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CFA Level 1 QuestionsWhat are the 4 types of measurement scales? - answer1. Nominal Scales
2. Ordinal Scales (Assigned to a category)
3. Interval Scales (Relative ranking)
4. Ratio Scales (Equal differences between scale values)
NOIR
When do we use geometric and arithmetic means to analyze investment returns? -
answer Arithmetic Mean: To estimate next year's return
Geometric Mean: Measure of past performance
What are the 3 different types of probabilities? - answer1. Empirical Probability (Past
data)
2. Priori Probability (Formal reasoning)
3. Subjective Probability (Use of personal judgement)
What is the difference between time-series data and cross-sectional data? - answer
Time-Series: Data taken over a period of time
Cross-Sectional: Data taken at a single point in time
What are the 3 desirable properties of an estimator? - answer1. Unbiased (Expected
value of estimator is equal to the parameter)
2. Efficient (Variance of its sampling distribution is small)
3. Consistent (Accuracy of parameter estimate increases as sample size increases)
What are the steps of Hypothesis Testing? - answer1. State the hypothesis
2. Select the appropriate test statistic
3. Specify the level of significance
4. State the decision rule regarding the hypothesis
5. Collect the sample and calculate the sample statistics
6. Make a decision regarding the hypothesis
7. Make a decision based on the results of the test
What is a Type 1 and Type 2 Error? - answerType I: Rejection of null when it is actually
true
Type II: Failure to reject null when it is actually false
What are the 3 reasons why statistical significance does not imply economic
significance? - answer1. Transaction Costs
2. Taxes
3. Risk
, What is the key assumption of technical analysis? - answerMarket prices reflect both
rational and irrational investor behavior
What are the 4 different types of Oscillators? - answer1. Rate of Change Oscillator
(100x the difference between the latest closing price and the closing price n periods
earlier)
2. Relative Strength Index (Ratio of total price increases to price decreases)
3. Moving Average Convergence/Divergence
4. Stochastic Oscillator (Latest closing price and highest and lowest prices reached in a
period)
What are the different types of auctions? - answer1. English Auction (Ascending Price
Auction)
2. Vickrey Auction (Second Price Sealed Bid Auction)
3. Dutch Auction (Descending Price Auction)
What are the 3 rules of indifference curves? - answer1. Slope downward
2. Convex towards the origin
3. Curves cannot cross
Distinguish between Normal, Inferior, Giffen and Veblen Goods? - answerNormal:
Positive income effect
Inferior: Income effect is negative
Giffen: Negative income effect outweighs positive substitution effect
Veblen: Higher price makes the good more desirable
What are the 4 models of oligopoly? - answer1. Kinked Demand Curve Model (Only a
decrease in price will be followed by competitors)
2. Cournot Duopoly Model
3. Nash Equilibrium Model
4. Stackelberg Dominant Firm Model
What is necessary for price discrimination to work? - answer1. Face a downward-
sloping demand curve
2. Have at least two identifiable groups of customers with different elasticities
3. Be able to prevent reselling
What are the different economic theories of the business cycle? - answer1. Neoclassical
School (Driven by changes in technology)
2. Keynesian School (Cycles are due to swings in the level of optimism of business
owners)
3. Monetarist School (Cycles are caused by variations in the rate of growth of the
money supply)
4. Austrian School (Cycles are caused by government intervention)
5. Real Business Cycle Theory (Cycles are caused by changed in technology and
external shocks)
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