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CFA Level 1 > Final Review > Flashcards

Final Review Flashcards

Final Review

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CFA flashcards
1
Q

Describe the bank discount yield.

A

The bank discount yield is equal to face value minus price divided by face value multiplied by 360 over days to maturity.

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2
Q

Describe the effective annual yield or EAY.

A

The effective annual yield is equal to one plus the holding period yield raised to 365 over days to maturity minus one.

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3
Q

Describe the money market yield

A

Take the holding period yield and multiply 360 over days to maturity.

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4
Q

Describe how you would calculate a quantile.

A

Take the number of observations, add one, and multiply by the percentile you are looking for.

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5
Q

Describe Chebyschev’s (pronounced Chevy Chev) inequality.

A

one minus one over k squared

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6
Q

When a distribution is negatively skewed, the peak is to the ________ (left or right) and the mean is _________ than the median which is ________ than the mode.

A

right (tail to the left)

less than

less than

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7
Q

A distribution that is Platykurtic, has excess kurtosis that is ________ than 0, and is __________ (more or less?) peaked around the mean

A

less than

less

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8
Q

What is the addition rule (as it relates to probability)?

A

The probability of A or B is equal to the probability of A plus the probability of B minus the joint probability of AB.

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9
Q

What is the Multiplication rule (as it relates to probability) for joint and independent events? Unconditional?

A

Joint: The probability of AB is equal to the probability of A given B multiplied by the probability of B.

Independent: The probability of AB is equal to the probability of A multiplied by the probability of B.

Unconditional is the same as independent, but is additive.

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10
Q

Describe how to calculate portfolio variance.

A

Variance multiplied by weight squared + 2 multiplied by the weights, standard deviations and correlation.

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11
Q

When order does not matter, which labeling method do you use? (nCr or nPr)?

A

nCr ‘Combination’

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12
Q

When order does matter what labeling method is used? (nCr o nPr)

A

nPr ‘Permutation’

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13
Q

What is the difference between nCr and nPr ?

A

nCr has (n-r)!r! in the denominator vs (n-r)!

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14
Q

Describe the binomial formula.

A

P(x) = nCr multiplied by p raised to the x multiplied by the one minus p raised to the n minus x.

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15
Q

Describe the formula for calculating Z scores.

A

hypothesized value minus population mean divided by standard deviation. ( X - mu) / std dev

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16
Q

When the distribution is normal, variance is known, and population is either small or large what test statistic is used?

A

z

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17
Q

When the distribution is normal, variance is unknown, and population size is either small or large what test statistic is used?

A

t

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18
Q

When the population is non-normal, variance is known, and the population size is large, what test statistic is used?

A

z

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19
Q

If the distribution is non-normal, variance is unknown, and population is only large, what test statistic is used?

A

t

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20
Q

Describe the t statistic.

A

the test statistic is x bar minus mu not over standard error. OR sample mean reduced by hypothesized mean divided by standard deviation over square root of n

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21
Q

Describe the Chi Squared calculation.

A

Chi Squared is equal degrees of freedom (n-1) multiplied by sample variance, divided by hypothesized variance

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22
Q

Describe the F test.

A

Largest variance divided by smaller variance

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23
Q

What makes an equilibrium stable or unstable?

A

An equilibrium is stable if supply cuts the demand line from above.

24
Q

Describe how Elasticity of Demand is calculated?

A

Is the ratio of % change in Q over % change in P.

25
Q

Describe how the Elasticity of Demand ratio is interpreted for Normal Goods, Inferior Goods, and Luxury Goods.

A

Normal Goods: > 0
Inferior Goods: < 0
Luxury Goods: > 1

26
Q

Describe ho the Crossprice Elasticity ratio is interpreted for Substitutes and Complements.

A

Substitutes: > 0
Complements: < 0

27
Q

Describe the following abnormal Goods: Veblen & Giffen

A

Veblen: higher prices increase demand
Giffen: Negative Income effect > positive substitution

28
Q

What is the difference between accounting profit and economic profit?

A

Implicit Costs (or equity compensation)

29
Q

Describe the fundamental equation. S is equal to …..

A

S = I + (G-T) + (X-M)

*Savings are either funded from the deficit or a trade surplus.

30
Q

What are the components of Economic Growth?

A

= Growth in Total Factor Productivity + Growth in Capital + Growth in Labor

31
Q

Describe Growth in per capita potential GDP.

A

=Growth in Technology + Growth in Capital to Labor ratio

32
Q

Describe the three different CPI Indexes Laspeyres, Paasche, and Chained.

A

Laspeyres: basket wt. from a base period
Paasche: basket wt from current period
Chained: geometric mean of two

33
Q

Describe the fiscal multiplier.

A

The fiscal multiplier is one over 1 minus MPC times one minus the tax rate.

34
Q

How would you calculate the real exchange rate?

A

Nominal (d/f) x CPI foreign / CPI Domestic

35
Q

Describe how you would find the no-arbitrage forward exchange rate.

A

Forward (a/b) / spot (a/b) = ia / ib

36
Q

Describe the process for finding the breakeven production quantity.

A

The breakeven quantity is when your contribution margin covers your fixed costs. BEQ = FC / (ASP - VC)

37
Q

Describe the winners and losers of tariffs.

A

Winners: domestic producers & governments
Losers: Domestic consumers

38
Q

How is inventory reported under IFRS?

A
  1. Lower of cost or NRV

2. Can write down or up (only to cost)

39
Q

How is inventory reported under GAPP?

A
  1. Lower of cost or market (replacement cost)

2. Can write down but not up

40
Q

Describe Degree of Operating Leverage.

A

DOL = % chg EBIT / % chg Sales OR

Sales - Var Cost) / (Sales - Var Coast - Fixed

41
Q

Describe the Degree of Financial Leverage

A

DFL = % chg Net Income / % chg operating income OR (Sales - Var Cost - Fixed) / Sales - Var Cost - Fixed - Interest

42
Q

Describe the Degree of Total Leverage

A

DTL = DOL x DFL OR % chg Net Income / % chg number of units sold OR (Sales - Var Cost) / (Sales - Var Cost - Fixed - Interest)

43
Q

Describe the kinked demand model applicable to oligopolies.

A

Competitors will match a price below but not above. Thus, the demand curve is more elastic above and less elastic below.

44
Q

Describe the LIFO conformity rule under US GAAP and what it means for US LIFO reporters book and tax records.

A

The LIFO conformity rule requires US companies to use LIFO for financial reporting if they also use LIFO for tax purposes.

45
Q

When prices are rising and inventory quantities are stable or increasing: LIFO results in what four things?

(higher/lower) COGS
(higher/lower) Gross Profit
(higher/lower) Inventory Balances
(higher/lower) inventory turnover

A
  1. Higher COGS
  2. Lower Gross Profit
  3. Lower Inventory balances
  4. Higher Inventory Turnover
46
Q

When prices are rising and inventory quantities are stable or increasing: FIFO results in what 4 things?

(higher/lower) COGS
(higher/lower) Gross Profit
(higher/lower) Inventory Balances
(higher/lower) inventory turnover

A
  1. Lower COGS
  2. Higher Gross Profit
  3. Higher Inventory Balances
  4. Lower Inventory Turnover
47
Q

(FIFO/LIFO) is the best inventory cost method for balance sheet purposes because it more accurately reflects the current cost of inventory.

A

FIFO

48
Q

(FIFO/LIFO) is the best cost flow method for the Income Statement COGS because it reflects the most current prices into the Cost of Goods Sold.

A

LIFO

49
Q

Under IFRS, inventories are carried at the lower of ________ or __________. Inventory write-ups (are/are not) allowed.

A

Lower of Cost
Net Realizable Value
are allowed: only to the extent they reverse a previous writedown.

50
Q

Under US GAAP, inventories are carried at the lower of _____ or ________.

Market = replacement cost, but can not exceed net realizable value. OR be less than NRV - profit margin.

A

Lower of Cost
Market

NRV (remember to net selling cost)

Market

NRV - Profit Margin

51
Q

Under IFRS, inventories are carried at the lower of ________ or __________. Inventory write-ups (are/are not) allowed.

A

Lower of Cost
Net Realizable Value
are allowed: only to the extent they reverse a previous writedown.

52
Q

Under US GAAP, inventories are carried at the lower of _____ or ________.

Market = replacement cost, but can not exceed net realizable value. OR be less than NRV - profit margin.

A

Lower of Cost
Market

NRV

Market

NRV - Profit Margin

53
Q

EBITDA Coverage (Leverage Tolerance) = ?

A

EBITDA / Interest Expense

54
Q

Describe the Fixed Rate Payer Calculation.

A

The fixed rate payer = (Swap Fixed Rate - LIBOR) x (# days / 360) x notional

55
Q

In an arbitrage trade, two general conditions are present.

  1. There (is/is not) risk.
  2. There (are/are not an initial investment.
A

An arbitrage trade has NO RISK and requires NO INITIAL INVESTMENT.

CFA Level 1 (2 decks)

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