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1. Jim Franklin recently purchased a home for $300,000 on which he made a down
payment of 100,000. He obtained a 30-year mortgage to finance the balance on
which he pays a fixed annual rate of 6%. If he makes regular, fixed monthly
payments, what loan balance will remain just after the 48th payment?
A. $186,109.
B. $189,229.
C. $192,444.

2. Which of the following measurement scales provides the least information?

A. Ratio.
B. Ordinal.
C. Nominal.

3. An analyst observes the following four annual returns:

R 1 = +10%, R2 = -15%, R3 = 0%, and R4 = +5%.
The average compound annual rate over the four years is closest to:
A. -5.0%.
B. -0.5%.
c. 0.0%.

4. Given the observations 45, 20, 30, and 25, the mean absolute deviation is closest
to:
A. 0.0.
B. 7.5.
C. 13.3.
5. Adam Farman has been asked to estimate the volatility of a technology stock
index. He has identified a statistic which has an expected value equal to the
population volatility and has determined that increasing his sample size will
decrease the sampling error for this statistic. Based only on these properties, his
statistic can best be described as:
A. unbiased and efficient.
B. unbiased and consistent.
C. efficient and consistent.

6. According to Chebyshev's inequality, the minimum proportion of observations

falling within three standard deviations of the mean for a negatively skewed
distribution is closest to:
A. 68%.
B. 75%.
C. 89%.

7. To test the hypothesis that actively managed international equities mutual funds
outperformed an appropriate benchmark index, an analyst selects all of the current
international equities funds that have been in existence for at least 10 years. His
test results will most likely be subject to:
A. look-ahead bias.
B. time period bias.
C. survivorship bias.

8. For a binomial random variable with a 40% probability of success on each trial,
the expected number of successes in 12 trials is closest to:
A. 4.8.
B. 5.6.
C. 7.2.
9. Which of the following statements about the univariate, multivariate, and
standard normal distributions is least accurate?
A. A univariate distribution describes a single random variable.
B. A multivariate distribution specifies the probabilities for a group of related
random variables.
C. The standard normal random variable, denoted Z, has mean equal to one and
variance equal to one.

10. If the probability of event J multiplied by the probability of event K is not equal
to the joint probability of events J and K, then events J and K are most likely:
A. dependent events.
B. independent events.
C. mutually exclusive events.

11. Which of the following statements regarding the significance level of a

hypothesis test is most accurate?
A. Given a significance level of 5%, a test will reject a true null hypothesis 5% of
the time.
B. If the significance level of a test is 5%, it will yield the correct decision about the
null hypothesis 95% of the time.
C. If the significance level of a test is 95%, it will yield the correct decision about
the null hypothesis 95% of the time.
12. A researcher needs to choose a probability distribution for the price of an asset
that is quite volatile in order to simulate returns outcomes. She has a program that
will generate random variables from any of a variety of distributions. The most
appropriate distribution for her to select to generate the asset price distribution is
a:
A. normal distribution.
B. lognormal distribution.
C. Student's t -distribution.

13. An investor is interested in the following piece of property:

• The property will cost $200,000 at time zero.

• It will provide cash flows of $50,000 in year 1, $60,000 in year 2, $70,000 in year
3, and $80,000 in year 4.
• A $20,000 investment will be required in year 5 as the property will have some
environmental contamination and will have to be restored to its original condition.
What is the NPV of the project if the investor's required rate of return is 10%?
A. -$10,144.
B. $14,693.
C. $15,232.

14. An investor places $5,000 in an account. The stated annual interest rate is
6% compounded monthly. The value of the account at the end of three years is
closest to:
A. $5,970.
B. $5,978.
C. $5,983.
15. The initial market value of a portfolio was $100,000. One year later the portfolio
was valued at $90,000 and two years later at $99,000. The geometric mean annual
return excluding any dividend income is closest to:
A. -0.5%.
B. -0.4%.
c. 0.0%.

16. Jane Acampo is calculating equivalent annualized yields based on the 1.3%
holding period yield of a 90-day loan. The correct ordering of the annual money
market yield (MMY), effective yield (EAY), and bond equivalent yield (BEY) is:
A. MMY < EAY <BEY.
B. MMY <BEY< EAY.
C. BEY< EAY < MMY.

17. An investment manager has a pool of five security analysts he can choose from
to cover three different industries. In how many different ways can the manager
assign one analyst to each industry?
A. 15.
B. 60.
C. 125.
18. 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:
A. power of the test is 95%.
B. confidence level of the test is 95%.
C. probability of a Type I error is 2.5%.

19. Which of the following statements about hypothesis testing is most accurate?
A. Rejecting a true null hypothesis is a Type I error.
B. The power of a test is the probability of failing to reject the null hypothesis when
it is false.
C. For a one-tailed test involving X, the null hypothesis would be H0: X= 0, and the
alternative hypothesis would be HA: Xi- 0.

20. The odds for an event occurring are calculated by dividing:

A. one by the probability that the event occurs.
B. the probability that the event does not occur by the probability that an event
occurs.
C. the probability that the event occurs by the probability that the event does not
occur.

21. Which of the following statements about return distributions is most

accurate?

A. With positive skewness, the median is greater than the mean.

B. If skewness is positive, the average magnitude of positive deviations from the
mean is smaller than the average magnitude of negative deviations from the mean.
C. If a return distribution has positive excess kurtosis and the analyst uses
statistical models that do not account for the fatter tails, the analyst will
underestimate the likelihood of extreme outcomes.
22. Which of the following statements about covariance and the correlation
coefficient is least accurate?
A. Covariance is a measure of how the returns of two assets tend to move together
over time.
B. The correlation coefficient is computed by dividing the covariance of returns on
two assets by the individual variances of returns for the two assets.
C. The covariance of returns between two assets is equal to the correlation
between the returns of the two assets, multiplied by the product of their standard
deviations of returns.

23. The type of technical analysis chart most likely to be useful for intermarket
analysis is a:
A. candlestick chart.
B. point and figure chart.
C. relative strength chart.

24. If Stock X has a standard deviation of returns of 18.9% and Stocky 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:
A. 10.25%.
B. 14.67%.
C. 16.82%.
25. An investment manager wants to select three analysts from a group of six
analysts to receive first-, second-, and third-place awards for outstanding
performance. In how many ways can the investment manager make the three
awards?
A. 20 ways.
B. 54 ways.
C. 120 ways.

26. Which of the following statements about the central limit theorem is least
accurate? The:
A. standard deviation of the sample mean is called the standard error of the sample
mean.
B. standard error of the sample mean can be estimated by dividing the population
standard deviation by. J n -1.
C. sample means for large sample sizes will have an approximately normal
distribution regardless of the distribution of the underlying population.

27.An investment analyst takes a random sample of 100 aggressive equity funds
and calculates the average beta as 1.7. The sample betas have a standard deviation
of 0.4. Using a 95% confidence interval and a z-statistic, which of the following
statements about the confidence interval and its interpretation is most accurate?
The analyst can be confident at the 95% level that the interval:
A. 1.580 to 1.820 includes the mean of the population beta.
B. 1.622 to 1.778 includes the mean of the population beta.
C. 1.634 to 1.766 includes the mean of the population beta.
28. Which is the correct test statistic for a test of the null hypothesis that a
population variance is equal to a chosen value?
A. F-statistic.
B. t-statistic.
C. Chi-square statistic.

29. From a high of $180, a stock price decreases to a low of $100 and then begins
increasing. A technical analyst states that she expects resistance levels to emerge
at $140, $150, and $153.33. This analyst is most likely forecasting these resistance
levels based on:
A. Fibonacci numbers.
B. an inverse head and shoulders pattern.
C. moving average convergence/divergence lines.

30. An investor wants to receive $10,000 annually for ten years with the first
payment five years from today. If the investor can earn a 14% annual return, the
amount that she will have to invest today is closest to:
A. $27,091.
B. $30,884.
C. $52,161.

31. A contrarian technical analyst is most likely to be bullish based on a:

A. low put-call ratio.
B. high volatility index.
C. low mutual fund cash position.
32. An investor in a mutual fund earns a 25% return the first year, loses 25% in the
second year, gains 30% in the third year, and then loses 30% in the fourth year. The
average annual compound growth rate of this investment is closest to:
A. -3.9%.
B. 0.0%.
C. 5.6%.

33. An analyst obtains the following annual returns for a group of stocks:
10%, 8%, 7%, 9%, 10%, 12%, 11%, 10%,30%, and 13%. This distribution:
A. has a median greater than its mode.
B. is skewed to the right, and the mean is less than the median.
C. is skewed to the right, and the mean is greater than the mode.

34. The median of a distribution is least likely equal to the:

A. second quartile.
B. third quintile.
C. fifth decile.

35. Which of the following statements about probability concepts is most accurate?
A. Subjective probability is a probability that is based on personal judgment.
B. A conditional probability is the probability that two or more events happen
concurrently.
C. An empirical probability is one based on logical analysis rather than on
observation or personal judgment.
36. Which of the following is least likely an underlying assumption of technical
analysis?
A. Supply and demand are governed solely by rational behavior.
B. Actual shifts in supply and demand can be observed in market price behavior.
C. Prices for individual securities and the market tend to move in trends that
persist for long periods of time.

37. Alex White, CFA, is examining a portfolio that contains 100 stocks that are
either value or growth stocks. Of these 100 stocks, 40% are value stocks. The
previous portfolio manager had selected 70% of the value stocks and 80% of the
growth stocks. What is the probability of selecting a stock at random that is either
a value stock or was selected by the previous portfolio manager?
A. 28%.
B. 76%.
C. 88%.

38. Which of the following statements about the normal distribution is

least accurate? The normal distribution:
A. has a mean of zero and a standard deviation of one.
B. is completely described by its mean and standard deviation.
C. is bell-shaped, with tails extending without limit to the left and to the right.

39. A manager forecasts a bond portfolio return of 10% and estimates a standard
deviation of annual returns of 4%. Assuming a normal returns distribution and that
the manager is correct, there is a:
A. 90% probability that the portfolio return will be between 3.2% and 17.2%.
B. 95% probability that the portfolio return will be between 2.16% and 17.84%.
C. 32% probability that the portfolio return will be between 6% and 14%.
40. 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:
A. 12.
B. 16.
C. 20.

41. A security has annual returns of 5%, 10%, and 15%. The coefficient of variation
of the security (using the population standard deviation) is closest to:
A. 0.3.
B. 0.4.
C. 0.5.

42. If an analyst concludes that the distribution of a large sample of returns is

positively skewed, which of the following relationships involving the mean, median,
and mode is most likely?
A. Mean > median > mode.
B. Mean< median <mode.
C. Mean> median< mode.

43. An investor opens an account by purchasing 1,000 shares of stock at $42 per
share. One year later, these shares are trading at $55 per share, and the investor
purchases 1,000 more shares. At the end of the second year, the shares are trading
at $54. The time-weighted rate of return on the account is closest to:
A. 7.7%.
B. 13.4%.
c. 16.4%.