big quant pt 2

Q81. A bond with a 10-year maturity has a face value of $10,000 and pays annual interest of $600. The bond is issued at a price of $9,500. The bond's yield to maturity will be:

greater than 6%.

Q82. Use the following probability distribution. State of the Economy Probability Return on Portfolio Boom 0.30 15% Bust 0.70 3% The expected return for the portfolio is:

6.6%.

Q83. For two random variables, P(X = 2, Y = 10) = 0.3, P(X = 6, Y = 2.5) = 0.4, and P(X = 10, Y = 0) = 0.3. Given that E(X) is 6 and E(Y) is 4, the covariance of X and Y is:

-12.0.

Q84. The mean and standard deviation of returns on three portfolios are listed below in percentage terms: Portfolio X: Mean 5%, standard deviation 3%. Portfolio Y: Mean 14%, standard deviation 20%. Portfolio Z: Mean 19%, standard deviation 28%. Using Roy's safety first criteria and a threshold of 3%, which of these is the optimal portfolio?

Portfolio X.

Q85. If a distribution is positively skewed, then generally:

mean > median > mode.

Q86. A distribution that has positive excess kurtosis is:

more peaked than a normal distribution.

Q87. Given the following cash flow stream: End of Year Annual Cash Flow 1 $4,000 2 $2,000 3 -0- 4 -$1,000 Using a 10% discount rate, the present value of this cash flow stream is:

$4,606.00.

Q88. Which of the following statements about hypothesis testing is least accurate?

If the alternative hypothesis is Ha: µ > µ0, a two-tailed test is appropriate.

Q89. To determine whether the current price of a common stock is aligned with its intrinsic value, an analyst wants to use the Gordon growth model. To appropriately apply the model, the analyst will need to estimate:

the dividend to be received next year.

Q90. A Type I error:

rejects a true null hypothesis.

Q91. An analyst gathers the following data about the mean monthly returns of three securities: Security Mean Monthly Return Standard Deviation X 0.9 0.7 Y 1.2 4.7 Z 1.5 5.2 Which security has the highest level of relative risk as measured by the coefficient of variation?

Y.

Q92. A Type II error:

fails to reject a false null hypothesis.

Q93. A pure discount instrument with a face value of ¥100 million matures 12 years from today. If its yield to maturity is 3%, its price today is closest to:

¥70 million.

Q94. An analyst observes the following four annual returns: R1 = +10%, R2 = –15%, R3 = 0%, and R4 = +5%. The average compound annual rate over the four years is closest to:

–0.5%.

Q95. Given the following probability distribution, find the standard deviation of expected returns. Event P(RA) RA Recession 0.10 -5% Below Average 0.30 -2% Normal 0.50 10% Boom 0.10 31%

10.04%.

Q96. Kyra Mosby, M.D., has a patient who is complaining of severe abdominal pain. Based on an examination and the results from laboratory tests, Mosby states the following diagnosis hypothesis: H₀: Appendicitis, HA: Not Appendicitis. Dr. Mosby removes the patient's appendix and the patient still complains of pain. Subsequent tests show that the gall bladder was causing the problem. By taking out the patient's appendix, Dr. Mosby:

made a Type II error.

Q97. Use the following probability distribution to calculate the standard deviation for the portfolio. State of the Economy Probability Return on Portfolio Boom 0.30 15% Bust 0.70 3%

5.5%.

Q98. Ron Jacobi, manager with the Toulee Department of Natural Resources, is responsible for setting catch-and-release limits for Lake Norby, a large and popular fishing lake. He takes a sample to determine whether the mean length of Northern Pike in the lake exceeds 18 inches. If the sample t-statistic indicates that the mean length of the fish is significantly greater than 18 inches, when the population mean is actually 17.8 inches, the t-test resulted in:

a Type I error only.

Q99. A survey is taken to determine whether the average starting salaries of CFA charterholders is equal to or greater than $59,000 per year. What is the test statistic given a sample of 135 newly acquired CFA charterholders with a mean starting salary of $64,000 and a standard deviation of $5,500?

10.56.

Q100. Assume two stocks are perfectly negatively correlated. Stock A has a standard deviation of 10.2% and stock B has a standard deviation of 13.9%. What is the standard deviation of the portfolio if 75% is invested in A and 25% in B?

4.18%.

Q101. If the probability of a Type I error decreases, then the probability of:

a Type II error increases.

Q102. An annuity will pay eight annual payments of $100, with the first payment to be received one year from now. If the interest rate is 12% per year, what is the present value of this annuity?

$496.76.

Q103. The mean monthly return on a sample of small stocks is 4.56% with a standard deviation of 3.56%. If the risk-free rate is 1%, what is the coefficient of variation?

0.78.

Q104. An investment product promises to pay a lump sum of $25,458 at the end of 9 years. If an investor feels this investment should produce a rate of return of 14%, compounded annually, the present value is closest to:

$7,829.00.

Q105. The joint probability function for returns on an equity index (RI) and returns on a stock (RS) is given in the following table: Returns on Index (RI) Return on stock (RS) RI = 0.16 RI = 0.02 RI = −0.10 RS = 0.24 0.25 0.00 0.00 RS = 0.03 0.00 0.45 0.00 RS = −0.15 0.00 0.00 0.30 Covariance between stock returns and index returns is closest to:

0.014.

Q106. A distribution with a mode of 10 and a range of 2 to 25 would most likely be:

positively skewed.

Q107. An analyst calculates a winsorized mean return of 3.2% for an investment fund. This measure most likely:

replaces outliers with less extreme returns.

Q108. If a two-tailed hypothesis test has a 5% probability of rejecting the null hypothesis when the null is true, it is most likely that the:

significance level of the test is 5%.

Q109. Which of the following statements about hypothesis testing is most accurate?

A hypothesized mean of 3, a sample mean of 6, and a standard error of the sampling means of 2 give a sample Z-statistic of 1.5.

Q110. What is the compound annual growth rate for stock A which has annual returns of 5.60%, 22.67%, and -5.23%?

7.08%.

Q111. A researcher is testing whether the average age of employees in a large firm is statistically different from 35 years (either above or below). A sample is drawn of 250 employees and the researcher determines that the appropriate critical value for the test statistic is 1.96. The value of the computed test statistic is 4.35. Given this information, which of the following statements is least accurate? The test:

has a significance level of 95%.

Q112. A survey is taken to determine whether the average starting salaries of CFA charterholders is equal to or greater than $54,000 per year. Assuming a normal distribution, what is the test statistic given a sample of 75 newly acquired CFA charterholders with a mean starting salary of $57,000 and a standard deviation of $1,300?

19.99.

Q113. Which of the following statements about hypothesis testing is most accurate? A Type II error is the probability of:

failing to reject a false null hypothesis.

Q114. For a unimodal distribution with negative skewness:

the median is greater than the mean.

Q115. A share of George Co. preferred stock is selling for $65. It pays a dividend of $4.50 per year and has a perpetual life. The rate of return it is offering its investors is closest to:

6.9%.

Q116. An equity investor has a required return of 7% and purchases preferred stock with a $50 per share par value and an annual dividend of $3.20. The value of the preferred stock is closest to:

$46.

Q117. Which of the following statements concerning a distribution with positive skewness and positive excess kurtosis is least accurate?

It has a lower percentage of small deviations from the mean than a normal distribution.

Q118. A financial analyst is constructing a hypothesis test to assess whether the mean daily return on a portfolio of blue-chip stocks is statistically different from zero. The sample size is 128 trading days, the mean return is 0.14%, and the standard deviation is 0.18%. With the null hypothesis that the daily portfolio return is equal to zero, which of the following changes in variables will independently make it more likely that the null is rejected?

An increase in the sample size to 140.

Q119. In a positively skewed distribution, what is the order (from lowest value to highest) for the distribution's mode, mean, and median values?

Mode, median, mean.

Q120. Twenty Level I CFA candidates in a study group took a practice exam and want to determine the distribution of their scores. When they grade their exams they discover that one of them skipped an ethics question and subsequently filled in the rest of his answers in the wrong places, leaving him with a much lower score than the rest of the group. If they include this candidate's score, their distribution will most likely:

have a mean that is less than its median.

Q121. For a hypothesis test regarding a population parameter, an analyst has determined that the probability of failing to reject a false null hypothesis is 18%, and the probability of rejecting a true null hypothesis is 5%. The power of the test is:

0.82.

Q122. If Stock X has a standard deviation of returns of 18.9% and Stock Y has a standard deviation of returns equal to 14.73% and returns on the stocks are perfectly positively correlated, the standard deviation of an equally weighted portfolio of the two is:

16.82%.

Q123. The correlation coefficient between the return on an investment and the rate of economic growth is –0.065. An analyst should most likely interpret this correlation coefficient as indicating that returns on this investment are:

not related linearly to economic growth.

Q124. A survey is taken to determine whether the average starting salaries of CFA charterholders is equal to or greater than $58,500 per year. What is the test statistic given a sample of 175 CFA charterholders with a mean starting salary of $67,000 and a standard deviation of $5,200?

21.62.

Q125. If the historical mean return on an investment is 2.0%, the standard deviation is 8.8%, and the risk free rate is 0.5%, what is the coefficient of variation (CV)?

4.40.

Q126. A bond pays annual coupon interest of £60 and returns its face value of £1,000 in seven years. The bond's price today is £1,045. Its yield to maturity is closest to:

5.2%.

Q127. Given the following set of data: 17, 3, 13, 3, 5, 9, 8 The value 8 is most accurately described as the:

median.

Q128. An analyst takes a sample of yearly returns of aggressive growth funds resulting in the following data set: 25, 15, 35, 45, and 55. The mean absolute deviation (MAD) of the data set is closest to:

12.

Q129. Cameron Ryan wants to make an offer on the condominium he is renting. He takes a sample of prices of condominiums in his development that closed in the last five months. Sample prices are as follows (amounts are in thousands of dollars): $125, $175, $150, $155 and $135. The sample standard deviation is closest to:

19.24.

Q130. Given the following probability distribution, find the covariance of the expected returns for stocks A and B. Event P(Ri) RA RB Recession 0.10 -5% 4% Below Average 0.30 -2% 8% Normal 0.50 10% 10% Boom 0.10 31% 12%

17.4.

Q131. The owner of a company has recently decided to raise the salary of one employee, who was already making the highest salary in the company, by 40%. Which of the following value(s) is (are) expected to be affected by this raise?

mean only.

Q132. For the investments shown in the table below: Investment Return (%) A 12 B 14 C 9 D 13 E 7 F 8 G 12 Which of the following statements is most accurate?

The median is equal to the mode.

Q133. Assuming the 1-year riskless interest rates on the U.S. dollar and British pound are 3.5% and 4.0% respectively, the forward exchange rate between the two currencies will be different than the spot rate by approximately:

0.50%.

Q134. In a negatively skewed distribution, what is the order (from lowest value to highest) for the distribution's mode, mean, and median values?

Mean, median, mode.

Q135. The mean monthly return on a security is 0.42% with a standard deviation of 0.25%. What is the coefficient of variation?

60%.

Q136. Over the last five years, an investment fund's monthly returns were relatively stable apart from last year, where two extremely high returns were recorded. If the arithmetic mean for the fund's monthly returns over the period is 6.7%, a trimmed or winsorized mean return is most likely to be:

lower than the arithmetic mean.

Q137. Find the respective mean and the mean absolute deviation (MAD) of a series of stock market returns. Year 1 14% Year 2 20% Year 3 24% Year 4 22%

20%; 3%.

Q138. A Type I error is made when the researcher:

rejects the null hypothesis when it is actually true.

Q139. A distribution of returns that has a greater percentage of small deviations from the mean and a greater percentage of large deviations from the mean compared to a normal distribution:

has positive excess kurtosis.

Q140. Given investors require an annual return of 12.5%, a perpetual bond (i.e., a bond with no maturity/due date) that pays $87.50 a year in interest should be valued at:

$700.

Q141. A stock is expected to pay a dividend next year of $2.40. An analyst expects the dividend to grow at a constant annual rate of 4% and believes investors' required rate of return on the stock is 7%. The analyst will estimate a value for this stock that is closest to:

$80.00.

Q142. A 5-year, 8% coupon bond with a par value of $1,000 pays interest annually. The price is $942.50, and the yield to maturity is 9.50%. If the price of the bond moves to $963.75, the yield to maturity will be closest to:

8.93%.

Q143. The following information is available concerning expected return and standard deviation of Pluto and Neptune Corporations: Expected Return Standard Deviation Pluto Corporation 11% 0.22 Neptune Corporation 9% 0.13 If the correlation between Pluto and Neptune is 0.25, determine the expected return and standard deviation of a portfolio that consists of 65% Pluto Corporation stock and 35% Neptune Corporation stock.

10.3% expected return and 16.05% standard deviation.

Q144. An investor has a portfolio with 10% cash, 30% bonds, and 60% stock. If last year's return on cash was 2.0%, the return on bonds was 9.5%, and the return on stock was 25%, what was the return on the investor's portfolio?

18.05%.

Q145. Which of the following statements about kurtosis is least accurate? Kurtosis:

describes the degree to which a distribution is not symmetric about its mean.

Q146. A loan of $15,000 is to be paid off in monthly payments over 5 years at 12% annual interest. What is the amount of each payment?

$334.

Q147. For a positively skewed distribution, the median is greater than:

the mode, but less than the mean.

Q148. Returns for a portfolio over the last four years are shown below. Treating these returns as a sample, what is their coefficient of variation (CV)? Year Return 1 17.0% 2 12.2% 3 3.9% 4 –8.4%

1.80.

Q149. An investor has a $12,000 portfolio consisting of $7,000 in stock P with an expected return of 20% and $5,000 in stock Q with an expected return of 10%. What is the investor's expected return on the portfolio?

15.8%.

Q150. Tully Advisers, Inc., has determined four possible economic scenarios and has projected the portfolio returns for two portfolios for their client under each scenario. Tully's economist has estimated the probability of each scenario, as shown in the table below. Given this information, what is the standard deviation of returns on portfolio A? Scenario Probability Return on Portfolio A Return on Portfolio B A 15% 18% 19% B 20% 17% 18% C 25% 11% 10% D 40% 7% 9%

4.53%.

Q151. Personal Advisers, Inc., has determined four possible economic scenarios and has projected the portfolio returns for two portfolios for their client under each scenario. Personal's economist has estimated the probability of each scenario as shown in the table below. Given this information, what is the covariance of the returns on Portfolio A and Portfolio B? Scenario Probability Return on Portfolio A Return on Portfolio B A 15% 18% 19% B 20% 17% 18% C 25% 11% 10% D 40% 7% 9%

0.001898.

Q152. Joe Mayer, CFA, projects that XYZ Company's return on equity varies with the state of the economy in the following way: State of Economy Probability of Occurrence Company Returns Good 0.20 20% Normal 0.50 15% Poor 0.30 10% The standard deviation of XYZ's expected return on equity is closest to:

3.5%.

Q153. An analyst compiles the returns on Fund Q over the last four years: Year Return 1 4% 2 3% 3 2% 4 30% Which of the following will result in the lowest measure of the mean return?

The harmonic mean.

Q154. An investor with USD1,000,000 is undecided between two mutually exclusive opportunities with the following cash flows: Time 0 Time 1 Time 2 Time 3 Opportunity 1 –1,000,000 500,000 500,000 500,000 Opportunity 2 –1,000,000 400,000 500,000 600,000 The investor's required return is 11% per year. Which opportunity should the investor choose?

The investor should choose Opportunity 1.

Q155. A portfolio is equally invested in Stock A, with an expected return of 6%, and Stock B, with an expected return of 10%, and a risk-free asset with a return of 5%. The expected return on the portfolio is:

7.0%.

Q156. Using a constant growth dividend discount model (DDM), an analyst assumes a required return on equity of 9.75%. The current stock price is $30 per share, and the next period's dividend is $2.40 per share. The constant growth rate implied in the model is closest to:

1.75%.

Q157. A pure discount instrument with a face value of ¥500 million matures nine years from today and has a current price of ¥350 million. The instrument's annualized yield is closest to:

4.0%.

Q158. John Jenkins, CFA, is performing a study on the behavior of the mean P/E ratio for a sample of small-cap companies. Which of the following statements is most accurate?

The significance level of the test represents the probability of making a Type I error.

Q159. A pure discount instrument with a face value of €1 million matures eight years from today. If its yield to maturity is –1.5%, its price today is closest to:

€1.13 million.

Q160. The annual returns on 5 portfolio investments for the last year are shown in the following table. What is the return on the portfolio and the geometric mean of the returns on the portfolio investments? Investment Invested Amount Return (%) A 10,000 12 B 10,000 14 C 10,000 9 D 10,000 13 E 10,000 7

11.00; 10.97.