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CFA Level 1 - Quantitative Methods: Exercises and Solutions, Exams of Accounting

Chamberlain College of NursingAccounting

A collection of exercises and solutions related to quantitative methods for cfa level 1. It covers various topics including risk, interest rates, present value, future value, cash flow analysis, capital budgeting, and descriptive statistics. The document aims to help students understand and apply these concepts through practical examples and detailed explanations.

Typology: Exams

2024/2025

Available from 03/28/2025

bryanryan
bryanryan 🇺🇸

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CFA Level 1 - Quantitative Methods- questions
with complete solutions
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
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Download CFA Level 1 - Quantitative Methods: Exercises and Solutions and more Exams Accounting in PDF only on Docsity!

CFA Level 1 - Quantitative Methods- questions

with complete solutions

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
  4. Enter 0 in CF
  5. Enter Cash Flows in Sequence
  6. NPV = Discount Rate
  7. 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
  8. N = Periods, PV = PV, PMT = 0, FV = FV
  9. Compute I/Y

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 Capital Structure correct answer: The choice of long-term financial for the investments the company wants to make Working Capital Management correct answer: The management of the company's short-term assets (such as inventory) and short term liabilities (such as money owed to suppliers). NPV Decision Rule correct answer: If the investments NPV is positive - Accept Project If the investments NPV is negative - Decline Project If the investor has 2 (Mutually Exclusive) projects - Accept the Higher NPV IRR Decision Rule correct answer: IRR is greater than the required rate of return - Accept IRR is less that the required rate of return - Reject (Required rate also called hurdle rate) IRR vs. NPV (Mutually Exclusive) correct answer: Always accept the project with the greatest NPV when the IRR and NPV rules are conflicting.

Holding Period Return correct answer: Money-Weighted Return correct answer: Takes into account all time and cash inflows/outflows Calculate Using IRR Calculation:

  1. Set CF0 - Initial Cash Outlay
  2. CF1.......CFn (adding dividends into each period)
  3. Compute IRR Time-Weighted Return correct answer: Measures compound growth. Is not affected by cash inflows/outflows To Calculate:
  4. Figure each seperate periods individual holding period return
  5. Use formula to calculate Yield Conversion correct answer: Statistics (Defined) correct answer: Statistics - Refering to Data and methods that we use to analze data. Descriptive Statistics - The study of how data can be summarized effictively to describe important aspects of large data sets. Inference Statistics - Involves making forcasts, estimates, or judgements about a larger group from a smaller group actually observed.

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
  1. 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:
  2. Calculate sample mean
  3. Use only observations equal or below the mean
  4. Use variance formula to calculate
  5. If Semivariance is less than SD, then the SD overstates risk.
  6. Square Root for Deviation Target Semivariance/Target Standard Deviation correct answer:
  7. 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