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CFA Institute CFA-Level-I Exam - Topic 1 Question 8 Discussion

Actual exam question for CFA Institute's CFA-Level-I exam
Question #: 8
Topic #: 1
[All CFA-Level-I Questions]

Ted McGovern works in the economics branch of a government bank regulator. When he arrives at work this morning and checks his voicemail, he has a message from the Regional Director asking him to calculate the expected rate of return for a stock market series. More detailed information will be forthcoming in an e-mail. Fortunately, McGovern still has his CFA Program study guides in his office and finds the correct formulas. McGovern logs on to the computer network and downloads an attachment that contains the following estimates:

Overall Assumptions:

Index Estimates – Bull Market:

Index Estimates – Bear Market:

The expected return on the index is closest to:

Show Suggested Answer Hide Answer
Suggested Answer: C
by Lajuana at Sep 19, 2024, 05:00 PM

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Vanda
4 months ago
Not sure how they came up with those numbers, feels off to me.
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Walker
4 months ago
I’d go with 67.4%, seems reasonable based on historical data.
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Amber
5 months ago
98.2%? That seems way too high, right?
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Ilda
5 months ago
I think 39.4% sounds about right for a solid estimate!
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Oretha
5 months ago
The expected return on the index is usually around 30% in a bull market.
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Gilbert
5 months ago
I have a hunch that the answer is closer to the higher percentages, but I need to double-check the calculations for bull vs. bear market returns.
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Alishia
6 months ago
I think the expected return is based on probabilities of each market scenario, but I’m a bit confused about how to weigh them correctly.
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Lennie
6 months ago
This question feels familiar; I think we practiced something similar in our study group. I just can't recall the exact formula we used.
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Stevie
6 months ago
I remember calculating expected returns using weighted averages, but I'm not sure how to apply it here with both bull and bear market estimates.
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Bulah
6 months ago
This seems like a tricky one. There are a lot of different numbers and assumptions to keep track of. I better take my time and double-check my work to make sure I don't miss anything important.
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Von
6 months ago
Hmm, I'm a bit unsure about how to handle the bull and bear market estimates. Do I need to weight them somehow or just take the average? I'll have to review the relevant formulas to make sure I'm approaching this correctly.
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Shaniqua
6 months ago
This looks like a straightforward expected return calculation based on the bull and bear market estimates provided. I should be able to apply the formulas from my CFA study guides to find the correct answer.
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Dion
6 months ago
Okay, I think I've got this. I'll need to calculate the expected return for the bull and bear markets separately, then combine them based on the overall assumptions. As long as I plug the numbers in correctly, I should be able to arrive at the right answer.
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Harrison
6 months ago
Hmm, this seems straightforward. I'll need to think about how rounding works and what the "specified unit" means.
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Glory
1 year ago
I'm feeling a bit bearish on this one. 30.8% sounds about right to me. Time to break out the CFA study guides, just like good ol' Ted.
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Nieves
1 year ago
I'm leaning towards 67.4%, but I'll double-check the calculations.
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Viola
1 year ago
I think it's closer to 39.4%, but I could be wrong.
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Ramonita
1 year ago
I agree, 30.8% seems like a reasonable estimate.
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Carey
2 years ago
Whoa, 98.2%? That's more like a bull market on steroids! I'm going with the more realistic answer, B.
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Antonio
1 year ago
Let's go with B then. It seems like the safer bet.
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Leah
1 year ago
Yeah, I also think B is the better choice. 98.2% does sound too good to be true.
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Dahlia
1 year ago
I agree, 98.2% seems too high. I think B, 39.4%, is more realistic.
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Margarett
2 years ago
I see your point, but I still think A) 67.4% makes more sense based on the estimates provided.
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Halina
2 years ago
I disagree, I believe the correct answer is C) 30.8%.
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Marylin
2 years ago
Hmm, let's see. The expected return on the index is closest to 39.4%. Gotta love those bear market estimates, am I right?
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Elza
1 year ago
C) Definitely, those bear market estimates can be tough to swallow.
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Rebbecca
1 year ago
B) Yeah, I agree. 39.4% sounds more realistic.
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Carman
2 years ago
A) 67.4% seems too high for a bear market.
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Margarett
2 years ago
I think the answer is A) 67.4%.
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