12 divide i, 1000 PV, 0 PMT, FV. Then press STO 1. Then press 42 n, 3500 PV, FV. The press RCL 1 + STO 1. Then press 12 n, 1000 PV, FV. Then press RCL 1 + for the final answer. Note that the answer will be a negative number.Make sure the BAII Plus has the value of P/Y set to 1. Note that the $3,500 deposit is 42 months away from the end of the 60-month time period.
Post your Comments and Discuss Test Prep CFA-Level-I exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CFA-Level-I content, but please register or login to continue.