Quantitative Methods — Free Practice Questions
2 free questions · 6–9% of the Level I exam · answers & explanations
These two questions are a free sample of the same original Quantitative Methods questions shipped in the app — exactly what a non-premium user previews. Tap an answer to check yourself and read the LOS-anchored explanation. Quantitative Methods carries 6–9% of the CFA® Level I exam; the full app has 65 Quantitative Methods practice questions plus the topic’s share of the 540-question mock bank, with cross-audited answer keys.
An investor demands extra compensation for the possibility that a bond cannot be sold quickly at a price close to its fair value. This compensation is best described as a:
Why: An interest rate can be viewed as the sum of a real risk-free rate plus premiums that compensate investors for bearing distinct types of risk. The liquidity premium compensates for the risk of loss relative to fair value if an investment needs to be converted to cash quickly, which is exactly the concern described. The maturity premium compensates for the greater price sensitivity of longer-term instruments to interest rate changes, not for difficulty selling near fair value. The default risk premium compensates for the possibility that the borrower fails to make promised payments, which is a different risk from being unable to sell quickly.
Rather than spending $10,000 on a vacation today, a saver deposits the money in a one-year account because the bank offers 4% interest. In the context of this decision, the 4% rate is best interpreted as:
Why: Interest rates can be interpreted as required rates of return, discount rates, or opportunity costs. When a saver weighs current consumption against saving, the interest rate measures the value of the consumption that is given up, so 4% is the opportunity cost of spending the money today. The discount-rate interpretation applies when a known future cash flow is being converted into today's equivalent value, which is not the framing of a spend-versus-save decision. Describing the whole rate as a default-related premium confuses one possible component of an interest rate with the interpretation of the entire rate in a consumption choice.
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