Financial Institute CFA Level I Chartered Analyst® CFA Level 1 Exam Questions in PDF

Free Financial CFA Level 1 Dumps Questions (page: 149)

For a one-tailed hypothesis test, the critical value of the test statistic is -2.33. Which of the following is true about the hypothesis test?

  1. alpha = .05 for a lower-tailed test
  2. alpha = .01 for an upper-tailed test
  3. alpha = .05 for an upper-tailed test
  4. alpha = .01 for a lower-tailed test
  5. none of these answers

Answer(s): D

Explanation:

This is a one tailed test and the z-value of -2.33 suggests that it is a lower tailed test and that it is for a 1% level of significance.



To test whether small-cap stocks perform worse than large stocks under the Fama-French three-factor model, you set up the following hypothesis:
Ho: Expected excess returns of small stocks = 0
H1: Expected excess returns of small stocks < 0
The excess returns are returns adjusted for risk using the Fama-French three-factor model. In this setup, which of the following is/are true?

  1. You must employ a right-tailed test.
    II. The rejection region for the z-statistic on the excess return extends from negative infinity to the critical value associated with the significance level.
    III. It is harder to reject the null than in the case where the alternative is specified as H1: Excess returns are non-zero.
  2. II only
  3. I & III
  4. II & III
  5. none of these answers
  6. I only

Answer(s): A

Explanation:

Since the rejection region for the null is to the left of the maintained null value of zero, you must employ a left- tailed test. In that case, the rejection region for the z-statistic on the excess return extends from negative infinity to the critical value associated with the significance level. Also note that it is harder to reject the null under a two-tailed test than under a one-tailed test since the critical value for any given significance level is higher (in magnitude) for a two-tailed test.



How many months will it take for an original $1,000 deposit to grow to be $2,000, if the deposit earns interest at 7% per year, compounded monthly?

  1. 9.93
  2. 10.24
  3. 117.19
  4. 125.42
  5. 119.17

Answer(s): E

Explanation:

On the BAII Plus, press 1000 PV, 2000 +/- FV, 0 PMT, 7 divide 12 = I/Y, then CPT N. On the HP12C, press 1000 PV, 2000 CHS FV, 0 PMT, 7 ENTER 12 divide i, then press n. HP12C answer is shown as 120. Answer should be in months, not years. Make sure the BAII Plus has the P/Y value set to 1.



You are examining the return on equity ratios of the nation's commercial airlines. You have calculated the mean ROE to be 8%, and the sum of the squared ROEs is 0.27. Assuming there are 30 commercial airlines, what is the population variance of ROEs in this industry?

  1. 8%%.
  2. 12%%.
  3. 20%%.
  4. 26%%.

Answer(s): D

Explanation:

The population variance is equal to the sum of the squared differences between each population member and the population mean, divided by the number of items in the population. There is, however, an equivalent alternate formula that is more often used for large amounts of calculation. It is equal to the average squared observation less the squared mean. In this case, we have the average squared observation will be 0.27 / 30 = 0.009, less the squared mean of 8%. We have 0.009 - 0.0064 = 0.0026 = 26%%.



Suppose a research firm conducted a survey to determine the average amount of money steady smokers spend on cigarettes during a week. A sample of 500 steady smokers revealed that the sample mean is $20 and the sample standard deviation is $5. What is the point estimate?

  1. $20
  2. None of these answers
  3. $25
  4. $0.04
  5. $5

Answer(s): A

Explanation:

The sample mean is a good estimate for the population mean.



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