CFA Level 1 Quant- -Complete Exam Study
Guide with Verified Answers | Guaranteed
A+
nominal risk free rate equals... ------- ✔ CORRECT ANSWER ✓✓real risk free rate + expected
inflation
required interest rate on a security ------- ✔ CORRECT ANSWER ✓✓nominal risk free rate +
default risk premium + liquidity premium + maturity risk premium
EAR or APY ------- ✔ CORRECT ANSWER ✓✓(1+periodic rate)^m - 1
always higher than annual percentage rates (not compounded)
ordinary annuity ------- ✔ CORRECT ANSWER ✓✓cash flows that occur at the end of each
compounding period
annuity due ------- ✔ CORRECT ANSWER ✓✓payments or receipts occur at the beginning of
each period
PV of Perpetuity ------- ✔ CORRECT ANSWER ✓✓Payment/interest rate
Effect of increase in the frequency of compounding rates ------- ✔ CORRECT ANSWER
✓✓increases FV, decreases PV
,amortization schedule ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓(ending value-beginning value) /
beginning value OR
(Ending value / beginning value) - 1
time-weighted rate of return ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓IRR based on cash inflows and outflows
Bank discount yield ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓EAY = (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 EAY is
preferable.
money market yield (Rmm) ------- ✔ CORRECT ANSWER ✓✓= HPR * (360/days until maturity)
bond equivalent yield ------- ✔ CORRECT ANSWER ✓✓= Semiannual Yield * 2
semiannual yield needs to be compounded
Descriptive statistics ------- ✔ CORRECT ANSWER ✓✓used to summarize the important
characteristics of large data sets
Inferential statistics ------- ✔ CORRECT ANSWER ✓✓a sample, pertain to the procedures used to
make forecasts, estimates or judgement about a large set of data
nominal scale / categorical ------- ✔ CORRECT ANSWER ✓✓level of measurement with least
information, observations are classified or counted with no particular order
ordinal scale ------- ✔ CORRECT ANSWER ✓✓level of measurement, categorized with respect to
specified characteristic
interval scale ------- ✔ CORRECT ANSWER ✓✓provides relative ranking like ordinal scale plus
assurance that the difference between the scale values are equal e.g. temperature
Guide with Verified Answers | Guaranteed
A+
nominal risk free rate equals... ------- ✔ CORRECT ANSWER ✓✓real risk free rate + expected
inflation
required interest rate on a security ------- ✔ CORRECT ANSWER ✓✓nominal risk free rate +
default risk premium + liquidity premium + maturity risk premium
EAR or APY ------- ✔ CORRECT ANSWER ✓✓(1+periodic rate)^m - 1
always higher than annual percentage rates (not compounded)
ordinary annuity ------- ✔ CORRECT ANSWER ✓✓cash flows that occur at the end of each
compounding period
annuity due ------- ✔ CORRECT ANSWER ✓✓payments or receipts occur at the beginning of
each period
PV of Perpetuity ------- ✔ CORRECT ANSWER ✓✓Payment/interest rate
Effect of increase in the frequency of compounding rates ------- ✔ CORRECT ANSWER
✓✓increases FV, decreases PV
,amortization schedule ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓(ending value-beginning value) /
beginning value OR
(Ending value / beginning value) - 1
time-weighted rate of return ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓IRR based on cash inflows and outflows
Bank discount yield ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓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 ------- ✔ CORRECT ANSWER ✓✓EAY = (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 EAY is
preferable.
money market yield (Rmm) ------- ✔ CORRECT ANSWER ✓✓= HPR * (360/days until maturity)
bond equivalent yield ------- ✔ CORRECT ANSWER ✓✓= Semiannual Yield * 2
semiannual yield needs to be compounded
Descriptive statistics ------- ✔ CORRECT ANSWER ✓✓used to summarize the important
characteristics of large data sets
Inferential statistics ------- ✔ CORRECT ANSWER ✓✓a sample, pertain to the procedures used to
make forecasts, estimates or judgement about a large set of data
nominal scale / categorical ------- ✔ CORRECT ANSWER ✓✓level of measurement with least
information, observations are classified or counted with no particular order
ordinal scale ------- ✔ CORRECT ANSWER ✓✓level of measurement, categorized with respect to
specified characteristic
interval scale ------- ✔ CORRECT ANSWER ✓✓provides relative ranking like ordinal scale plus
assurance that the difference between the scale values are equal e.g. temperature
