# Study Session 2 CFA Book 1

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1. 3 Types of Risk a security can experience
Default Risk, liquidity risk, maturity risk
2. Effective Annual Rate Definition and Formula
Annual rate of return being earned after adjustments have been made for different compounding periods.

(1+Periodic Rate)^m)-1
3. PV=Equation
PV=FV/(1+I)^N
4. FV=Equation
FV=PV(1+I/R)^N
5. Diff Between Ordinary Anuity and Annuity Due
Annuity due pays at Beg of year
6. PV of a perpetuity?
PV=PMT/Interest
7. Required Rate of return =?
= Default+Liquidity+Maturity risk premiums +Risk Free+Expected Inflation
8. How Do you Calculate Time Weighted rate of return?
Break down into periods, get HPR for each holding period, Find compound rate of return using geometric mean. Which is (1+HPRRate1)x(1+Rate2)^1/N
9. Bank Discount Yield Formula and Negatives
(Face Value - Price Bought)/Face Value times 360/t(time left until maturity)

(P/F)x(360/t)

• -Uses Simple Interest, Not Compound
• -Based only 360 days
• -Based on Face Value of Bond, not purchase price
10. Holding Period Yield
F-P+D/P

(Price Received at Maturity - Intitial Price)+Dividends/Price bought at
11. Effective Annual Yield
(1+HPY)^(360/t)-1
12. Money Market Yield
HPY*360/t
13. Characteristic of population called?
Parameter
14. What are 4 measurable scales?
NOIR
15. Descriptive v. Inferential
Descriptive summarize a data set, inferential use probabilities about a population based on a sample
16. Geometric Mean
NSquare root X1(1+Rate)*X2(1+Rate)*X3
17. Harmonic mean
N/Sum of 1/xi
18. Quintile?
fifths
19. Mean Absolute Deveiation Formula
Sum of absolute value of (xi-Mean)/N
20. Population Variance
(Xi-mean)^2/N
21. Sample Variance
(Xi-Mean)^2/N-1
22. Chebyshev's inequality
1-1/K^2 k= number of deviations away
23. Coefficient of Variation. Better if # increasing or decreasing.
CV=S/mean , Closer to 0 the better.
24. Sharpe Ratio increase better or worse? Formula?
• Rate-Risk Free/ Standard Deviation
• Larger the \$ the better you get premium per unit.
25. Skew Formula What is normal #. How much over standard is excessive?
Sum of (1/n)*((Xi-Mean)^3/S^3). Normal is 0. .5 or more is excessive
26. Kurtosis Formula What is normal # and what's it called. How much over standard is excessive and what does it look like? Over is called, and description. Under is called.
Sum of (1/n)*((Xi-Mean)^4/S^4). Normal is 3 Over 1 is excessive. Under is called Platykurtik less peaked thinner tail. Leptokurtic is over has fat tail more peaked. Mesokurtic is normal.
27. Arithmetic Mean appropriate for forecasting single period returns or multiple periods?
Single Period Returns, while geometric is good for comopound returns over multiple periods
 Author: Anonymous ID: 127277 Card Set: Study Session 2 CFA Book 1 Updated: 2012-01-12 01:14:57 Tags: CFA Folders: Description: Study Session 2 CFA Book 1 Show Answers: