Quantitative Methods — CFA® Program Level I

Question 1

Mariela Etcheverry-Tan builds a probability tree for next year's dividend of Pukeko Ferries. In the first stage, fuel prices are either high (probability 0.40) or low (probability 0.60). If fuel prices are high, the board raises the dividend with probability 0.25. In her tree, what is the probability that fuel prices are high and the board raises the dividend?

Accepted Answer

0.10, the product of 0.40 and 0.25

Answer

0.65, the sum of 0.40 and 0.25

Answer

0.25, the probability of a raise given high fuel prices

Question 2

Teuila Fa'amausili uses annual data to regress the percentage change in regional sales of residential solar panels (Y) on the percentage change in retail electricity tariffs (X). The sample covariance between X and Y is 18.5, the sample variance of X is 12.5, the mean of X is 4.2% and the mean of Y is 9.6%. If electricity tariffs rise by 7.5% next year, what is the regression's forecast of the change in solar panel sales?

Accepted Answer

14.48%

Answer

11.10%

Answer

11.83%

Question 3

Under a naming-rights agreement for a new indoor arena, Quercia Logistics will pay the arena's owner $23,750 at the end of each year for 16 years. Using a discount rate of 5.75% per year, what is the present value of the payments?

Accepted Answer

$244,190.10

Answer

$234,481.03

Answer

$258,231.03

Sample questions