Study Session 2 CFA Book 1

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Study Session 2 CFA Book 1
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2012-01-11 20:14:57
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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

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