Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFA Level I > Quant > Flashcards

Quant Flashcards

You may prefer our related Brainscape-certified flashcards:
CFA flashcards
1
Q

When liquidity is low, what is the impact to the interest rate?

A

The interest rate increases, to represent the liquidity premium

Since the investor is not easily able to get their cash, there is a premium, increasing the interest rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When default risk is high, what happens to the interest rate?

A

The interest rate increases

(default premium)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The EAR equals the stated rate when?

A

Compounding periods equals 1 (annual)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Represents the annual rate of return actually being earned after adjustments for compounding periods have been made

A

EAR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The EAR considers the effects of compounding on:

A

return on investment (ROI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

An investors increase in purchasing power is their:

A

real rate of return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Interest rate adjusted to remove the effects of inflation:

A

real rate of return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Compensates investors for the increased price sensitivity to changes in interest rates, as maturity is extended

A

Maturity Premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

An investors equilibrium rate of return is calculated as:

A

required rate of return =
+ Risk-free rate
+ Inflation Premium
+ Risk premium

Equilibrium rate of return= required rate of return

Risk premium includes: liquidity, default, maturity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Investors require interest on an investment that is calculated as:

A

required interest rate =
nominal rate
+liquidity premium
+default premium
+maturity premium

(Interest rate formula)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Rate that contains inflation premium

A

Nominal interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

US T-bills are an example of?

A

Nominal risk-free interest rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Stream of equal CF that occurs at equal intervals, over a given period

A

annuity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Pays fixed amount of money at set intervals, over an infinite period of time

A

perpetuity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

CF additivity principle:
PV of any stream of CF =

A

sum of PV of the CFs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Real risk-free interest rate is a _ rate, that includes:

A

theoretical rate
includes no expectation of inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Interest rates have many different names that include:

A

discount rates
opportunity cost
required rate of return
cost of capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The required rate of return on an investment

A

Equilibrium rate

(nominal required return)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

the market rate of return that investors & savers require to get them to willingly lend their funds

A

Equilibrium rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Preferred stock is an example of?

A

Perpetuity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When the compounding periods increase, the EAR _ at a _rate.

A

Increases;
at a decreasing rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Real risk free rate
+ Inflation premium
=

A

Nominal risk-free rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

T/F: On monthly compounded loans, the effective annual rate (EAR) will exceed the annual percentage rate (APR)

A

EAR > Stated rate (APR)
when compounding increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

The harmonic mean is used to calculate:

A
  • average share cost purchased over time
  • average price/unit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

The geometric mean is used to calculate:

A
  • investment returns over multiple periods
  • compound growth rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Used to visualize a data set based on quantiles

A

Box and whisker plot

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

The arithemetic mean is used to calculate:

A

the average returns over a one-period time horizon

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Panel data is a combination of:

A

cross-sectional (columns)
time-series (rows)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

displays the cumulative relative or absolute frequency distribution in columns (bars) or lines

A

Cumulative (relative or absolute) frequency distribution chart

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Published ratings on stocks ranging from 1 (strong sell) to 5 (strong buy) are examples of which measurement scale?

A

ordinal, sorts data into categories that are ordered with respect to some characteristic, but numbers cannot be used to perform calculations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Categorical data that can be logically ordered or ranked

A

ordinal data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Assigning the value 1 for “Value” stocks & 2 for “Growth” stock is an example of:

A

Nominal data

No logical order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Categorical values that are not amenable to being organized in a logical order

A

Nominal data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Price change of a stock is an example of:

A

Continuous data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

data that can be measured and can take on any numerical value in a specified range of values

A

continuous data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Example of data organization:

Studying the GDP of three different countries, from the periods 2020-2022

A

Panel Data:

  • Cross-sectional: three different countries GDP (multiple observational units)
  • GDP for each country
  • Time series: period of 2 years

Panel Data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Consist of observations through time on one or more variables for multiple observational units

A

panel data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

a list of the observations of a specific variable from multiple observational units at a given point in time

A

cross-sectional data

Mutliple observation units: US, UK, Canada
Time: 2022
GDP: specific variable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

sequence of observations of a specific variable collected over time and at discrete and typically equally spaced intervals of time

A

time-series data

Specific variable: stock prices
Time: 2000-2022

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Fatter tails in a distribution means there’s a higher probability of:

A

Outliers:
more data in the tails shows more risk of expected value being further from the mean

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

The sum of joint frequencies for a row or column for the attribute

A

Marginal frequency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Bar chart that orders categories by frequency in descending order and includes a line displaying cumulative relative frequency

A

Pareto Chart

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Line charts are used to display the change in a:

A

Used to display the change in a data series over time and underlying trends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Used to visualize the joint variation in two numerical values

A

scatter plot

45
Q

graphical tool used to display and compare categorical data

A

tree-map

46
Q

Used to visualize the degree of correlation between different variables

A

heat map

47
Q

Used to make comparisons of three or more variables over time

A

Bubble line chart

48
Q

A set of scatter plots that is useful for visualizing correlations among multiple pairs of variables:

A

scatter plot matrix

49
Q

The interquartile range on the box & whisker plot is represented by:

A

The box represents the 25th to 75th percentile (interquartile range)

50
Q

Given this, what can it be interpretted as?

P(Ei)= 0

A

The probability that the event will occur is never

51
Q

P(Ei)= 1:

A

The event is certain to occur, and the event is not random

52
Q

What are the two conditions of probabilities?

A
  1. The probability of occurrence of any event is between 0 and 1: 0 ≤ P(Ei) ≤ 1
  2. The sum of probabilities of all possible mutually exclusive, exhaustive events is 1
53
Q

Two events are independent if the probability of occurrence of event A:

A

does not affect the probability of occurence of event B

54
Q

The expected value of a random variable, given an event or scenario:

A

Conditional expected value

55
Q

the probability weighted average of the possible outcomes of the random variable:

A

expected value

(not a probability)

56
Q

Days of rainfall

A

discrete (there are countable whole numbers- 30 days in a month)

57
Q

amount of rainfall in a month

A

continuous (there are infinite numbers of possible fractional outcomes)

58
Q

The probability of a specific outcome in a continuous distribution=

A

0; there are infinite numbers of possible fractional outcomes

59
Q

The feature that distinguishes a multivaraite distribution from a univariate distribution

A

correlation

60
Q

Correlation is only meaningful when the behavior of each variable is :

A

Dependent on the behavior of others

61
Q

specifies the probabilities for a group of related random variables:

A

Multivariate distribution

62
Q

Indicates the strength of a linear relationship between a pair of random variables:

A

Correlation

63
Q

The probability of correctly rejecting the null hypothesis

A

Power of the test

Rejecting the null hypothesis when it is false

64
Q

The power of a test=

A

= 1- P(Type II error)

65
Q

Rejecting the null hypothesis when it is true

A

Type I error

66
Q

Failing to reject the null hypothesis when it is false

A

Type II error

67
Q

The probability of making a Type I error:

A

The significance level (Alpha)

68
Q

Significance level of 5% means:

A

There is a 5% chance of rejecting a true null hypothesis

69
Q

The null hypothesis is most appropriately rejected when the p-value is:

A

Close to Zero

The smaller the p-value the stronger the evidence against the null hypothesis, suggesting that it should be rejected

70
Q

The smallest level of significance at which the hypothesis can be rejected:

A

P-value:

A p-value of 0.02% means that the smallest significance level at which the hypothesis can be rejected is 0.0002

71
Q

Test statistic to test that a population variance is equal to a chosen value:

A

Chi-square statistic

  • Test of a single variance
  • Bound by zero
72
Q

Test statistic to test that two variances are equal:

A

F-statistic

Variance B/ Variance A

73
Q

Which test statistic & defining properties?

To test that the means of two normally distributed populations are equal, when variance is assumed to be equal:

A

T-statistic
df= n1 + n2 - 2

Difference in means

74
Q

Reviews the correlations of a firm’s rank in one period and it’s rank in the next period, across many periods:

A

Rank Correlation

Non-parameter test

75
Q

A test of whether a mutual fund’s performance rank in one period provides information about the fund’s performance rank in a subsequent period:

A

Rank Correlation

Nonparametric test

76
Q

A parametric tests is one that involves:

A

Parameters

One that has to make assumptions about the parameters of the distribution for it to be valid

77
Q

According to the Central Limit Theorem, the distribution of the sample means is approximately normal if:

A

sample size n > 30, even if the population is not normal

78
Q

What is the null hypothesis in a paired comparisons test?

A

Mean of the population of paired differences = hypothesized mean of paired differences (commonly 0)

t-test
df= n-1

Testing whether the difference of the two, dependent sample’s means = 0

79
Q

The difference between a paired comparison & difference in means test is:

A

Paired comparison tests dependent samples

samples for both are normally distributed

80
Q

Concerned with the mean of differences between two dependent, normally distributed samples:

A

Paired comparison test (mean differences)

t-statistic, df= n-1

81
Q

Used to test the difference between means of two, normal, independent populations

A

Difference in Means

T-stat, Df= n1 + n2 -2

82
Q

To determine whether the mean returns on two stocks over the last year were the same or not; what test should be used:

A

Paired comparison (mean differences)

The samples are not independent, since they both contain some systematic risk. In this test we will take the difference between the two over some time, and then determine if they are statistically different from zero

83
Q

Determining the number of ways n tasks can be done in order:

A

Factorial function

84
Q

Which probability rule determines the probability that two events will both occur?

A

Multiplication Rule

used to determine the joint probability of two events

85
Q

Which probability rule can be used to determine the unconditional probability of an event?

A

Total probability rule

86
Q

The number of successes in n Bernoulli Trials:

A

Binomial random variable

Bernoulli Trial: produces one of two outcomes (success/failure)

87
Q

A binomial distribution is symmetric when:

A

Symmetric when probability on a trial is 50%

asymmetric otherwise

50% chance for event A
50% chance for event B

88
Q
  • Assumes a variable can take one of two values; stock up/down movements
  • Used to compute expected value over several periods
A

Binomial Distribution

89
Q

The value of the cumulative distribution function lies between:

A

0 and 1

90
Q

Any descriptive measure of a population characteristic is best described as a:

A

Parameter

91
Q

Used to determine all potential outcomes of mutually exclusive & exhaustive events:

A

Total probability rule

92
Q

A confidence interval is contructed by:

A

= point estimate
+/- reliability factor * standard error

Reliability factor = Z-statistic

93
Q

Lognormal distributions can never be:

A

Negative

94
Q

Lognormal distributions are more suitable, than a normal distribution, for a probability model of:

A

Asset prices

Asset prices can never be negative
Asset returns can be negative, and normal distributions are more appropriate

95
Q

Mimics the simple random sampling process, by repeatedly drawing samples from the original sample, and each resample is of the same size as the original sample & used to construct the distribution

A

Bootstrapping

Resampling method

A computer simulation is used to repeatedly draw random samples from the original sample. The resamples are then used to construct a sampling distribution.

96
Q

The degree of confidence:

A

Reliability factor

97
Q

Data organization example:

Daily closing price of a stock recorded over a period spanning 13 weeks

A

Time-series data

98
Q

Data organization:

Microsoft, Apple, Google shareholders earnings in the year ended, 31st December 2021

A

Cross-sectional

99
Q

Resampling Method:

Samples are selected by taking the original observed data sample and leaving out one observation at a time.

A

Jacknife

Samples are drawn without replacement

100
Q

For regression lines, it is preferred to have the coefficient of determination & F-statistic to be:

A

Coefficient of determination (R2) & F-statistic:
High value is better

101
Q

For nonlinear relationships, how do we transform the data into linear regression:

A

Log-Lin
Lin-Log
Log-Log

Dependent (Y) - Independent (X)
Lin=Linear
Log= logarithmic

We will take the natural log (ln) of which ever variable is logarimathic

Log-Lin:
Y= :og
X= Lin

102
Q

Scatter plots can also be used to identify nonlinear information like:

A

Correlation

the strength of the linear relationship between 2 variables

103
Q

Sampling error is the difference between:

A

sample statistic (estimate) & population paramter (actual)

104
Q
  • Regression analysis (linear regression) makes no assumptions about:
  • Instead it is the analysis of:
A
  • Makes no assumptions about causation (X does not cause Y)
  • Analysis of of the linear association between the two variables

Assumes:
Variance is constant (homeskedacity)
residual terms are independently distributed (uncorrelated)

105
Q

The regression line from a simple linear regression is the line that minimizes the sum of squared differences between:

A

the values of the dependent variable
&
the predicted values of the dependent variable

106
Q

A lower coefficient of variation would be desired by a risk-averse investor because:

A

CV= risk / unit of return
Lower CV= lower risk

107
Q

Monte carlo simulations provide answers to:

A

What if questions

Limitations:
* statistical, rather than analytical method
* results are no better than the assumptions used to generate it

108
Q

Frequency polygons represent frequency lines linking their:

A

Midpoints

109
Q

In a histogram, the vertical bar heights represent:

A

Frequencies

CFA Level I (45 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions