CFA Level 1 Study Guide
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Questions and Answers

What percentage of data in a normal distribution lies within 2 standard deviations of the mean?

  • 95% (correct)
  • 99%
  • 68%
  • 50%

    • What is the probability that a portfolio with an expected mean annual return of 10% and a standard deviation of 5% will lose money next year?

  • 15.87% (correct)
  • 47.73%
  • 31.74%
  • 50%

    • What is the main advantage of using the normal distribution in business settings?

  • It is easy to calculate the mean and standard deviation.
  • It is only used in economics.
  • It is only used in finance.
  • It allows us to estimate the likelihood of certain events. (correct)

    • What percentage of data in a normal distribution lies within 1 standard deviation of the mean?

    <p>68%</p> Signup and view all the answers

    What is the characteristic of the normal distribution shown in Figure 11?

    <p>Symmetry</p> Signup and view all the answers

    What is the expected return of the portfolio if the standard deviation is 5% and the client loses money next year?

    <p>-5%</p> Signup and view all the answers

    What is the primary purpose of the Schweser Study Tools?

    <p>To supplement the original readings set forth by CFA Institute</p> Signup and view all the answers

    What is the scope of the topics covered in the Schweser Study Tools?

    <p>All topics covered in the 2023 Level I CFA Study Guide</p> Signup and view all the answers

    What is the relationship between the authors of the referenced readings and the Schweser Study Tools?

    <p>The authors have not endorsed or sponsored the study tools</p> Signup and view all the answers

    What is the purpose of the FOREWORD section?

    <p>To provide an introduction to the study tools</p> Signup and view all the answers

    What is the significance of the page that has been left intentionally blank?

    <p>It is a deliberate design choice</p> Signup and view all the answers

    What is the relationship between the Schweser Study Tools and the 2023 Level I CFA Study Guide?

    <p>The study tools are supplementary to the study guide</p> Signup and view all the answers

    What happens to the interest and principal components of a loan payment over time?

    <p>The interest decreases and the principal increases.</p> Signup and view all the answers

    What is the present value of a perpetuity that pays $5 per year forever, discounted at 8%?

    <p>$62.50</p> Signup and view all the answers

    If you own a stock that pays $3 dividends per year forever, and the appropriate discount rate is 12%, what is the present value of the stock?

    <p>$25</p> Signup and view all the answers

    What is the relationship between the present value of an annuity due and the present value of an ordinary annuity?

    <p>The present value of an annuity due is greater than the present value of an ordinary annuity.</p> Signup and view all the answers

    If a stock pays $1 dividends per year forever, and the appropriate discount rate is 6%, what is the present value of the stock?

    <p>$16.67</p> Signup and view all the answers

    What is the present value of a perpetuity that pays $10 per year forever, discounted at 15%?

    <p>$66.67</p> Signup and view all the answers

    At what price can local retailers sell a bag of gerbil bedding to ensure out-of-town suppliers won't compete?

    <p>$1.00</p> Signup and view all the answers

    Why do local suppliers want to sell gerbil bedding at the highest possible price?

    <p>To maximize profits</p> Signup and view all the answers

    What is the total cost of shipping gerbil bedding to the local market for out-of-town suppliers?

    <p>$0.75</p> Signup and view all the answers

    Why can't suppliers compete on quality or service in the local gerbil bedding market?

    <p>Because customers don't care about the label</p> Signup and view all the answers

    What is the key factor that determines the supply of gerbil bedding in the local market?

    <p>Local suppliers' production capacity</p> Signup and view all the answers

    What makes the supply of gold chains different from that of gerbil bedding?

    <p>Gold chains are shipped from anywhere in the world</p> Signup and view all the answers

    What is the result of the formula B = 1000 (1.10)^5 – 1000?

    <p>$3,271.49</p> Signup and view all the answers

    What is the effective interest rate of an account with a nominal interest rate of 12% and 1 compounding period per year?

    <p>6.17%</p> Signup and view all the answers

    What happens to the effective rate of interest when the number of compounding periods per year increases, assuming a constant nominal rate of interest?

    <p>It increases</p> Signup and view all the answers

    What is the total value of an inheritance consisting of an annuity of $17,250 that will last 20 years, a lump sum payment of $250,000 that will occur in six years, and a lump sum payment of $675,000 that will occur in thirteen years, assuming a 12% interest rate?

    <p>$410,198</p> Signup and view all the answers

    What is the mode of a calculator that is used to calculate the present value of an annuity?

    <p>END mode</p> Signup and view all the answers

    What is the result of the formula –10,000 / (8 × (1 – (1 + 8/100)^(-5)))?

    <p>$58,666.01</p> Signup and view all the answers

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