CFA Level 1 - 101 Must Knows question with 100% correct answers 2023
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Course
CFA
Institution
CFA (CFA)
CFA Level 1 - 101 Must Knows question with 100% correct answers 2023Addition Rule of Probability - correct answer ADDITION: P(A or B) = P(A) + P(B) - P(AB)
Roy's Safety First Criterion - correct answer Safety First Ratio = (E(R) - Rₜ) / σ
Larger ratio is better
If (Rₜ) is risk free ra...
CFA Level 1 - 101 Must Knows question
with 100% correct answers 2023
Addition Rule of Probability - correct answer ADDITION: P(A or B) = P(A) + P(B) - P(AB)
Roy's Safety First Criterion - correct answer Safety First Ratio = (E(R) - Rₜ) / σ
Larger ratio is better
If (Rₜ) is risk free rate, then it becomes Sharpe Ratio
Sharpe Ratio - correct answer Sharpe Ratio = (E(R) - RFR) / σ
Larger ratio is better
If (Rt) is higher than RFR, then it becomes Safety First Ratio
Central Limit Theorem - correct answer If we take samples of a population, with a large enough sample
size, the distribution of all sample means is normal with:
- A mean equal to the population mean
- A variance equal to the population variance divided by sample size (σ² / n)
Standard Error of Sample Mean - correct answer σ / n^½
Binomial Probability - correct answer One of two possible outcomes (i.e. success/failure)
Possible outcomes can be demonstrated in binomial tree
,Use "nCr" on calculator to solve:
nCr = P(success)^x * P(failure)^(n-x)
P - Value - correct answer Based on a calculated test statistic, rather than a significance level (which is
chosen)
p-value = smallest significance level at which an analyst can reject the null hypothesis
one-tailed test - "less than or equal to"
two-tailed test - "equal to"
Cumulative Distribution Function - correct answer Gives the probability that a random variable will have
an outcome less than or equal to a specific value (represented by F(x))
F(x) = probability of an outcome less than or equal to x
Standard normal table (z) shows cumulative probabilities
TRIANGLE (or pennant) = Suggests a pause in the stock price movement that will be followed by a
continuation of the previous trend
Reversal:
HEAD AND SHOULDERS = Suggests a future decline in the stock price regardless of prior trend
DOUBLE BOTTOM = Increasing stock price in the future (reversal of a downtrend)
Trendlines:
SUPPORT / RESISTANCE = Range that stock price trades in based on supply/demand. Stock is "supported"
from going below a certain low price, and "resists" going above a certain high price
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