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CFA: Level 1 > Wrong Answers > Flashcards

Wrong Answers Flashcards

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CFA flashcards
0
Q

Stochastic oscillator

A

Stochastic oscillator measures the relationship between close, high, and low prices

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1
Q

Candlestick chart

A

When the body of the candle is:

  • –filled/shaded, it indicates that the opening price is higher than the closing price.
  • –Clear, it indicates that the opening price is less than the closing price
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2
Q

Lagging sectors

A

The sectors that are linked with commodity and technology stocks are referee to as “lagging sectors.”

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3
Q

Relative strength index

A

A subtype of momentum oscillators

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4
Q

Hypothesis Testing Errors

A
  • -Failing to reject H0 when it is actually true is not an error, it is correct
  • -Rejecting H0 when it’s true is Type 1
  • -Accepting when it’s not true is Type-II error
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5
Q

The smaller the significance level, the smaller the probability of making

A

A Type 1 error, and the greater the probability of making a type-II error

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6
Q

Chi-square

A

In tests concerning variance of single, normally distributed population, the test statistic most likely used is chi-square with n-1 degree of freedom where n is sample size

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7
Q

Sample Selection Bias

A

—Most common form is survivorship bias

—Time-period bias occurs when data gathered is for period that is either too short or too long

—Look-ahead bias occurs when a relationship is tested by using a sample data that was not available on the test date.

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8
Q

Central Limit Theorem

A

According to the central limit theorem the distribution of sample mean has following properties, as long as sample mean is large.

  • -Distribution of sample mean will be approximately normal
  • -Distribution mean will be equal to population mean from which samples are drawn
  • -Variance of distribution of sample mean will be equal to variance of population mean divided by sample siE
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9
Q

Panel Data

A

Used for single characteristic,ultisols observation units at different times.

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10
Q

Efficiency estimator.

A

1) An unbiased estimator with the smallest variance is referred to as an efficient estimator.
2) Efficiency of an estimator is measured by it’s variance.

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11
Q

As degree of confidence increases:

A

the confidence interval widens & precision in estimating the population parameter lowers.

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12
Q

Z-alternative

A
  • -Large sample and unknown population variance

- -Confidence interval calculated as average +sd/sqrt n

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13
Q

Self-selection bias

A

occurs when hedge funds with poor track records do not voluntarily disclose

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14
Q

Data mining bias

A

–Detected by conducting out-of-sample tests of the proposed variable.

–When the variable is not statistically significant in out-of-sample tests, it indicates that the variable suffers from data mining bias.

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15
Q

Stratified random sampling

A

Used in pure bond indexing or in full replication approach in which an investor wants to fully replicate the index by owning all the bonds in the index in proportion to their market value.

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16
Q

Continuous uniform probability distribution

A

Defined over a range, which sets the parameters for the distribution

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17
Q

Bernoulli variable

A
  • -A binomial variable, which is random

- -number of trials is 1

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18
Q

Probability less than or equal to

A

Given value-Lower bound/

upper value -lower bound

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19
Q

Assumptions of binomial distribution

A

(1) Probability of success is constant for all trials

(2) The trials are independent.

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20
Q

Lognormal distribution

A
  • -Longnormal random variables cannot be negative unlike normal distribution
  • -Like normal distribution, lognormal distribution is complete described by two parameters mean and variance
  • -Lognormal distribution is bounded below by zero and skews to the right
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21
Q

Roy’s Safefy-first ratio

A

Expected return-threshold/sd

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22
Q

Money market yield

A

360 x BDY/360-(t x BDY)

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23
Q

Money market yield from Market prices

A

BD=(Face value- Market price)/Face value

x

360

/
days to maturity

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24
Q

Money-weighted rate of return

A

The internal rate of return taking account of all cash flows

25
Q

Covariance

A

Cov (Rx,Ry) = CorrelationCoe x sq rt of Rx x sq rt of Ry

26
Q

Expected values

A

–Conditional probabilities are used in the calculation of expected values rather than unconditional probabilities

–The joint probability of a mutually exclusive event is always 0

27
Q

Conditional probability Relation

A

The conditional probability of an event may be greater than, equal to, or less than the unconditional probability.

28
Q

Conditional Probability

A

Prob (A |B) =Prob (B|A) x Prob (A)/Prob (B)

29
Q

Probability of at least one:

A

Addition Rule:

P (A or B) = P(A) + P(B) - P(AB)

30
Q

Covariance of a random variable with itself

A

Covariance of a random variable with itself is it’s own variance

31
Q

Bayes Formula

A

(1) Used when A|B and B|A are mutually exclusive

2) P(A|B)/P(B) x P(A

32
Q

Kurtosis and Skew

A

(1) Leptokurtuc reflects more frequent extremely large deviation from mean than normal distribution
(2) Positive skewed or right skewed distribution reflects frequent small losses and few extreme gains

33
Q

Chebyshev’s inequality

A

at least 75% of observations must lie within 2 standard deviations from the mean

(1-1/k^2)
Used even is non

normal 68, 95, 99

34
Q

Inter quartile range

A
  • Focuses on middle rather than extreme values
  • IQR difference between 3rd and 1st Quartiles
  • Represents length of interval containing middle 50% of data.
35
Q

Negatively skewed or left skewed

A
  • Long tail on left
  • Skewness < 0
  • Mean < Median < Mode
  • Frequent small gains & few extreme losses
36
Q

MAD / Sample Variance

A

(1) Mean absolute deviation-the greater the MAD, the riskier the asset
(2) Sample variance is an unbiased estimator of variance

37
Q

Coefficient of variation

A

Measures the amount of risk per unit of mean value

CV = S/Avg X

38
Q

T-Test

A 
sq rt n
(1/x)
sd
(1/x)
difference in means

(2) As sample size increased. difference between rejection points for both t-test and z-test decreases

39
Q

Inferior good

A

Law of demand is most likely violates when substitution effect is less than income effect.

40
Q

Indifference curves

A
  1. Consumers prefer higher
  2. Always downward sloping
  3. Do not intersect
    4 Convex
41
Q

Gif fen good

A

All given goods are inferior,, but not all inferior good are hidden.

42
Q

Speculative demand of money increases when:

A
  • –Interest rates decrease
  • –expected return on other financial instruments decrease
  • –Perceives risk in other financial instruments increase
43
Q

Neo Keynesian

A

Assumes downward “sticky” prices and wages

44
Q

Participation/Activity Ratio

A

Ratio of labor force to total population of working age

45
Q

Unemployed

A
  • -Actively searched for work in last 4 weeks
  • -Laid off and waiting to be recalled
  • -Starts new job in 30 days
46
Q

Velocity of money

A

Velocity =Nominal GDP/Money Supply

  • -When velocity falls due to decrease in nominal GDP, may indicate potential for cyclical upswing
  • -When velocity falls due to an increase in money supply, it may indicate potential for inflationary pressure
  • -Wgeb velocity rises due to decrease in money supply, it may indicate shortage of money in the economy or disinflation or deflation.
47
Q

Aggregate Demand

A

1) Consumption
2) Investment
3) Government spending
4) Net exports

48
Q

Actual GDP > Potential GDP

A
  • -Growing inflationary pressures and restrictive monetary policy would be suitable
  • -It is preferred to reduce investment in fixed income securities
49
Q

Increase in government spending

A

Increases Aggregate Demand

Increases price of equities and outs upward pressure on interests rates

50
Q

Money Supply time average number of times per year used equals

A

nominal GDP

51
Q

First price sealed bid auction

A

Subject to sumner’s curse

52
Q

Oligopoly

A

Similar or differentiated products

53
Q

Perfect competition

A

All firms produce differentiated products

  • -total quantity supplied and demanded is mainly determined by price while non-price factors are not important
  • -Firms fact infinite elastic deman curve
  • -Mr= Ar=P=D at any level
  • -When TR<TVC, the firm operating under perfect competition should:
  • —shut down production in Sr and exit in long run
54
Q

Short run profit maximization

A
  • -Firms operate under fixed scale of production

- -Firms can neither enter not exit the industry

55
Q

Marginal revenue

A

Change in TR/Change in Quantity sold

56
Q

Marginal product

A

Marginal cost is at it’s minimum level, average product is increasing and avc is decreasing

57
Q

Marginal Product of Capital

A

Increase in the output from using one additional unit of capital keeping labor constant

58
Q

Rationalization/Attitude

A

Risk Factor associated with strained relationship between management and auditors.

59
Q

Total invested capital

A

Sum of market value of c’mon equity, book value of preferred equity and face value of debt

CFA: Level 1 (18 decks)

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