Term
| Multinomial Formula: used for labeling problems in assigning k different labels to n members, with n1 labels of the first type, n2 labels of the second type, etc. ( note: n = n1 + n2 +…+ nk) |
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Definition
The total number of possibilities =
n! / (n1!n2!…nk!) |
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Term
Combination: Choosing r objects from n total objects when order does not matter
Permutation: Choosing r objects from n total objects when order does matter
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Definition
nCr= n! / [(n-r)! x r!]
nPr = n! / (n-r)! |
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Term
| Money Market Yield formula |
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Definition
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Term
| Money-Weighted Rate of Return (formula / how to calc) |
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Definition
Set total outflows equal to inflows discounted at rate (r) appropriately for each period (per 1 goes over (1+r), per 2 goes over (1+r) sqrd, etc)
Use IRR fxn.
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Term
| Time-Weighted Rate of Return (formula/how to calculate) |
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Definition
For each period, do (Inflows-Outflows+DivRec)/Outflows where Outflows is appropriate cost unit for inflow. Get % for each period.
TWrr: [(1+HPY1)*(1+HPY2)]^(1/t) - 1 |
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Term
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Definition
P(A) = P(A|B1)P(B1) + P(A|B2)P(B2) + ... + P(A|Bn)P(Bn)
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Term
Chebyshev’s Inequality
(and what it measures) |
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Definition
For any distribution, the minimum perentage of observations that lie w/i k standard deviations of mean is:
1 - (1/k^2). If k=3 -- 1- (1/9) = 89%. |
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Term
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Definition
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Term
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Definition
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Term
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Definition
The continuously compounded rate of return = ln( S1 / S0 ) = ln(108,427 / 127,350) = –16.09%.
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Term
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Definition
With a large sample size (175) the z-statistic is used. The z-statistic is calculated by subtracting the hypothesized parameter from the parameter that has been estimated and dividing the difference by the standard error of the sample statistic. Here, the test statistic =
(sample mean – hypothesized mean) / (population standard deviation / (sample size)1/2 = (X − µ) / (σ / n1/2) = (67,000 – 58,500) / (5,200 / 1751/2) = (8,500) / (5,200 / 13.22) = 21.62. |
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Term
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Definition
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Term
| Significance level of test equals: |
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Definition
| The probability of a Type I error is equal to the significance level of the test. |
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Term
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Definition
| The power of a test is 1 minus the probability of a Type II error. |
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Term
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Definition
| An empirical probability is established by analyzing past/historical data. |
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Term
| The lower the alpha the ____ the confidence interval |
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Definition
| The lower the alpha level, the wider the confidence interval. |
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Term
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Definition
| The degree of confidence is equal to one minus the alpha level, and so the wider the confidence interval, the higher the degree of confidence and the lower the alpha level. Note that the lower alpha level requires a higher reliability factor which results in the wider confidence interval. |
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Term
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Definition
| An a priori probability is one based on logical analysis rather than on observation or personal judgement |
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Term
Calculate annual yield of T-bill on BEY basis (Given HPY)
ex. 91-day treasury has HPY of 1.5% |
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Definition
BEY = HPY x (365/t)
=1.5% x (365/91) = 6.02% |
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Term
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Definition
| A subjective probability is the least formal method of developing probabilities and involves the use of personal judgment. |
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Term
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Definition
| Has an expected value equal to the true value of the population parameter |
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Term
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Definition
| More accurate the greater the sample size |
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Term
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Definition
| Has the sampling distribution that is less than that of any other unbiased estimator |
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Term
| Positively skewed distributions (mean, median, mode) |
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Definition
When skewed to the right, generally:
Mean > Median > Mode |
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Term
| Coefficient of Variation (higher CV implies more or less risk?) |
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Definition
CV = SD / Arithmetic Mean
More risk. |
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Term
| Joint probability definition |
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Definition
| The probability that 2+ events happen concurrently |
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Term
| Standard normal distribution |
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Definition
| Has a mean of 0 and a SD of 1 |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
| According to central limit theorem, the sample mean for large sample sizes will be: |
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Definition
| normally distributed regardless of the distribution of the underlying population |
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Term
| Sampling error (definition) |
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Definition
| The difference betwwen the observed value of a statistic and the value it is intended to estimate |
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Term
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Definition
| A sample obtained in such a way that each elemt of the population has an equal probability of being selected |
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Term
| EAR with semiannual compounding |
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Definition
| EAR = (1 + annual rate/2)2 - 1 |
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Term
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Definition
| A measure of how the returns of two assets tend to move over time |
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Term
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Definition
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Term
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Definition
| Sample of observations taken at a single point in time |
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Term
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Definition
| Observations taken at specific and equally spaced points in time |
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Term
| Standard Deviation of two stocks that are perfecctly positively correlated |
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Definition
Weighted average of the two standard deviations:
WA(SA) + WB(SB) |
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Term
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Definition
| (Mean portfolio return - Risk-Free Return) / SD |
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Term
| Permutation Formula when order matters: |
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Definition
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Term
| Standard error of the sample mean (formula) |
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Definition
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Term
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Definition
| Describes a single random variable |
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Term
| Multivariate distribution |
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Definition
| Specifies the probabilities for a group of random variables |
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Term
| When testing hypotheses about the population mean when the population SD is UNKNOWN, the population is normal a/o the sample is large: |
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Definition
| tn-1 = (X - M0) / (s / sqrt(n)) |
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Term
| T-test must be used when: |
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Definition
| Sample size is small, population is normal and the population variance is unknown |
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Term
| Robert Mackenzie, CFA, buys 100 shares of GWN Breweries each year for four years at prices of C$10, C$12, C$15 and C$13 respectively. GWN pays a dividend of C$1.00 at the end of each year. One year after his last purchase he sells all his GWN shares at C$14. Mackenzie calculates his average cost per share as [(C$10 + C$12 + C$15 + C$13) / 4] = C$12.50. Mackenzie then uses the internal rate of return technique to calculate that his money-weighted annual rate of return is 12.9%. Has Mackenzie correctly determined his average cost per share and money-weighted rate of return? |
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Definition
Because Mackenzie purchased the same number of shares each year, the arithmetic mean is appropriate for calculating the average cost per share. If he had purchased shares for the same amount of money each year, the harmonic mean would be appropriate. Mackenzie is also correct in using the internal rate of return technique to calculate the money-weighted rate of return. The calculation is as follows:
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Time
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Purchase/Sale
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Dividend
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Net cash flow
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0
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-1,000
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0
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-1,000
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1
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-1,200
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+100
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-1,100
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2
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-1,500
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+200
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-1,300
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3
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-1,300
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+300
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-1,000
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4
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400 × 14 = +5,600
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+400
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+6,000
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CF0 = −1,000; CF1 = −1,100; CF2 = −1,300; CF3 = −1,000; CF4 = 6,000; CPT → IRR = 12.9452. |
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Term
| Covariance for historical data |
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Definition
| cov1,2 = {Σ[(Rstock A − Mean RA)(Rstock B − Mean RB)]} / (n − 1) |
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Term
| Mean to use when calculating average cost/share when same number of shares purchased each year |
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Definition
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Term
| Mean to use when shares purchased for same amount of money each year |
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Definition
Harmonic mean
N
_____
Sum(1/Xi) |
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Term
P-value of a test (what it means)
How you decide to accept/reject null hypothesis at given significance level |
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Definition
P-value is smallest significance level at which null hypothesis can be rejected.
If test p-value < 10%, test can be rejected at 10% significance level
If p-value > 1%, test cannot be rejected at 1% significance level |
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Term
| The future value of a given lump sum, calculated using continuous compounding, is: |
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Definition
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Term
Negative kurtosis (name) is ______ (more/less) peaked and has _______ (thinner/fatter) tails compared to normal
Positive excess kurtosis (name) is ______ peaked and has ______ tails than normal |
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Definition
Negative:
Platykurtic distribution
LESS peaked
THINNER tails
Positive:
Leptokurtic distribution
MORE peaked
FATTER tails |
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Term
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Definition
t = [(X1 - X2) - (PopMean1 - PopMean2)]
/
[(s2 / n1) + (s2/n2)]0.5
If not given, pooled estimate of sample variance (s2) =
s2 = [(n1 - 1)s21 + (n2 - 1)s22]
/
(n1 + n2 - 2) |
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Term
| Required rate of return (nominal interest rate formula) |
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Definition
| E(R) = (1 + RFRreal)(1 + Inflation Premium)(1+Risk Premium) - 1 |
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Term
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Definition
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Term
| Population Variance + Sample Variance |
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Definition
Sigma2 = [(Sum(Xi-M)2 / N]
s2 = [(Sum(Xi-M)2 / n-1] |
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Term
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Definition
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Term
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Definition
The Six Components to the Code of Ethics
Members of the CFA Institute (including Chartered Financial Analyst [CFA] charterholders) and candidates for the CFA designation ("Members and Candidates") must:
- Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
- Place the integrity of the investment profession and the interests of clients above their own personal interests.
- Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
- Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession.
- Promote the integrity of, and uphold the rules governing, capital markets.
- Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.
Read more: http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/code-ethics.asp#ixzz1wah44csX
Read more: http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/code-ethics.asp#ixzz1waglg7Mu
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