Question #1 of 121 Question ID: 1204072

Given the following table about employees of a company based on whether they are smokers or nonsmokers

and whether or not they su er from any allergies, what is the probability of su ering from allergies or being

a smoker?

Su er from Allergies Don't Su er from Allergies Total

Smoker 35 25 60

Nonsmoker 55 185 240

Total 90 210 300

A) 0.38.

B) 0.88.

C) 0.12.

Question #2 of 121 Question ID: 1204122

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?

A) 0.00%.

B) 4.18%.

C) 0.17%.

Question #3 of 121 Question ID: 1204115

With respect to the units each is measured in, which of the following is the most easily directly applicable
measure of dispersion? The:

A) variance.

B) standard deviation.

C) covariance.

Question #4 of 121 Question ID: 1204091

The probability of rolling a 3 on the fourth roll of a fair 6-sided die:

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A) is equal to the probability of rolling a 3 on the rst roll.

B) is 1/6 to the fourth power.

C) depends on the results of the three previous rolls.

Question #5 of 121 Question ID: 1204047

At a charity fundraiser there have been a total of 342 ra e tickets already sold. If a person then purchases
two tickets rather than one, how much more likely are they to win?

A) 1.99.

B) 0.50.

C) 2.10.

Question #6 of 121 Question ID: 1204139

Given P(X = 2, Y = 10) = 0.3, P(X = 6, Y = 2.5) = 0.4, and P(X = 10, Y = 0) = 0.3, then COV(XY) is:

A) -12.0.

B) 6.0.

C) 24.0.

Question #7 of 121 Question ID: 1204064

The following table summarizes the results of a poll taken of CEO's and analysts concerning the economic
impact of a pending piece of legislation:

Think it will have a positive Think it will have a negative

Group Total
impact impact

CEO's 40 30 70

Analysts 70 60 130

110 90 200

What is the probability that a randomly selected individual from this group will be an analyst that
thinks that the legislation will have a positive impact on the economy?

A) 0.35.

B) 0.30.

C) 0.45.

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Question #8 of 121 Question ID: 1204087

There is a 40% probability that the economy will be good next year and a 60% probability that it will be bad. If
the economy is good, there is a 50 percent probability of a bull market, a 30% probability of a normal market,
and a 20% probability of a bear market. If the economy is bad, there is a 20% probability of a bull market, a
30% probability of a normal market, and a 50% probability of a bear market. What is the joint probability of a
good economy and a bull market?

A) 12%.

B) 20%.

C) 50%.

Question #9 of 121 Question ID: 1204131

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%

A) 5.992%.

B) 4.53%.

C) 1.140%.

Question #10 of 121 Question ID: 1204147

A portfolio manager wants to eliminate four stocks from a portfolio that consists of six stocks. How many
ways can the four stocks be sold when the order of the sales is important?

A) 180.

B) 360.

C) 24.

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Question #11 of 121 Question ID: 1204052

For a given corporation, which of the following is an example of a conditional probability? The probability the
corporation's:

A) inventory improves.

B) earnings increase and dividend increases.

C) dividend increases given its earnings increase.

Question #12 of 121 Question ID: 1204096

An investor is considering purchasing ACQ. There is a 30% probability that ACQ will be acquired in the next
two months. If ACQ is acquired, there is a 40% probability of earning a 30% return on the investment and a
60% probability of earning 25%. If ACQ is not acquired, the expected return is 12%. What is the expected
return on this investment?

A) 12.3%.

B) 16.5%.

C) 18.3%.

Question #13 of 121 Question ID: 1204119

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 .20 20%

Normal .50 15%

Poor .30 10%

The standard deviation of XYZ's expected return on equity is closest to:

A) 1.5%.

B) 12.3%.

C) 3.5%.

Question #14 of 121 Question ID: 1204063

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Jessica Fassler, options trader, recently wrote two put options on two di erent underlying stocks (AlphaDog
Software and OmegaWolf Publishing), both with a strike price of $11.50. The probabilities that the prices of
AlphaDog and OmegaWolf stock will decline below the strike price are 65% and 47%, respectively, and these
probabilities are independent. The probability that at least one of the put options will fall below the strike
price is approximately:

A) 1.00.

B) 0.81.

C) 0.31.

Question #15 of 121 Question ID: 1204127

Given P(X = 2) = 0.3, P(X = 3) = 0.4, P(X = 4) = 0.3. What is the variance of X?

A) 0.3.

B) 3.0.

C) 0.6.

Question #16 of 121 Question ID: 1204092

If the outcome of event A is not a ected by event B, then events A and B are said to be:

A) mutually exclusive.

B) conditionally dependent.

C) statistically independent.

Question #17 of 121 Question ID: 1204043

If the odds against an event occurring are twelve to one, what is the probability that it will occur?

A) 0.0833.

B) 0.9231.

C) 0.0769.

Question #18 of 121 Question ID: 1204056

The unconditional probability of an event, given conditional probabilities, is determined by using the:

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A) total probability rule.

B) multiplication rule of probability.

C) addition rule of probability.

Question #19 of 121 Question ID: 1204134

Use the following probability distribution to calculate the expected return for the portfolio.

State of the Economy Probability Return on Portfolio

Boom 0.30 15%

Bust 0.70 3%

A) 6.6%.

B) 9.0%.

C) 8.1%.

Question #20 of 121 Question ID: 1204090

A bag of marbles contains 3 white and 4 black marbles. A marble will be drawn from the bag randomly three

times and put back into the bag. Relative to the outcomes of the rst two draws, the probability that the third
marble drawn is white is:

A) independent.

B) dependent.

C) conditional.

Question #21 of 121 Question ID: 1204053

Let A and B be two mutually exclusive events with P(A) = 0.40 and P(B) = 0.20. Therefore:

A) P(A and B) = 0.

B) P(A and B) = 0.08.

C) P(B|A) = 0.20.

Question #22 of 121 Question ID: 1204142

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The probability of A is 0.4. The probability of AC is 0.6. The probability of (B | A) is 0.5, and the probability of

(B | AC) is 0.2. Using Bayes' formula, what is the probability of (A | B)?

A) 0.625.

B) 0.375.

C) 0.125.

Question #23 of 121 Question ID: 1204108

The covariance of the returns on investments X and Y is 18.17. The standard deviation of returns on X is 7%,
and the standard deviation of returns on Y is 4%. What is the value of the correlation coe cient for returns

on investments X and Y?

A) +0.65.

B) +0.32.

C) +0.85.

Question #24 of 121 Question ID: 1204123

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.

A) 10.0% expected return and 16.05% standard deviation.

B) 10.3% expected return and 16.05% standard deviation.

C) 10.3% expected return and 2.58% standard deviation.

Question #25 of 121 Question ID: 1204137

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The following table shows the individual weightings and expected returns for the three stocks in an investor's
portfolio:

Stock Weight E(RX)

V 0.40 12%

M 0.35 8%
S 0.25 5%

What is the expected return of this portfolio?

A) 9.05%.

B) 8.33%.

C) 8.85%.

Question #26 of 121 Question ID: 1204034

Which of the following statements about probability is most accurate?

A) A conditional probability is the probability that two or more events will happen concurrently.

B) An outcome is the calculated probability of an event.

C) An event is a set of one or more possible values of a random variable.

Question #27 of 121 Question ID: 1204071

The following table summarizes the results of a poll taken of CEO's and analysts concerning the economic
impact of a pending piece of legislation:

Think it will have a positive Think it will have a negative

Group Total
impact impact

CEO's 40 30 70

Analysts 70 60 130

110 90 200

What is the probability that a randomly selected individual from this group will be either an analyst

or someone who thinks this legislation will have a positive impact on the economy?

A) 0.85.

B) 0.75.

C) 0.80.

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Question #28 of 121 Question ID: 1204103

There is a 90% chance that the economy will be good next year and a 10% chance that it will be bad. If the

economy is good, there is a 60% chance that XYZ Incorporated will have EPS of $4.00 and a 40% chance that
their earnings will be $3.00. If the economy is bad, there is an 80% chance that XYZ Incorporated will have

EPS of $2.00 and a 20% chance that their earnings will be $1.00. What is the rm's expected EPS?

A) $3.42.

B) $2.50.

C) $5.40.

Question #29 of 121 Question ID: 1204109

If given the standard deviations of the returns of two assets and the correlation between the two assets,

which of the following would an analyst least likely be able to derive from these?

A) Strength of the linear relationship between the two.

B) Covariance between the returns.

C) Expected returns.

Question #30 of 121 Question ID: 1204150

Which of the following statements about counting methods is least accurate?

A) The labeling formula determines the number of di erent ways to assign a given number of di erent
labels to a set of objects.

B) The multiplication rule of counting is used to determine the number of di erent ways to choose one
object from each of two or more groups.

C) The combination formula determines the number of di erent ways a group of objects can be drawn
in a speci c order from a larger sized group of objects.

Question #31 of 121 Question ID: 1204113

Given Cov(X,Y) = 1,000,000. What does this indicate about the relationship between X and Y?

A) It is strong and positive.

B) It is weak and positive.

C) Only that it is positive.

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Question #32 of 121 Question ID: 1204089

Based on historical data, Metro Utilities increases its dividend in 80% of years when GDP increases and 30%

of years in which GDP decreases. An analyst believes that there is a 30% probability that GDP will decrease
next year. Based on these data and estimates, the probability that GDP will increase next year and Metro will

increase its dividend is:

A) 14%.

B) 24%.

C) 56%.

Question #33 of 121 Question ID: 1204075

Avery Scott, nancial planner, recently obtained his CFA Charter and is considering multiple job o ers. Scott

devised the following four criteria to help him decide which o ers to pursue most aggressively.

Criterion % Expected to Meet the Criteria

1. Within 75 miles of San Francisco 0.85

2. Employee size less than 50 0.50

3. Compensation package exceeding $100,000 0.30

4. Three weeks of vacation 0.15

If Scott has 20 job o ers and the probabilities of meeting each criterion are independent, how many
are expected to meet all of his criteria? (Round to nearest whole number).

A) 1.

B) 0.

C) 3.

Question #34 of 121 Question ID: 1204046

A company has two machines that produce widgets. An older machine produces 16% defective widgets, while
the new machine produces only 8% defective widgets. In addition, the new machine employs a superior

production process such that it produces three times as many widgets as the older machine does. Given that
a widget was produced by the new machine, what is the probability it is NOT defective?

A) 0.76.

B) 0.06.

C) 0.92.

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Question #35 of 121 Question ID: 1204114

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%

A) 0.002019.

B) 0.890223.

C) 0.001898.

Question #36 of 121 Question ID: 1204128

Given the following probability distribution, nd 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%

A) 10.04%.

B) 12.45%.

C) 7.00%.

Question #37 of 121 Question ID: 1204145

An analyst expects that 20% of all publicly traded companies will experience a decline in earnings next year.
The analyst has developed a ratio to help forecast this decline. If the company is headed for a decline, there

is a 90% chance that this ratio will be negative. If the company is not headed for a decline, there is only a 10%
chance that the ratio will be negative. The analyst randomly selects a company with a negative ratio. Based
on Bayes' theorem, the updated probability that the company will experience a decline is:

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A) 69%.

B) 26%.

C) 18%.

Question #38 of 121 Question ID: 1204081

Data shows that 75 out of 100 tourists who visit New York City visit the Empire State Building. It rains or
snows in New York City one day in ve. What is the joint probability that a randomly choosen tourist visits

the Empire State Building on a day when it neither rains nor snows?

A) 95%.

B) 60%.

C) 15%.

Question #39 of 121 Question ID: 1204121

What is the standard deviation of a portfolio if you invest 30% in stock one (standard deviation of 4.6%) and

70% in stock two (standard deviation of 7.8%) if the correlation coe cient for the two stocks is 0.45?

A) 0.38%.

B) 6.20%.

C) 6.83%.

Question #40 of 121 Question ID: 1204124

A two-sided but very thick coin is expected to land on its edge twice out of every 100 ips. And the
probability of face up (heads) and the probability of face down (tails) are equal. When the coin is ipped, the
prize is $1 for heads, $2 for tails, and $50 when the coin lands on its edge. What is the expected value of the

prize on a single coin toss?

A) $17.67.

B) $1.50.

C) $2.47.

Question #41 of 121 Question ID: 1204094

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If X and Y are independent events, which of the following is most accurate?

A) P(X | Y) = P(X).

B) P(X or Y) = P(X) + P(Y).

C) P(X or Y) = (P(X)) × (P(Y)).

Question #42 of 121 Question ID: 1204050

The "likelihood" of an event occurring is de ned as:

A) a joint probability.

B) a conditional probability.

C) a unconditional probability.

Question #43 of 121 Question ID: 1204148

A rm wants to select a team of ve from a group of ten employees. How many ways can the rm compose
the team of ve?

A) 120.

B) 252.

C) 25.

Question #44 of 121 Question ID: 1204049

Last year, the average salary increase for poultry research assistants was 2.5%. Of the 10,000 poultry
research assistants, 2,000 received raises in excess of this amount. The odds that a randomly selected

poultry research assistant received a salary increase in excess of 2.5% are:

A) 1 to 5.

B) 20%.

C) 1 to 4.

Question #45 of 121 Question ID: 1204059

If two fair coins are ipped and two fair six-sided dice are rolled, all at the same time, what is the probability

of ending up with two heads (on the coins) and two sixes (on the dice)?

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A) 0.4167.

B) 0.0069.

C) 0.8333.

Question #46 of 121 Question ID: 1204045

The probabilities of earning a speci ed return from a portfolio are shown below:

Probability Return

0.20 10%

0.20 20%

0.20 22%

0.20 15%

0.20 25%

What are the odds of earning at least 20%?

A) Two to three.

B) Three to ve.

C) Three to two.

Question #47 of 121 Question ID: 1204144

John purchased 60% of the stocks in a portfolio, while Andrew purchased the other 40%. Half of John's stock-

picks are considered good, while a fourth of Andrew's are considered to be good. If a randomly chosen stock
is a good one, what is the probability John selected it?

A) 0.40.

B) 0.30.

C) 0.75.

Question #48 of 121 Question ID: 1204146

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A parking lot has 100 red and blue cars in it.

40% of the cars are red.

70% of the red cars have radios.
80% of the blue cars have radios.

What is the probability that the car is red given that it has a radio?

A) 28%.

B) 47%.

C) 37%.

Question #49 of 121 Question ID: 1204138

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:

A) 0.029.

B) 0.014.

C) 0.019.

Question #50 of 121 Question ID: 1204080

Helen Pedersen has all her money invested in either of two mutual funds (A and B). She knows that there is a

40% probability that fund A will rise in price and a 60% chance that fund B will rise in price if fund A rises in
price. What is the probability that both fund A and fund B will rise in price?

A) 1.00.

B) 0.24.

C) 0.40.

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Question #51 of 121 Question ID: 1204098

The events Y and Z are mutually exclusive and exhaustive: P(Y) = 0.4 and P(Z) = 0.6. If the probability of X

given Y is 0.9, and the probability of X given Z is 0.1, what is the unconditional probability of X?

A) 0.40.

B) 0.33.

C) 0.42.

Question #52 of 121 Question ID: 1204100

An analyst announces that an increase in the discount rate next quarter will double her earnings forecast for

a rm. This is an example of a:

A) joint probability.

B) conditional expectation.

C) use of Bayes' formula.

Question #53 of 121 Question ID: 1204152

A rm is going to create three teams of four from twelve employees. How many ways can the twelve
employees be selected for the three teams?

A) 495.

B) 34,650.

C) 1,320.

Question #54 of 121 Question ID: 1204042

Which of the following is an a priori probability?

A) For a stock, based on prior patterns of up and down days, the probability of the stock having a down
day tomorrow.

B) On a random draw, the probability of choosing a stock of a particular industry from the S&P 500.

C) The probability the Fed will lower interest rates prior to the end of the year.

Question #55 of 121 Question ID: 1204136

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There is a 30% chance that the economy will be good and a 70% chance that it will be bad. If the economy is
good, your returns will be 20% and if the economy is bad, your returns will be 10%. What is your expected
return?

A) 13%.

B) 17%.

C) 15%.

Question #56 of 121 Question ID: 1204097

Firm A can fall short, meet, or exceed its earnings forecast. Each of these events is equally likely. Whether

rm A increases its dividend will depend upon these outcomes. Respectively, the probabilities of a dividend
increase conditional on the rm falling short, meeting or exceeding the forecast are 20%, 30%, and 50%. The
unconditional probability of a dividend increase is:

A) 0.333.

B) 0.500.

C) 1.000.

Question #57 of 121 Question ID: 1204040

Which of the following statements about the de ning properties of probability is least accurate?

A) The sum of the probabilities of events equals one if the events are mutually exclusive and
exhaustive.

B) The probability of an event may be equal to zero or equal to one.

C) To state a probability, a set of mutually exclusive and exhaustive events must be de ned.

Question #58 of 121 Question ID: 1204060

Which of the following is a joint probability? The probability that a:

A) stock pays a dividend and splits next year.

B) company merges with another rm next year.

C) stock increases in value after an increase in interest rates has occurred.

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Question #59 of 121 Question ID: 1204151

For the task of arranging a given number of items without any sub-groups, this would require:

A) the labeling formula.

B) the permutation formula.

C) only the factorial function.

Question #60 of 121 Question ID: 1204135

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%

A) 6.0%.

B) 6.5%.

C) 5.5%.

Question #61 of 121 Question ID: 1204095

Jay Hamilton, CFA, is analyzing Madison, Inc., a distressed rm. Hamilton believes the rm's survival over the
next year depends on the state of the economy. Hamilton assigns probabilities to four economic growth

scenarios and estimates the probability of bankruptcy for Madison under each:

Economic growth scenario Probability of scenario Probability of bankruptcy

Recession (< 0%) 20% 60%

Slow growth (0% to 2%) 30% 40%

Normal growth (2% to 4%) 40% 20%

Rapid growth (> 4%) 10% 10%

Based on Hamilton's estimates, the probability that Madison, Inc. does not go bankrupt in the next year is

closest to:

A) 18%.

B) 67%.

C) 33%.

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Question #62 of 121 Question ID: 1204074

Thomas Baynes has applied to both Harvard and Yale. Baynes has determined that the probability of getting
into Harvard is 25% and the probability of getting into Yale (his father's alma mater) is 42%. Baynes has also

determined that the probability of being accepted at both schools is 2.8%. What is the probability of Baynes
being accepted at either Harvard or Yale?

A) 10.5%.

B) 7.7%.

C) 64.2%.

Question #63 of 121 Question ID: 1204130

Use the following data to calculate the standard deviation of the return:

50% chance of a 12% return

30% chance of a 10% return

20% chance of a 15% return

A) 1.7%.

B) 3.0%.

C) 2.5%.

Question #64 of 121 Question ID: 1204033

If event A and event B cannot occur simultaneously, then events A and B are said to be:

A) statistically independent.

B) mutually exclusive.

C) collectively exhaustive.

Question #65 of 121 Question ID: 1204079

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The following table summarizes the availability of trucks with air bags and bucket seats at a dealership.

Bucket Seats No Bucket Seats Total

Air Bags 75 50 125

No Air Bags 35 60 95

Total 110 110 220

What is the probability of randomly selecting a truck with air bags and bucket seats?

A) 0.34.

B) 0.16.

C) 0.28.

Question #66 of 121 Question ID: 1204141

An economist estimates a 60% probability that the economy will expand next year. The technology sector has
a 70% probability of outperforming the market if the economy expands and a 10% probability of

outperforming the market if the economy does not expand. Given the new information that the technology
sector will not outperform the market, the probability that the economy will not expand is closest to:

A) 33%.

B) 67%.

C) 54%.

Question #67 of 121 Question ID: 1204082

In a given portfolio, half of the stocks have a beta greater than one. Of those with a beta greater than one, a
third are in a computer-related business. What is the probability of a randomly drawn stock from the

portfolio having both a beta greater than one and being in a computer-related business?

A) 0.667.

B) 0.167.

C) 0.333.

Question #68 of 121 Question ID: 1204062

An analyst has a list of 20 bonds of which 14 are callable, and ve have warrants attached to them. Two of

the callable bonds have warrants attached to them. If a single bond is chosen at random, what is the
probability of choosing a callable bond or a bond with a warrant?

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A) 0.70.

B) 0.55.

C) 0.85.

Question #69 of 121 Question ID: 1204055

The multiplication rule of probability is used to calculate the:

A) joint probability of two events.

B) unconditional probability of an event, given conditional probabilities.

C) probability of at least one of two events.

Question #70 of 121 Question ID: 1204129

After repeated experiments, the average of the outcomes should converge to:

A) the expected value.

B) one.

C) the variance.

Question #71 of 121 Question ID: 1204126

Compute the standard deviation of a two-stock portfolio if stock A (40% weight) has a variance of 0.0015,
stock B (60% weight) has a variance of 0.0021, and the correlation coe cient for the two stocks is –0.35?

A) 2.64%.

B) 1.39%.

C) 0.07%.

Question #72 of 121 Question ID: 1204149

A supervisor is evaluating ten subordinates for their annual performance reviews. According to a new

corporate policy, for every ten employees, two must be evaluated as "exceeds expectations," seven as

"meets expectations," and one as "does not meet expectations." How many di erent ways is it possible for
the supervisor to assign these ratings?

A) 360.

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B) 10,080.

C) 5,040.

Question #73 of 121 Question ID: 1204086

A parking lot has 100 red and blue cars in it.

40% of the cars are red.

70% of the red cars have radios.

80% of the blue cars have radios.

What is the probability of selecting a car at random that is either red or has a radio?

A) 88%.

B) 28%.

C) 76%.

Question #74 of 121 Question ID: 1204076

Pat Binder, CFA, is examining the e ect of an inverted yield curve on the stock market. She determines that
in the past century, 75% of the times the yield curve has inverted, a bear market in stocks began within the

next 12 months. Binder believes the probability of an inverted yield curve in the next year is 20%. Binder's
estimate of the probability that there will be an inverted yield curve in the next year followed by a bear

market is closest to:

A) 15%.

B) 50%.

C) 38%.

Question #75 of 121 Question ID: 1204088

There is a 40% probability that the economy will be good next year and a 60% probability that it will be bad. If

the economy is good, there is a 50 percent probability of a bull market, a 30% probability of a normal market,

and a 20% probability of a bear market. If the economy is bad, there is a 20% probability of a bull market, a
30% probability of a normal market, and a 50% probability of a bear market. What is the probability of a bull

market next year?

A) 32%.

B) 20%.

C) 50%.

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Question #76 of 121 Question ID: 1204105

There is a 60% chance that the economy will be good next year and a 40% chance that it will be bad. If the

economy is good, there is a 70% chance that XYZ Incorporated will have EPS of $5.00 and a 30% chance that
their earnings will be $3.50. If the economy is bad, there is an 80% chance that XYZ Incorporated will have

EPS of $1.50 and a 20% chance that their earnings will be $1.00. What is the rm's expected EPS?

A) $5.95.

B) $3.29.

C) $2.75.

Question #77 of 121 Question ID: 1204117

Which of the following statements regarding various statistical measures is least accurate?

A) The correlation coe cient is calculated by dividing the covariance of two random variables by the
product of their standard deviations.

B) The coe cient of variation is calculated by dividing the mean by the standard deviation.

C) Variance equals the sum of the squared deviations from the mean times the probability that that
each outcome will occur.

Question #78 of 121 Question ID: 1204077

The probability of a new o ce building being built in town is 64%. The probability of a new o ce building
that includes a co ee shop being built in town is 58%. If a new o ce building is built in town, the probability

that it includes a co ee shop is closest to:

A) 37%.

B) 91%.

C) 58%.

Question #79 of 121 Question ID: 1204054

Which probability rule determines the probability that two events will both occur?

A) The addition rule.

B) The total probability rule.

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C) The multiplication rule.

Question #80 of 121 Question ID: 1204143

Bonds rated B have a 25% chance of default in ve years. Bonds rated CCC have a 40% chance of default in
ve years. A portfolio consists of 30% B and 70% CCC-rated bonds. If a randomly selected bond defaults in a

ve-year period, what is the probability that it was a B-rated bond?

A) 0.250.

B) 0.211.

C) 0.625.

Question #81 of 121 Question ID: 1204068

If two events are independent, the probability that they both will occur is:

A) 0.00.

B) Cannot be determined from the information given.

C) 0.50.

Question #82 of 121 Question ID: 1204032

In any given year, the chance of a good year is 40%, an average year is 35%, and the chance of a bad year is
25%. What is the probability of having two good years in a row?

A) 10.00%.

B) 8.75%.

C) 16.00%.

Question #83 of 121 Question ID: 1204083

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Given the following table about employees of a company based on whether they are smokers or nonsmokers

and whether or not they su er from any allergies, what is the probability of both su ering from allergies and

not su ering from allergies?

Su er from Allergies Don't Su er from Allergies Total

Smoker 35 25 60

Nonsmoker 55 185 240

Total 90 210 300

A) 1.00.

B) 0.00.

C) 0.50.

Question #84 of 121 Question ID: 1204061

A very large company has equal amounts of male and female employees. If a random sample of four
employees is selected, what is the probability that all four employees selected are female?

A) 0.1600

B) 0.0625.

C) 0.0256

Question #85 of 121 Question ID: 1204110

Given the following probability distribution, nd 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%

A) 0.00032.

B) 0.00174.

C) 0.00109.

Question #86 of 121 Question ID: 1204058

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The probability of each of three independent events is shown in the table below. What is the probability of A
and C occurring, but not B?

Event Probability of Occurrence

A 25%

B 15%

C 42%

A) 3.8%.

B) 8.9%.

C) 10.5%.

Question #87 of 121 Question ID: 1204038

Which of the following sets of numbers does NOT meet the requirements for a set of probabilities?

A) (0.10, 0.20, 0.30, 0.40).

B) (0.10, 0.20, 0.30, 0.40, 0.50).

C) (0.50, 0.50).

Question #88 of 121 Question ID: 1204048

If the probability of an event is 0.10, what are the odds for the event occurring?

A) Nine to one.

B) One to ten.

C) One to nine.

Question #89 of 121 Question ID: 1204057

A bond portfolio consists of four BB-rated bonds. Each has a probability of default of 24% and these

probabilities are independent. What are the probabilities of all the bonds defaulting and the probability of all

the bonds not defaulting, respectively?

A) 0.04000; 0.96000.

B) 0.96000; 0.04000.

C) 0.00332; 0.33360.

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Question #90 of 121 Question ID: 1204039

An empirical probability is one that is:

A) supported by formal reasoning.

B) derived from analyzing past data.

C) determined by mathematical principles.

Question #91 of 121 Question ID: 1204085

A parking lot has 100 red and blue cars in it.

40% of the cars are red.

70% of the red cars have radios.

80% of the blue cars have radios.

What is the probability of selecting a car at random and having it be red and have a radio?

A) 28%.

B) 48%.

C) 25%.

Question #92 of 121 Question ID: 1204102

Tina O'Fahey, CFA, believes a stock's price in the next quarter depends on two factors: the direction of the
overall market and whether the company's next earnings report is good or poor. The possible outcomes and

some probabilities are illustrated in the tree diagram shown below:

Based on this tree diagram, the expected value of the stock if the market decreases is closest to:

A) $57.00.

B) $62.50.

C) $26.00.

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Question #93 of 121 Question ID: 1204084

A rm holds two $50 million bonds with call dates this week.

The probability that Bond A will be called is 0.80.

The probability that Bond B will be called is 0.30.

The probability that at least one of the bonds will be called is closest to:

A) 0.50.

B) 0.86.

C) 0.24.

Question #94 of 121 Question ID: 1204106

The correlation coe cient for a series of returns on two investments is equal to 0.80. Their covariance of

returns is 0.06974. Which of the following are possible variances for the returns on the two investments?

A) 0.08 and 0.37.

B) 0.04 and 0.19.

C) 0.02 and 0.44.

Question #95 of 121 Question ID: 1204107

The covariance of returns on two investments over a 10-year period is 0.009. If the variance of returns for

investment A is 0.020 and the variance of returns for investment B is 0.033, what is the correlation coe cient
for the returns?

A) 0.687.

B) 0.350.

C) 0.444.

Question #96 of 121 Question ID: 1204125

For assets A and B we know the following: E(RA) = 0.10, E(RB) = 0.20, Var(RA) = 0.25, Var(RB) = 0.36 and the

correlation of the returns is 0.6. What is the expected return of a portfolio that is equally invested in the two

assets?

A) 0.1500.

B) 0.3050.

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C) 0.2275.

Question #97 of 121 Question ID: 1204118

A scatter plot is best interpreted as displaying the:

A) paired observations of two variables.

B) behavior of a variable over time.

C) relationship of a dependent variable with an independent variable.

Question #98 of 121 Question ID: 1204036

For a stock, which of the following is least likely a random variable? Its:

A) stock symbol.

B) current ratio.

C) most recent closing price.

Question #99 of 121 Question ID: 1204035

If two events are mutually exclusive, the probability that they both will occur at the same time is:

A) 0.00.

B) 0.50.

C) Cannot be determined from the information given.

Question #100 of 121 Question ID: 1204066

Given the following table about employees of a company based on whether they are smokers or nonsmokers

and whether or not they su er from any allergies, what is the probability of being either a nonsmoker or not
su ering from allergies?

Su er from Allergies Don't Su er from Allergies Total

Smoker 35 25 60

Nonsmoker 55 185 240

Total 90 210 300

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A) 0.88.

B) 0.50.

C) 0.38.

Question #101 of 121 Question ID: 1204116

The covariance:

A) must be positive.

B) can be positive or negative.

C) must be between -1 and +1.

Question #102 of 121 Question ID: 1204133

For assets A and B we know the following: E(RA) = 0.10, E(RB) = 0.10, Var(RA) = 0.18, Var(RB) = 0.36 and the

correlation of the returns is 0.6. What is the variance of the return of a portfolio that is equally invested in

the two assets?

A) 0.1102.

B) 0.1500.

C) 0.2114.

Question #103 of 121 Question ID: 1204041

Each lottery ticket discloses the odds of winning. These odds are based on:

A) past lottery history.

B) a priori probability.

C) the best estimate of the Department of Gaming.

Question #104 of 121 Question ID: 1204140

Given P(X = 20, Y = 0) = 0.4, and P(X = 30, Y = 50) = 0.6, then COV(XY) is:

A) 125.00.

B) 120.00.

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C) 25.00.

Question #105 of 121 Question ID: 1204078

If the probability of both a new Wal-Mart and a new Wendy's being built next month is 68% and the
probability of a new Wal-Mart being built is 85%, what is the probability of a new Wendy's being built if a new

Wal-Mart is built?

A) 0.60.

B) 0.70.

C) 0.80.

Question #106 of 121 Question ID: 1204065

There is a 50% chance that the Fed will cut interest rates tomorrow. On any given day, there is a 67% chance

the DJIA will increase. On days the Fed cuts interest rates, the probability the DJIA will go up is 90%. What is

the probability that tomorrow the Fed will cut interest rates or the DJIA will go up?

A) 0.95.

B) 0.33.

C) 0.72.

Question #107 of 121 Question ID: 1204111

The returns on assets C and D are strongly correlated with a correlation coe cient of 0.80. The variance of

returns on C is 0.0009, and the variance of returns on D is 0.0036. What is the covariance of returns on C and
D?

A) 0.03020.

B) 0.40110.

C) 0.00144.

Question #108 of 121 Question ID: 1204101

Which of the following rules is used to state an unconditional expected value in terms of conditional
expected values?

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A) Total probability rule.

B) Addition rule.

C) Multiplication rule.

Question #109 of 121 Question ID: 1204104

There is an 80% chance that the economy will be good next year and a 20% chance that it will be bad. If the

economy is good, there is a 60% chance that XYZ Incorporated will have EPS of $3.00 and a 40% chance that

their earnings will be $2.50. If the economy is bad, there is a 70% chance that XYZ Incorporated will have EPS
of $1.50 and a 30% chance that their earnings will be $1.00. What is the rm's expected EPS?

A) $4.16.

B) $2.51.

C) $2.00.

Question #110 of 121 Question ID: 1204099

A conditional expectation involves:

A) determining the expected joint probability.

B) re ning a forecast because of the occurrence of some other event.

C) calculating the conditional variance.

Question #111 of 121 Question ID: 1204044

If the probability of an event is 0.20, what are the odds against the event occurring?

A) One to four.

B) Four to one.

C) Five to one.

Question #112 of 121 Question ID: 1204070

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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 expected return on portfolio

A?

Scenario Probability Return on Portfolio A Return on Portfolio B

A 15% 17% 19%

B 20% 14% 18%

C 25% 12% 10%

D 40% 8% 9%

A) 9.25%.

B) 10.75%.

C) 11.55%.

Question #113 of 121 Question ID: 1204132

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

expected returns on 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%

A) 9.51%.

B) 12.55%.

C) 4.34%.

Question #114 of 121 Question ID: 1204120

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An investor has two stocks, Stock R and Stock S in her portfolio. Given the following information on the two

stocks, the portfolio's standard deviation is closest to:

σR = 34%

σS = 16%

rR,S = 0.67

WR = 80%

WS = 20%

A) 8.7%.

B) 7.8%.

C) 29.4%.

Question #115 of 121 Question ID: 1204069

There is a 30% probability of rain this afternoon. There is a 10% probability of having an umbrella if it rains.
What is the chance of it raining and having an umbrella?

A) 3%.

B) 33%.

C) 40%.

Question #116 of 121 Question ID: 1204067

A very large company has twice as many male employees relative to female employees. If a random sample
of four employees is selected, what is the probability that all four employees selected are female?

A) 0.0123.

B) 0.0625.

C) 0.3333.

Question #117 of 121 Question ID: 1204112

Which of the following statements is least accurate regarding covariance?

A) The covariance of a variable with itself is one.

B) Covariance can exceed one.

C) Covariance can only apply to two variables at a time.

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Question #118 of 121 Question ID: 1204093

A company says that whether it increases its dividends depends on whether its earnings increase. From this

we know:

A) P(both dividend increase and earnings increase) = P(dividend increase).

B) P(earnings increase | dividend increase) is not equal to P(earnings increase).

C) P(dividend increase | earnings increase) is not equal to P(earnings increase).

Question #119 of 121 Question ID: 1204037

Which of the following is an empirical probability?

A) For a stock, based on prior patterns of up and down days, the probability of the stock having a down
day tomorrow.

B) The probability the Fed will lower interest rates prior to the end of the year.

C) On a random draw, the probability of choosing a stock of a particular industry from the S&P 500
based on the number of rms.

Question #120 of 121 Question ID: 1204051

An unconditional probability is most accurately described as the probability of an event independent of:

A) its own past outcomes.

B) the outcomes of other events.

C) an observer’s subjective judgment.

Question #121 of 121 Question ID: 1204073

The following table summarizes the availability of trucks with air bags and bucket seats at a dealership.

Bucket Seats No Bucket Seats Total

Air Bags 75 50 125

No Air Bags 35 60 95

Total 110 110 220

What is the probability of selecting a truck at random that has either air bags or bucket seats?

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A) 34%.

B) 107%.

C) 73%.

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