Bart Simpson, a CFA Level 1 Candidate, makes the following assumptions: On the Level 1 exam, I will know 50% of the material for sure. For another 40%, I will be able to exclude 50% of the possible answers. For the remaining 10%, I will have to guess the correct answer. What is the mean and standard deviation of the ratio of correct answers? With which probability will Bart pass the exam?
.50 + .5*.40 + .1*.25 = 72.5% is your expected score if you perform as descrbed. 70% exactly if you include a 5% error rate in the 50% you “know for sure”.
standard deviation and probability? you may use a normal approximation to the binomial distribution.
variance for binomial distribution is n*p*(1-p) sum variances for parts, take square root to get sd. normal approx -> mu - x * sd will be the “worst” score with confidence corresponding to x.