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kant

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I'm having a brain fart with these questions. I'm pretty sure I know the answers for the last 3, but I'm still not 100% on them.

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Rachel Kelly, age 24, is planning for retirement. Kelly's annual consumption expenditures are currently $30,000. She assumes her consumption expenditures will increase with the rate of inflation, which she expects to average 3% until she retires at age 68. Given a life expectancy of 83 years and constant expenditures in retirement, the amount Kelly must accumulate by her retirement date, assuming an 8% rate of return on her retirement account, is closest to:

A-$320,000
B-$423,000
C-$1,176,000
D-$1,552,000

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An analyst determined that the sample mean and variance for a normal distribution are 42 and 9, respectively. The 99% confidence interval for this random variable is closest to:

A. 15.0 to 69.0.
B. 18.8 to 65.2.
C. 34.3 to 49.7.
D. 39.0 to 45.0.

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The nature of competitive environment to which the game of Prisoners' Dilemma applies and the solution offered by Nash equilibrium, respectively, are:

Nature of competitive environment////Solution from Nash equilibrium
A. oligopoly////both prisoners deny
B. oligopoly////both prisoners confess
C. monopolistic competition////both prisoners deny
D. monopolistic competition////both prisoners confess

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The tax division between buyers and sellers with respect to products with perfectly elastic and perfectly inelastic demand, respectively, are:
Perfectly elastic demand////Perfectly inelastic demand
A. buyers pay the entire tax.////buyers pay the entire tax.
B. buyers pay the entire tax.////sellers pay the entire tax.
C. sellers pay the entire tax.////buyers pay the entire tax.
D. sellers pay the entire tax.////sellers pay the entire tax.
 
For question 1:
draw a timeline. compute the consumption at retirement. Use this as your annuity for the next 25 yrs and find out the PV of this annuity at 8%.

For question 2:
It's using a sample mean. use the 99% CI formual.
x + 2.58*SE, where SE = std dev / sqrt n
 
1)
2) Was incorrect in my original post.. used variance and not Stdev
3) A (prisoner will deny.. both parties get screwed a bit)
4) C



Edited 1 time(s). Last edit at Sunday, June 1, 2008 at 11:52PM by mcf.
 
Q1: in the year when she turns 68, she will have an expense of 30,000*(1+3%)^(68-24)=110,113.57
PMT=110,113.57, N=25, I/Y=8, FV=0, CPT PV=1,175,757.93~ Answer C

Q2: 42+/- 2.58*sqrt(9)=34.26/49.74. You can use 3 if you like, instead of 2.58, still gets you C.
 
map for 2, why don't you use Standard error, as opposed to simply std deviation?
 
how do you calculate standard error when you don't have the sample size?
 
so if the question had sample size you'd use SE?

I mean what gives that you know when to use SE and when not to. May be they give you sample size to confuse you.
 
This question is not asking for a confidence interval in the true meaning of it. It is not the first time when I see this type of question. In fact, this one is asking for a range around the mean.

kant, is the second one a Schweser question?
 
Pepp,

for #2, I used 3 simply because 99% is 3 standard deviations from the mean. You can use SE when you have the info, it'll give you a more accurate answer.

For #3, the best solution is for both prisoners to shutup and say nothing. However, logically, each prisoner wants to minimize their own punishment. Therefore, the logical answer is that both prisoners will rat each other out.
 
Nope, they're all CFAI questions.

#3 annoys me because you can argue both answers (prisoners confessing/denying). Also, I'm not really sure what the "nature of competitive environment" means. I would assume it's an oligopoly just because in a prisoners dilemma game there are only 2 participants, but that's just an assumption.
 
In perfect competition and monopolistic competition you have many competitiors, in monopoly is only one seller but his dillema is what price to charge to get the most our of buyers:) So there's only one possibility, and that's oligopoly. As for the ratting part, you're right, they rat each other in hope the other doesn't.
 
Is that how the answers were written? It should be rat out the other, not confess. (big diference)

CFA doesnt' teach game theory well. In the Nash Eq. both prisoners rat eachother out. This is NOT Pareto Optimal, but this is game theory now where firms interact. Therefore it must be B.
 
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