CFA Practice Question:

It's not too late to prepare for the december 2016 CFA Exam. Start your studies today with the New York Institute of Finance's CFA Exam Prep course. To get you started, here is a CFA practice question:

Question - If a study of 3,000 daily equity returns results in a mean of .02% and a standard deviation of 1%, what is the interval of possible returns for the next period assuming a 5% significance level?

  • -1.94% to 1.98%
  • -2.15% to 2%
  • 0% to 1.96%

Answer: -1.94% to 1.98%

The interval is given as µ ± σ x z, where z is the appropriate value given the confidence level. In this case, the confidence level = 1 - significance level, or 1 - 5% = 95%. The z-score for a 95% confidence level is 1.96 (it would be a good idea to memorize this, as the z-score for a 99% confidence level, which is 2.58). When the numbers are inserted into the formula, the interval becomes -1.94% to 1.98%. 

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