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CFA Level 1 Quantitative Methods Exam Review, Exams of Nursing

DeVry University - ArizonaNursing

Answers and instructions for various quantitative methods questions that may appear on the cfa level 1 exam. Topics covered include default risk, liquidity risk, required interest rates, present value calculations, and more. Useful for students preparing for the cfa level 1 exam.

Typology: Exams

2023/2024

Available from 04/09/2024

Ewanga
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CFA Level 1 - Quantitative Methods
Exam (100%).
Default Risk - Correct Answer Risk that a borrower will not make promised payments
Liquidity Risk - Correct Answer Risk of recieving less than fair value for an investment if
it must be sold for cash quickly
Required Interest Rate on A Security - Correct Answer = Nominal Interest Rate
+ Default Risk Premium
+ Liquidity Premium
+ Maturity Risk Premium
Real Risk Free Rate / Nominal Risk Free Rate - Correct Answer - Single period interest
rate for a completely risk-free security with no inflation added
- Nominal = Real Risk Free Rate + Expected Inflation Rate
Required Rate of Return - Correct Answer Required Rate of Return for an investor to
willingly invest
Discount Rate - Correct Answer Used interchangeably with interest rates, especially in
use of discounting cash flows
Opportunity Cost - Correct Answer The gain that is missed by not investing in a
particular investment
Effective Annual Rate - Correct Answer The actualy rate of interst that is actually being
earned after compounding more than annually
Continuous Compounding - Correct Answer 1. Multiply rate by time
2. Multiple answer by e (Second LN)
3. Multiply by PV
Present Value of Perpetuity - Correct Answer Financial instrument that pays a fixed
amount of money at set intervals over an infinite period of time
Present Value of a Projected Perpetuity - Correct Answer 1. Calculate PV of Perpetuity
2. Find present value of (N -1)
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Download CFA Level 1 Quantitative Methods Exam Review and more Exams Nursing in PDF only on Docsity!

CFA Level 1 - Quantitative Methods

Exam (100%).

Default Risk - Correct Answer Risk that a borrower will not make promised payments Liquidity Risk - Correct Answer Risk of recieving less than fair value for an investment if it must be sold for cash quickly Required Interest Rate on A Security - Correct Answer = Nominal Interest Rate

  • Default Risk Premium
  • Liquidity Premium
  • Maturity Risk Premium Real Risk Free Rate / Nominal Risk Free Rate - Correct Answer - Single period interest rate for a completely risk-free security with no inflation added
  • Nominal = Real Risk Free Rate + Expected Inflation Rate Required Rate of Return - Correct Answer Required Rate of Return for an investor to willingly invest Discount Rate - Correct Answer Used interchangeably with interest rates, especially in use of discounting cash flows Opportunity Cost - Correct Answer The gain that is missed by not investing in a particular investment Effective Annual Rate - Correct Answer The actualy rate of interst that is actually being earned after compounding more than annually Continuous Compounding - Correct Answer 1. Multiply rate by time
  1. Multiple answer by e (Second LN)
  2. Multiply by PV Present Value of Perpetuity - Correct Answer Financial instrument that pays a fixed amount of money at set intervals over an infinite period of time Present Value of a Projected Perpetuity - Correct Answer 1. Calculate PV of Perpetuity
  3. Find present value of (N -1)

PV of Uneven Cash Flows - Correct Answer 1. Clear Memory

  1. Enter 0 in CF
  2. Enter Cash Flows in Sequence
  3. NPV = Discount Rate
  4. ComputeT NPV FV of Uneven Cash Flows - Correct Answer 1. Calculate the FV of each individual Cash Flow 2: Then add the results together Calculating the Growth Rate - Correct Answer Or use TMV calculator
  5. N = Periods, PV = PV, PMT = 0, FV = FV
  6. Compute I/Y Annual Payments (Amortization) - Correct Answer 1. N = Years, I/Y = Interest, PV = Loan Amount, FV = 0
  7. Compute Payments Calculate Amortization Schedule - Correct Answer 1. Calculate Loan Payment
  8. Calculate Interest Component (Beginning balance x I/Y)
  9. Calculate Principal component (Payment - Interest Component) 4.The following beginning balance is the first period balance - principal component only. (Interest goes to bank) Cash Flow Additivity Principle - Correct Answer Present value of any stream of cash flow equals the sum of the present values of the cash flows. Ex: Cash flows of $100 for 4 Years & a $300 payment that occurs in year 3. Calculate the PV of both and add them together. (Use the Unequal Cash flow method.) NPV - Correct Answer Present Value of expected cash inflows minus the present value of the expected outflows, discounted at the appropriate rate. Use the Calculator (Cash Flow): Set CF0 = 0 (for profit) Set CF0 = Initial negative outflow (for total NPV) IRR - Correct Answer Discount rate that makes NPV equal to zero Use Calculator (Cash Flows): 1.CF0 = Initial Cash Outlay 2.CF1.....CFn 3.Compute IRR Capital Budgeting - Correct Answer The allocation of funds to relatively long range projects or investments

Inference Statistics - Involves making forcasts, estimates, or judgements about a larger group from a smaller group actually observed. Measurement Scales - Correct Answer Nominal Scale - Contains the least information. Counted with no particular order. Ex: Municipal Bond Fund 1, Corporate Bond Fund 1, etc Ordinal Scale - Observation is assigned to one of several categories, then ordered with respect to a characteristic. Ex: Assigning 1 to first 100, 2 to second 100, etc Interval Scale - Provide relative ranking and differences between scale values are equal, but 0 doesn;t required absence. Ex: Temperature Ratio Scales - Ranking and qual differences between scale values. Also have true 0. Ex: Money. Population and Samples - Correct Answer Population - All members of a specfic group Parameter - Descriptive measure of the population Sample - A subset of the population Samples statistic - A quantity computer from or used to describe a sample Frequency Distribution - Correct Answer Tabular display of data summarizing statistical data by assigning it to an interval. Relative Frequency - Percentage of frequencies within each interval Absolute Frequency - Actual number of frequencies within each interval Cumulative Relative/Absolute Frequencies - Cumulative sum of frequncies Histogram - Correct Answer Graphical representation of an absolute frequency Frequency Polygon - Correct Answer The midpoint of eaech interval is plotted on the horizontal axis, and the absolute frequency is plotted on the vertical axis. Measures of Central Tendancy (Means) - Correct Answer Center or average of a data set Quartiles - Divided into Quarters Quintile - Divided into fifths Decile - Divided into 10ths Percentile - Divided into 100ths

Median & Mode - Correct Answer Median - Midpoint of data set Mode - Value that occurs most often Unimodal - One value that occurs most often Bimodal, Trimodal - Multiple values occur most Mean Absolute Deviation - Correct Answer 1. Calculate Mean

  1. Ignore negative values in answer Population Variance/Population Standard Deviation - Correct Answer 1. Calculate Mean
  2. Answer will be in (%)^2 format. Sample Variance/Sample Standard Deviation - Correct Answer Chebyshev's Inequality - Correct Answer For any set of observations, the percentage of the observations that lie within "k" standard deviation of the mean is atleast (formula) for all k > 1 Semivariance/Semideviation - Correct Answer Focuses on downside risk. For Variance:
  3. Calculate sample mean
  4. Use only observations equal or below the mean
  5. Use variance formula to calculate
  6. If Semivariance is less than SD, then the SD overstates risk.
  7. Square Root for Deviation Target Semivariance/Target Standard Deviation - Correct Answer 1. Identify Target
  8. Use numbers below target
  9. Use Variance Formula, but use total number of observations for N (instead of just the numbers used in formula)
  10. Square Root for Deviation Chebyshev's Inequality (2) - Correct Answer The following relationships hold for any distribution Coefficient of Variation/Relative Dispersion - Correct Answer Relative Dispersion - the amount of variability in a distribution relative to a reference point or benchmark CV - Common measurement for relative dispersion Sharpe Ratio - Correct Answer - Higher the number, the better
  • The extra reward that you recieve for the added risk is called the "Mean excess return" Skewness (Effects on Mean, Median, Mode) - Correct Answer