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CFA Level 1: Quant Exam Questions and Answers 2024( A+ GRADED 100% VERIFIED).
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CFA Level 1: Quant Exam Questions and Answers 2024( A+ GRADED 100% VERIFIED).
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CFA Level 1: Quantnominal risk free rate equals... - ANS real risk free rate + expected inflation
required interest rate on a security - ANS nominal risk free rate + default risk premium +
liquidity premium + maturity risk premium
EAR or APY - ANS (1+periodic rate)^m - 1
always higher than annual percentage rates (not compounded)
ordinary annuity - ANS cash flows that occur at the end of each compounding period
annuity due - ANS payments or receipts occur at the beginning of each period
PV of Perpetuity - ANS Payment/interest rate
Effect of increase in the frequency of compounding rates - ANS increases FV, decreases PV
amortization schedule - ANS interest component = interest rate * beginning balance
principal component = payment - interest component
ending balance = period's beginning balance (last period's ending balance) - principal
component
holding period return - ANS (ending value-beginning value) / beginning value OR
(Ending value / beginning value) - 1
time-weighted rate of return - ANS The compound rate of growth of one unit of currency
invested in a portfolio during a stated measurement period; a measure of investment
performance that is not sensitive to the timing and amount of withdrawals or additions to the
portfolio. Also a geometric mean return
money weighted return - ANS IRR based on cash inflows and outflows
Bank discount yield - ANS RBD = D/F * 360/t Where: D = dollar discount from face value, F =
face value, T = days until maturity, 360 = days in a year
US T-Bills are quoted on a bank discount basis
holding period yield - ANS Holding Period Return = (ending value/beginning value) - 1
,EAY^t/365 - 1
total return an investor earns between the purchase date and the sale or maturity date
effective annual yield - ANS EASY = (1 + HPY)^365/t - 1 where t is days to maturity. Remember
that EAY > bank discount yield, for three reasons: (a) yield is based on purchase price, not face
value, (b) it is annualized with compound interest (interest on interest), not simple interest, and
(c) it is based on a 365-day year rather than 360 days. Be prepared to compare these two
measures of yield and use these three reasons to explain why EBAY is preferable.
money market yield (Rmm) - ANS = HPR * (360/days until maturity)
bond equivalent yield - ANS = Semiannual Yield * 2
semiannual yield needs to be compounded
Descriptive statistics - ANS used to summarize the important characteristics of large data sets
Inferential statistics - ANS a sample, pertain to the procedures used to make forecasts,
estimates or judgement about a large set of data
nominal scale / categorical - ANS level of measurement with least information, observations are
classified or counted with no particular order
ordinal scale - ANS level of measurement, categorized with respect to specified characteristic
interval scale - ANS provides relative ranking like ordinal scale plus assurance that the
difference between the scale values are equal e.g. temperature
however measurement of 0 does not necessarily indicate the total absence of what we are
measuring - e.g. 30 c is not three times as hot as 10 c
ratio scale - ANS ratio scales provide ranking and equal difference between scale values and a
true zero point as the origin e.g. measurement of money
difference between parameter and sample statistic - ANS parameter is used for population
sample statistic is used for sample
modal interval - ANS For any frequency distribution, the interval with the greatest frequency
relative frequency - ANS dividing the absolute frequency of reach return by the total number of
observations
mode - ANS the value that occurs most frequently in a data set
, unimodal: one value that happens most frequent
bimodal, trimodal: two or three values happen the most frequent
geometric mean - ANS Compounded annual rate of return for an investment, harmonic mean <
geometric mean < arithmetic mean
= (X1 * X2 * X3 * Xn) ^1/n
harmonic mean - ANS N/[(1/X1)+(1/X2)+(1/X3)..etc.] *used for computations such as average
cost of shares purchased over time--average price per share
harmonic mean < geometric mean < arithmetic mean
measures of location - ANS (n+1) * y/100
mean absolute deviation - ANS average of the absolute values of the deviations of individual
observations from the arithmetic mean
difference between population and sample variance, st. dev - ANS sample: denominator is n-1
n-1 makes it unbiased because using n will underestimate
Chebyshev's Inequality - ANS any set of observations (sample or population), the percentage
of the observation that lie within k standard deviation of the mean is at least 1 -1/ (k^2)
relative dispersion measured by coefficient variation (CV) - ANS relative dispersion is the
amount of variability in a distribution relative to a reference point or benchmark measured by
CV, lower the better
CV = standard deviation / average value (arithmetic mean)
Sharpe Ratio - ANS measures excess return per unit of risk, higher the petter
=excess return / standard deviation where excess return = Rp-Rf
kurtosis - ANS measure of the degree to which a distribution is more or less "peaked" than a
normal distribution
leptokurtic - more peaked, fatter tail
platykurtic - less peaked, thinner tail
mesokurtic - same kurtosis as normal distribution
sample skewness and sample kurtosis - ANS sample skewness - excess of .5 indicates
significant levels of skewness
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