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CONCEPT CHECKERS
1. A simple random sample is a sample drawn in such a way that each member
of the population has:
A. some chance of being selected in the sample.
B. an equal chance of being included in the sample.
C. a 1% chance of being included in the sample.
2. Sampling error is defined as:
A. an error that occurs when a sample of less than 30 elements is drawn.
B. an error that occurs during collection, recording, and tabulation of data.
C. the difference between the value of a sample statistic and the value of
the corresponding population parameter.
3. The mean age of all CFA candidates is 28 years. The mean age of a random
sample of 100 candidates is found to be 26.5 years. The difference of 1.5
years is called the:
A. random error.
B. sampling error.
C. population error.
4. If n is large and the population standard deviation is unknown, the standard
error of the sampling distribution of the sample mean is equal to the:
A. sample standard deviation divided by the sample size.
B. population standard deviation multiplied by the sample size.
C. sample standard deviation divided by the square root of the sample
size.
5. The standard error of the sampling distribution of the sample mean for a
sample size of n drawn from a population with a mean of µ and a standard
deviation of σ is:
A. sample standard deviation divided by the sample size.
B. sample standard deviation divided by the square root of the sample
size.
C. population standard deviation divided by the square root of the sample
size.
6. To apply the central limit theorem to the sampling distribution of the sample
mean, the sample is usually considered to be large if n is greater than:
A. 20.
B. 25.
C. 30.
7. Assume that a population has a mean of 14 with a standard deviation of 2. If
a random sample of 49 observations is drawn from this population, the
standard error of the sample mean is closest to:
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A. 0.04.
B. 0.29.
C. 2.00.
8. The population’s mean is 30 and the mean of a sample of size 100 is 28.5.
The variance of the sample is 25. The standard error of the sample mean is
closest to:
A. 0.05.
B. 0.25.
C. 0.50.
9. A random sample of 100 computer store customers spent an average of $75
at the store. Assuming the distribution is normal and the population
standard deviation is $20, the 95% confidence interval for the population
mean is closest to:
A. $71.08 to $78.92.
B. $73.89 to $80.11.
C. $74.56 to $79.44.
10. Best Computers, Inc., sells computers and computer parts by mail. A sample
of 25 recent orders showed the mean time taken to ship out these orders
was 70 hours with a sample standard deviation of 14 hours. Assuming the
population is normally distributed, the 99% confidence interval for the
population mean is:
A. 70 ± 2.80 hours.
B. 70 ± 6.98 hours.
C. 70 ± 7.83 hours.
11. The sampling distribution of a statistic is the probability distribution made up
of all possible:
A. observations from the underlying population.
B. sample statistics computed from samples of varying sizes drawn from
the same population.
C. sample statistics computed from samples of the same size drawn from
the same population.
12. The sample of debt/equity ratios of 25 publicly traded U.S. banks as of fiscal
year-end 2003 is an example of:
A. a point estimate.
B. cross-sectional data.
C. a stratified random sample.
13. Which of the following is least likely a desirable property of an estimate?
A. Reliability.
B. Efficiency.
C. Consistency.
14. If the variance of the sampling distribution of an estimator is smaller than all
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other unbiased estimators of the parameter of interest, the estimator is:
A. efficient.
B. unbiased.
C. consistent.
15. Which of the following is least likely a property of Student’s t-distribution?
A. As the degrees of freedom get larger, the variance approaches zero.
B. It is defined by a single parameter, the degrees of freedom, which is
equal to n – 1.
C. It has more probability in the tails and less at the peak than a standard
normal distribution.
16. An analyst who uses historical data that was not publicly available at the
time period being studied will have a sample with:
A. look-ahead bias.
B. time-period bias.
C. sample selection bias.
17. The 95% confidence interval of the sample mean of employee age for a
major corporation is 19 years to 44 years based on a z-statistic. The
population of employees is more than 5,000 and the sample size of this test
is 100. Assuming the population is normally distributed, the standard error
of mean employee age is closest to:
A. 1.96.
B. 2.58.
C. 6.38.
18. Which of the following is most closely associated with survivorship bias?
A. Price-to-book studies.
B. Stratified bond sampling studies.
C. Mutual fund performance studies.
19. What is the most appropriate test statistic for constructing confidence
intervals for the population mean when the population is normally
distributed, but the variance is unknown?
A. The z-statistic at α with n degrees of freedom.
B. The t-statistic at α/2 with n degrees of freedom.
C. The t-statistic at α/2 with n – 1 degrees of freedom.
20. When constructing a confidence interval for the population mean of a
nonnormal distribution when the population variance is unknown and the
sample size is large (n > 30), an analyst may acceptably use:
A. either a z-statistic or a t-statistic.
B. only a z-statistic at α with n degrees of freedom.
C. only a t-statistic at α/2 with n degrees of freedom.
21. Jenny Fox evaluates managers who have a cross-sectional population
standard deviation of returns of 8%. If returns are independent across
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managers, how large of a sample does Fox need so the standard error of
sample means is 1.265%?
A. 7.
B. 30.
C. 40.
22. Annual returns on small stocks have a population mean of 12% and a
population standard deviation of 20%. If the returns are normally
distributed, a 90% confidence interval on mean returns over a 5-year period
is:
A. 5.40% to 18.60%.
B. –2.75% to 26.75%.
C. –5.52% to 29.52%.
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ANSWERS – CONCEPT CHECKERS
1. A simple random sample is a sample drawn in such a way that each member
of the population has:
A. some chance of being selected in the sample.
B. an equal chance of being included in the sample.
C. a 1% chance of being included in the sample.
In a simple random sample, each element of the population has an equal
probability of being selected. Choice C allows for an equal chance, but only if
there are 100 elements in the population from which the random sample is
drawn.
2. Sampling error is defined as:
A. an error that occurs when a sample of less than 30 elements is drawn.
B. an error that occurs during collection, recording, and tabulation of data.
C. the difference between the value of a sample statistic and the value
of the corresponding population parameter.
An example might be the difference between a particular sample mean and
the average value of the overall population.
3. The mean age of all CFA candidates is 28 years. The mean age of a random
sample of 100 candidates is found to be 26.5 years. The difference of 1.5
years is called the:
A. random error.
B. sampling error.
C. population error.
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CHALLENGE PROBLEMS
1. Using random sampling, a manager wants to construct a portfolio of 50
stocks that will approximate the returns of a broad market index that
contains 200 stocks. Explain how he could use simple random sampling and
stratified random sampling to select stocks from the index and the possible
advantages of stratified random sampling.
2. An analyst has taken a random sample of 50 observations from a population
for which she wants to estimate the population mean. She believes this
population’s distribution is negatively skewed.
A. Can she use the sample mean to estimate the population mean and
construct a confidence interval? Explain.
B. What are the desirable statistical properties of an estimator?
C. Which of these properties does the sample mean possess as an
estimator of the population mean?
3. A random sample of analyst earnings estimates has a mean of $2.84 and a
standard deviation of $0.40. What can we say about the 90% confidence
interval for earnings next period if:
A. the sample size is 20?
B. the sample size is 40?
What probabilistic statement could we make at the 90% confidence
level if:
C. the sample size were 15?
D. the sample size were 60?
ANSWERS – CHALLENGE PROBLEMS
1. Using random sampling, a manager wants to construct a portfolio of 50
stocks that will approximate the returns of a broad market index that
contains 200 stocks. Explain how he could use simple random sampling and
stratified random sampling to select stocks from the index and the possible
advantages of stratified random sampling.
In simple random sampling, the analyst would select any 50 stocks using a
process that gives each stock in the index an equal chance of being chosen.
Stratified sampling involves dividing a population into subgroups based on
key characteristics, selecting random samples from each subgroup in
accordance with the proportion of the population contained in each
