CFA Practice Question

There are 410 practice questions for this study session.

CFA Practice Question

You are reviewing a list of 8 recommended securities and wish to invest in 4. You will put 40% of your capital in one, 30% in another, 20% in the third, and 10% in the last one. How many different ways can you choose among the 8 securities and invest according to your design?
A. 1,980
B. 1,774
C. 1,680
Explanation: The combination, or binomial formula, gives the number of ways that k objects can be chosen from n items, without regard to the order of choosing. The formula is (n choose k) = n! / [k! *(n-k)!]. However, in this case, the order does matter. If we choose stocks 3, 1, 7, and 5, we don't consider that the same as choosing 5, 7, 1 and 3, because the portfolio weights would differ. We need the general permutation formula, which gives the number of ways that k objects can be chosen from n items, with regard to order. The formula is n_P_k = n! / (n-k)!. Therefore 8! / (8-4)! = 8 * 7 * 6 * 5 = 1,680.

User Contributed Comments 2

User Comment
Lamkerst imagine 4 boxes for 4 stocks:
1st box may contain 8 stocks
2nd box may contain (8-1) stocks = 7
3rd box may contain (7-1) stocks = 6
4th box may contain (6-1) stocks = 5

overall = 8*7*6*5 = 1680
azramirza Just use permutation since they r following an order=
8P4=1680
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