CFA: LVL1 Definitions Only

Question 1

What type of Distribution?

Answer 1

Relative Frequency Distribution

Question 2

What type of Distribution?

Answer 2

Cumulative Relative Frequency Distribution.

Question 3

What type of chart or distribution?

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Answer 3

Histogram - only difference between histogram and relative frequency is histogram has numbers rather than %s

Question 4

What type of chart or distribution?

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Answer 4

Frequency Polygon

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Question 5

What are the two categories of statistics?

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Answer 5

descriptive statistics or inferential statistics

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Question 6

Type of statistics used to summarize the important characteristics of large data sets

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Answer 6

Descriptive statistics

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Question 7

Type os statistics that pertain to the procedures used to make forecasts, estimates, or judgments about a large set of data on the basis of the statistical characteristics of a smaller set (a sample).

Answer 7

Inferential statistics

Question 8

Defined as the set of all possible members of a stated group.

A cross-section of the returns of all of the stocks traded on the New York Stock Exchange (NYSE) is an example.

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Answer 8

A population

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Question 9

Defined as a subset of the population of interest. Once a population has been defined, a ____ can be drawn from the population, and the ____ characteristics can be used to describe the population as a whole. For example, a ____ of 30 stocks may be selected from among all of the stocks listed on the NYSE to represent the population of all NYSE-traded stocks.

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Answer 9

A sample

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Question 10

Name the 4 types of Measurement Scales

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Answer 10

NOIR:

Nominal scales.

Ordinal scales.

Interval scale.

Ratio scales.

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Question 11

The level of measurement that contains the least information. Observations are classified or counted with no particular order. An example would be assigning the number 1 to a municipal bond fund, the number 2 to a corporate bond fund, and so on for each fund style.

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Answer 11

Nominal scales

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Question 12

Every observation is assigned to one of several categories. Then these categories are ordered with respect to a specified characteristic.

For example, the ranking of 1,000 small cap growth stocks by performance may be done by assigning the number 1 to the 100 best performing stocks, the number 2 to the next 100 best performing stocks, and so on, assigning the number 10 to the 100 worst performing stocks. Based on this type of measurement, it can be concluded that a stock ranked 3 is better than a stock ranked 4, but the scale reveals nothing about performance differences or whether the difference between a 3 and a 4 is the same as the difference between a 4 and a 5.

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Answer 12

Ordinal scales

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Question 13

Provide a relative ranking, with the assurance that differences between scale values are equal.

Temperature measurement in degrees is a prime example. Certainly, 49°C is hotter than 32°C, and the temperature difference between 49°C and 32°C is the same as the difference between 67°C and 50°C. The weakness is that a measurement of zero does not necessarily indicate the total absence of what we are measuring. This means that interval-scale-based ratios are meaningless. For example, 30°F is not three times as hot as 10°F.

Answer 13

Interval scale

Question 14

Represent the most refined level of measurement. Provide ranking and equal differences between scale values, and they also have a true zero point as the origin.

The measurement of money is a good example. If you have zero dollars, you have no purchasing power, but if you have $4.00, you have twice as much purchasing power as a person with $2.00.

Answer 14

Ratio scales

Question 15

A measure used to describe a characteristic of a population.

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Answer 15

parameter

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Question 16

Used to measure a characteristic of a sample.

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Answer 16

sample statistic

(In the same manner that a parameter may be used to describe a characteristic of a population)

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Question 17

A tabular presentation of statistical data that aids the analysis of large data sets.

They summarize statistical data by assigning it to specified groups, or intervals. Also, the data employed may be measured using any type of measurement scale.

Answer 17

A frequency distribution

Question 18

The interval with the greatest frequency in a frequency distribution.

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Answer 18

modal interval.

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Question 19

Calculated by dividing the absolute frequency of each return interval by the total number of observations.

Simply stated, it is the percentage of total observations falling within each interval.

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Answer 19

relative frequency

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Question 20

Summing frequencies by starting at the lowest interval and progressing through the highest give you?

Answer 20

cumulative absolute frequency and cumulative relative frequency

Question 21

The graphical presentation of the absolute frequency distribution.

Simply a bar chart of continuous data that has been classified into a frequency distribution. The attractive feature of a histogram is that it allows us to quickly see where most of the observations are concentrated.

Answer 21

histogram

Question 22

Chart where the midpoint of each interval is plotted on the horizontal axis, and the absolute frequency for that interval is plotted on the vertical axis. Each point is then connected with a straight line

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Answer 22

frequency polygon

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Question 23

Identify the center, or average, of a data set. This central point can then be used to represent the typical, or expected, value in the data set.

Examples include mean, median, mode.

Answer 23

Measures of central tendency

Question 24

Geometric Mean. Why use it and what is the formula?

Answer 24

is often used when calculating investment returns over multiple periods or when measuring compound growth rates. The general formula for the geometric mean, G, is as follows:

Textbook: G= n√X1×X2×…×Xn=(X1×X2×…×Xn)1/n

In my words: Geo Mean = ((1+R1)(1+R2)) to the 1/n - 1

Question 25

Harmonic Mean: When use it and what is the formula?

Answer 25

is used for certain computations, such as the average cost of shares purchased over time. The harmonic mean is calculated as Textbook: NN∑i=11XiN∑i=1N1Xi , where there are N values of Xi.

total dollars invested

_______________

of share purchased. calculated by $ / shares each time.

Example: 3($1,000) / $1,000/8 + $1,000/9 + $1,0000/10 = 8.929

Question 26

For values that are not all equal: ____ mean < ____ mean < ____ mean. This mathematical fact is the basis for the claimed benefit of purchasing the same dollar amount of mutual fund shares each month or each week. Some refer to this practice as “dollar cost averaging.”

Answer 26

harmonic mean < geometric mean < arithmetic mean.

Question 27

uses the absolute values of each deviation from the mean because the sum of the actual deviations from the arithmetic mean is zero.

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Answer 27

MAD or mean absolute deviation.

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Question 28

How to calculate the MAD (Mean absolute deviation) and what is it used for?

Answer 28

step 1 = find the mean

step 2 = take each number and subtract the mean, then take the mean of the sum in absolute numbers (no negatives).

Measures how to spread out the data is in absolutes (so you don’t get negatives. (distance from the mean in positive numbers).

Question 29

standard deviation formula:

Answer 29

the square route of the variance.

Question 30

variance formula:

Answer 30

((return - the mean)^2+(return-mean)^2)

_________________

N (number of observations)

for a sample size, just adjust for N-1

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Question 31

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Answer 31

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Question 32

States that for any set of observations, whether sample or population data and regardless of the shape of the distribution, the percentage of the observations that lie within k standard deviations of the mean is at least 1 − 1/k2 for all k > 1.

Answer 32

Chebyshev’s inequality

Question 33

The formula for Chebyshev’s inequality

Answer 33

at least 1 − 1/k2 for all k > 1

Question 34

Coefficient of variation (CV) Formula

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Answer 34

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Question 35

Refers to the extent to which a distribution is not symmetrical

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Answer 35

Skewness, or skew

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Question 36

Is a measure of the degree to which a distribution is more or less “peaked” than a normal distribution

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Answer 36

Kurtosis

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Question 37

describes a distribution that is more peaked than a normal distribution

,

Answer 37

leptokurtic

has excess kurtosis greater than zero (+3)

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Question 38

refers to a distribution that is less peaked, or flatter than a normal distribution

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Answer 38

platykurtic

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Question 39

A distribution that has the same kurtosis as a normal distribution.

Answer 39

mesokurtic

Question 40

Sample skewness formula

Answer 40

Question 41

Sample kurtosis formula

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Answer 41

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Question 42

A probability established by analyzing past data

Answer 42

An empirical probability

Question 43

A probability that is determined using a formal reasoning and inspection process

Answer 43

An a priori probability

Question 44

A probability that is the least formal method of developing probabilities and involves the use of personal judgment.

Answer 44

A subjective probability

Question 45

refers to the probability of an event regardless of the past or future occurrence of other events. If we are concerned with the probability of an economic recession, regardless of the occurrence of changes in interest rates or inflation, we are concerned with this type of probability as it relates to a recession.

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Answer 45

Unconditional probability (a.k.a. marginal probability)

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Question 46

A probability where the occurrence of one event affects the probability of the occurrence of another event. For example, we might be concerned with the probability of a recession given that the monetary authority increases interest rates.

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Answer 46

A conditional probability

The key word to watch for here is “given.” Using probability notation, “the probability of A given the occurrence of B” is expressed as P(A | B), where the vertical bar ( | ) indicates “given,” or “conditional upon.” For our interest rate example above, the probability of a recession given an increase in interest rates is expressed as P(recession | increase in interest rates). A conditional probability of an occurrence is also called its likelihood.

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Question 47

multiplication rule of probability formula and when to use it?

Answer 47

used to determine the joint probability of two events

P(AB) = P(A | B) × P(B). the probability of A and B is A times B

Question 48

The addition rule of probability formula and when to use it?

Answer 48

is used to determine the probability that at least one of two events will occur: (or)

P(A or B) = P(A) + P(B) − P(AB). Add A and B and then subtract A times B.

Question 49

The total probability rule formula and when to use it?

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Answer 49

is used to determine the unconditional probability of an event, given conditional probabilities:

P(A) = P(A | B1)P(B1) + P(A | B2)P(B2) + … + P(A | BN)P(BN)

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Question 50

Joint probability rule formula and use

Answer 50

probability of event A given that B has occurred = probability of event A occurred and event B occurred / probability of event B.

P(AB) = P(A | B) × P(B)