Test Prep CFA® Level I Chartered Financial Analyst CFA® LEVEL 1 Dumps in PDF

Free Test Prep CFA® LEVEL 1 Real Questions (page: 143)

Kevin wants to retire a millionaire. If he is 45 years old today and already has $80,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

  1. $1,028.58
  2. $1,760.14
  3. $407.81
  4. $1,138.45
  5. $2,119.81

Answer(s): A

Explanation:

The total number of deposits will be 240 (20 years x 12 months/year). On the BAII Plus, press 240 N, 8 divide 12 = I/Y, 80000 PV, 1000000 +/- FV, CPT PMT. On the HP12C, press 240 n, 8 ENTER 12 divide i, 80000 PV, 1000000 CHS FV, PMT. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.



The employees of Cartwright Manufacturing are awarded efficiency ratings. The distribution of the ratings approximates a normal distribution. The mean is 400, the standard deviation 50. What is the area under the normal curve between 400 and 482?

  1. 0.4750
  2. 0.3413
  3. 0.5000
  4. 0.4495
  5. None of these answers

Answer(s): D

Explanation:

z = (x-u)/sigma. z1 = 400 - 400/50 = 0 and z2 = 482 - 400/50 = 1.64. Therefore for z = 1.64, the area under the curve is 0.4495.



Which of the following is/are true about a standard normal distribution?

  1. It has zero skewness.
    II. It is characterized completely by exactly one parameter.
    III. It ranges from negative infinity to positive infinity.
    IV. It has a non-zero mean and variance.
  2. I, II, III and IV
  3. I & III
  4. II only
  5. III only
  6. I only
  7. IV only
  8. II and III
  9. III and IV

Answer(s): B

Explanation:

A normal distribution is characterized by two parameters, the mean and the variance. The standard normal distribution, though, has a zero mean and a variance of 1 and hence, has no free parameters.



What annual interest rate, compounded annually, is equivalent to 7% per year, compounded quarterly?

  1. 6.88%
  2. 7.19%
  3. 7%
  4. 7.03%
  5. 7.09%

Answer(s): B

Explanation:

Questions of this type are illustrating the concept of an Effective Interest Rate, which is a rate compounded annually that has the same effect as a rate compounded more often than one time a year. As such, a depositor or a creditor is indifferent between them, since they have the same effect. To solve this question, make any deposit and see how much is in the account after one year. The ratio of the ending FV to the beginning PV will indicate the annual rate earned. On the BAII Plus, press 4 N, 7 divide 4 = I/Y, 100 PV, 0 PMT, CPT FV. On the HP12C, press 4 n, 7 ENTER 4 divide i, 100 PV, 0 PMT, FV. The number displayed will be 107.19. In other words, after one year, $100 has become $107.19. An interest rate of 7.19%, compounded annually, would cause a $100 deposit to become $107.19 in one year. Choosing an initial deposit of $100 helps a great deal in these situations. Make sure the BAII Plus has the value of P/Y set to 1.



The following stock market return data were observed last year:

Returns# of stocks
less than -5% 129
between -5% and 0% 301
between 0% and 10% 636
between 10% and 20% 274
more than 20% 173

The probability that a randomly selected stock had either a negative return or a return more than 20% equals ________.

  1. 0.27
  2. 0.53
  3. 0.60
  4. 0.40

Answer(s): D

Explanation:

For a frequency distribution, the estimated probability of a particular class/event occurring equals the relative frequency of that class. Now, the number of stocks that had either a negative return or a return more than 20% equals 129 + 301 + 173 = 603. The total number of stocks equals 129 + 301 + 636 + 274 + 173 = 1513.
Therefore, the estimated probability of a randomly selected stock having either a negative return or a return more than 20% equals 603/1513 = 0.40.



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