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Free CFA-Level-I Exam Braindumps (page: 281)

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PDF with 3963 Questions

For the normal distribution, the mean plus and minus 1.96 standard deviations will include about what percent of the observations?

  1. None of these answers
  2. 50%
  3. 68%
  4. 95%
  5. 99.7%

Answer(s): D

Explanation:

95% of the are under the curve will lie within plus and minus 2 standard deviations of the mean.



Assume you buy a car for $18,000 today and agree to pay $250 a month, beginning next month, for 5 years with a final payment also due 5 years from today to pay off any remaining balance. How large will that final payment be, if interest accrues at 2.9% per year, compounded monthly?

  1. $3,000.00
  2. $4,683.97
  3. $4,280.77
  4. $9,690.32
  5. $1,204.41

Answer(s): B

Explanation:

There are 60 months in 5 years. This is a problem known as a balloon payment. On the BAII Plus, press 60 N, 2.9 divide 12 = I/Y, 18000 PV, 250 +/- PMT, CPT FV. On the HP12C, press 60 n, 2.9 ENTER 12 divide i, 18000 PV, 250 CHS PMT, FV. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the value of P/Y set to 1.



After a sterling year, your boss has decided to reward you. She has offered you three alternatives:
Take $28,000 right now.
Take $2,500 bonus per month for the next 12 months, starting next month. Take $16,000 at the end of six months and another $15,000 at the end of the year. If your discount rate is 6% per year on a monthly compounded basis, how much is the present value of your bonus?

  1. $29,656
  2. $29,047
  3. $28,000
  4. $30,176

Answer(s): A

Explanation:

The discount rate per period (1 month) = 6%/12 = 0.5%. The present value of alternative B is (using the annuity formula) 2,500/0.005*[1 - 1/1.005^12] = $29,047. The present value of alternative C is trickier, since the rate you have been given is compounded monthly. Therefore, the PV of C is 16,000/1.005^6 + 15,000/1.005^12 = $29,656. So you should take alternative C and your bonus is worth $29,656.



Excess kurtosis is a problem for investment researchers using normal distributions because:

  1. The likelihood of extreme outcomes will be overestimated.
  2. Historical returns are better modeled with platykurtic distributions.
  3. It is difficult to calculate.
  4. The likelihood of extreme outcomes will be underestimated.

Answer(s): D

Explanation:

Historical returns are better modeled with fat-tailed (or leptokurtic) distributions, not platykurtic ones. If a researcher uses a normal distribution to model a fat-tailed distribution, the estimated probability of an extreme outcome will be underestimated. Thus, the frequency of market crashes will be underestimated, an underestimation of the volatility risk.






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