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Free CFA-Level-I Exam Braindumps (page: 258)

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PDF with 3963 Questions

You have just received a sales brochure from a reputable investment firm which describes a financial investment vehicle which pays $300 at the end of year 1, $500 at the end of year 2 and $100 at the end of year
3. If you are looking for an annual return of 6%, what's the maximum amount you should be willing to purchase this investment certificate for?

  1. $797
  2. $827
  3. $900
  4. $812

Answer(s): D

Explanation:

The maximum amount you should pay equals the present value of the payments (you would like to pay less!).
This equals 300/1.06 + 500/(1.06^2) + 100/(1.06^3) = $812.



You are given a risk-free rate of 3% per year, a portfolio return of -11% per year, and a standard deviation of portfolio return is 20% per year. What is the Sharpe measure of risk-adjusted performance?

  1. -0.70.
  2. -0.15.
  3. -0.67.
  4. -0.55.

Answer(s): A

Explanation:

The Sharpe measure of risk-adjusted performance is equal to (rbar_p - rbar_f)/sigma_p, where rbar_p is the mean portfolio return, rbar_f is the mean risk-free return, and sigma_p is the standard deviation of portfolio return. In our case, we have (-11% - 3%) / 20% = -14/20 = -0.7.



If the underlying theory suggests that the value of an estimated variable is less than a particular number, it is appropriate to use:

  1. a right-tailed test.
  2. a left-tailed test.
  3. a two-tailed test.
  4. either a right-tailed or left-tailed test.

Answer(s): B

Explanation:

When an observation is made and we see a value less than the threshold suggested by the theory, we would like to known the probability of getting the smaller value due simply to chance rather than to the event being driven by the theory. For this, we need to known the left-tail probabilities under the null hypothesis.



If you owe 3 debts ($100 due 6 months from now, $500 due 8 months from now, and $1,000 due 11 months from now), what single payment can you make today to settle them, if interest is assessed at 10% per year, compounded monthly?

  1. $1,600.00
  2. $1,475.78
  3. $1,552.39
  4. $1,387.29
  5. $1,504.88

Answer(s): B

Explanation:

Find the answer to this question by solving 3 compound interest problems. On the BAII Plus, press 6 N, 10 divide 12 = I/Y, 0 PMT, 100 FV, CPT PV, which yields $95.14. Then press STO 1. Then press 8 N, 500 FV, CPT PV, which yields $467.88. Then press + RCL 1 = STO 1. Then press 11 N, 1000 FV, CPT PV, which yields $912.76. Press + RCL 1 = to see the answer. On the HP12C, press 6 n, 10 ENTER 12 divide i, 0 PMT, 100 FV, PV. Then press STO 1. Then press 8 n, 500 FV, PV. Then press RCL 1 + STO 1. Then press 11 n, 1000 FV, PV. Press RCL 1 + to see the answer. Make sure the BAII Plus has the P/Y value set to 1.






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