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Quantitative Methods & Statistics Flashcards

7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A sample of 25 observations yields a mean of 8% and a standard deviation of 4%. Assuming normality, the 90% confidence interval for the population mean uses which critical value?

    Answer: t₂₄ = 1.711

    With unknown population variance and n = 25, a t-distribution with 24 degrees of freedom is appropriate; the 90% two-tailed critical value is t₂₄ = 1.711.

  2. Which statement about the central limit theorem (CLT) is most accurate?

    Answer: For large n, the sampling distribution of the sample mean is approximately normal regardless of the population distribution

    The CLT states that as sample size increases, the distribution of the sample mean approaches normality regardless of the shape of the underlying population.

  3. An investor purchases a bond for $950 and sells it two years later for $1,050, receiving no coupons. The holding period return and annualized HPR are, respectively:

    Answer: 10.53% and 5.13%

    HPR = (1050−950)/950 = 10.53%; annualized HPR = (1.1053)^(1/2) − 1 ≈ 5.13%.

  4. Which of the following best describes kurtosis in the context of return distributions relevant to risk management?

    Answer: Positive kurtosis (leptokurtic) indicates fatter tails and higher probability of extreme returns than a normal distribution

    Leptokurtic distributions (excess kurtosis > 0) have fatter tails than the normal, meaning extreme outcomes are more probable—a key concern in risk management.

  5. A Type II error in hypothesis testing occurs when an analyst:

    Answer: Fails to reject a false null hypothesis

    A Type II error (β) is failing to reject H₀ when H₀ is actually false, which is the missed detection of a real effect.

  6. An investment of $1,000 grows to $1,500 after 5 years. The compound annual growth rate (CAGR) is closest to:

    Answer: 8.45%

    CAGR = (1500/1000)^(1/5) − 1 = 1.5^0.2 − 1 ≈ 8.45%.

  7. Which measure of central tendency is least affected by extreme outliers in a dataset?

    Answer: Median

    The median is based on rank order and therefore resistant to distortion by extreme values, unlike the arithmetic mean.