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) 

Definition
The total number of possibilities =
n! / (n1!n2!…nk!) 


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


Definition
nCr= n! / [(nr)! x r!]
nPr = n! / (nr)! 


Term
Money Market Yield formula 

Definition


Term
MoneyWeighted Rate of Return (formula / how to calc) 

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.



Term
TimeWeighted Rate of Return (formula/how to calculate) 

Definition
For each period, do (InflowsOutflows+DivRec)/Outflows where Outflows is appropriate cost unit for inflow. Get % for each period.
TWrr: [(1+HPY1)*(1+HPY2)]^(1/t)  1 


Term

Definition
P(A) = P(AB_{1})P(B_{1}) + P(AB_{2})P(B_{2}) + ... + P(AB_{n})P(B_{n})



Term
Chebyshev’s Inequality
(and what it measures) 

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%. 


Term

Definition
EAY = (1 + HPY)^{365/t} − 1 


Term

Definition
HPY = (EAY + 1)^{t/365} − 1 


Term

Definition
The continuously compounded rate of return = ln( S_{1} / S_{0} ) = ln(108,427 / 127,350) = –16.09%.



Term

Definition
With a large sample size (175) the zstatistic is used. The zstatistic 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 / n^{1/2}) = (67,000 – 58,500) / (5,200 / 175^{1/2}) = (8,500) / (5,200 / 13.22) = 21.62. 


Term

Definition


Term
Significance level of test equals: 

Definition
The probability of a Type I error is equal to the significance level of the test. 


Term

Definition
The power of a test is 1 minus the probability of a Type II error. 


Term

Definition
An empirical probability is established by analyzing past/historical data. 


Term
The lower the alpha the ____ the confidence interval 

Definition
The lower the alpha level, the wider the confidence interval. 


Term

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. 


Term

Definition
An a priori probability is one based on logical analysis rather than on observation or personal judgement 


Term
Calculate annual yield of Tbill on BEY basis (Given HPY)
ex. 91day treasury has HPY of 1.5% 

Definition
BEY = HPY x (365/t)
=1.5% x (365/91) = 6.02% 


Term

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


Term

Definition
Has an expected value equal to the true value of the population parameter 


Term

Definition
More accurate the greater the sample size 


Term

Definition
Has the sampling distribution that is less than that of any other unbiased estimator 


Term
Positively skewed distributions (mean, median, mode) 

Definition
When skewed to the right, generally:
Mean > Median > Mode 


Term
Coefficient of Variation (higher CV implies more or less risk?) 

Definition
CV = SD / Arithmetic Mean
More risk. 


Term
Joint probability definition 

Definition
The probability that 2+ events happen concurrently 


Term
Standard normal distribution 

Definition
Has a mean of 0 and a SD of 1 


Term

Definition


Term

Definition


Term

Definition


Term
According to central limit theorem, the sample mean for large sample sizes will be: 

Definition
normally distributed regardless of the distribution of the underlying population 


Term
Sampling error (definition) 

Definition
The difference betwwen the observed value of a statistic and the value it is intended to estimate 


Term

Definition
A sample obtained in such a way that each elemt of the population has an equal probability of being selected 


Term
EAR with semiannual compounding 

Definition
EAR = (1 + annual rate/2)^{2}  1 


Term

Definition
A measure of how the returns of two assets tend to move over time 


Term

Definition
CC = Covariance / (s_{1}s_{2}) 


Term

Definition
Sample of observations taken at a single point in time 


Term

Definition
Observations taken at specific and equally spaced points in time 


Term
Standard Deviation of two stocks that are perfecctly positively correlated 

Definition
Weighted average of the two standard deviations:
W_{A}(S_{A})_{ }+ W_{B}(S_{B}) 


Term

Definition
(Mean portfolio return  RiskFree Return) / SD 


Term
Permutation Formula when order matters: 

Definition


Term
Standard error of the sample mean (formula) 

Definition


Term

Definition
Describes a single random variable 


Term
Multivariate distribution 

Definition
Specifies the probabilities for a group of random variables 


Term
When testing hypotheses about the population mean when the population SD is UNKNOWN, the population is normal a/o the sample is large: 

Definition
t_{n1} = (X  M_{0}) / (s / sqrt(n)) 


Term
Ttest must be used when: 

Definition
Sample size is small, population is normal and the population variance is unknown 


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 moneyweighted annual rate of return is 12.9%. Has Mackenzie correctly determined his average cost per share and moneyweighted rate of return? 

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 moneyweighted rate of return. The calculation is as follows:
Time

Purchase/Sale

Dividend

Net cash flow

0

1,000

0

1,000

1

1,200

+100

1,100

2

1,500

+200

1,300

3

1,300

+300

1,000

4

400 × 14 = +5,600

+400

+6,000

CF0 = −1,000; CF1 = −1,100; CF2 = −1,300; CF3 = −1,000; CF4 = 6,000; CPT → IRR = 12.9452. 


Term
Covariance for historical data 

Definition
cov_{1,2} = {Σ[(R_{stock A} − Mean R_{A})(R_{stock B} − Mean R_{B})]} / (n − 1) 


Term
Mean to use when calculating average cost/share when same number of shares purchased each year 

Definition


Term
Mean to use when shares purchased for same amount of money each year 

Definition
Harmonic mean
N
_____
Sum(1/X_{i}) 


Term
Pvalue of a test (what it means)
How you decide to accept/reject null hypothesis at given significance level 

Definition
Pvalue is smallest significance level at which null hypothesis can be rejected.
If test pvalue < 10%, test can be rejected at 10% significance level
If pvalue > 1%, test cannot be rejected at 1% significance level 


Term
The future value of a given lump sum, calculated using continuous compounding, is: 

Definition


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 

Definition
Negative:
Platykurtic distribution
LESS peaked
THINNER tails
Positive:
Leptokurtic distribution
MORE peaked
FATTER tails 


Term

Definition
t = [(X_{1}  X_{2})  (PopMean_{1}  PopMean_{2})]
/
[(s^{2 }/ n_{1}) + (s^{2}/n_{2})]^{0.5}
If not given, pooled estimate of sample variance (s^{2}) =
s^{2} = [(n_{1}  1)s^{2}_{1} + (n_{2}  1)s^{2}_{2}]
/
(n_{1} + n_{2}  2) 


Term
Required rate of return (nominal interest rate formula) 

Definition
E(R) = (1 + RFR_{real})(1 + Inflation Premium)(1+Risk Premium)  1 


Term

Definition


Term
Population Variance + Sample Variance 

Definition
Sigma^{2} = [(Sum(X_{i}M)^{2} / N]
s^{2} = [(Sum(X_{i}M)^{2} / n1] 


Term

Definition


Term

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/examguide/cfalevel1/ethicsstandards/codeethics.asp#ixzz1wah44csX
Read more: http://www.investopedia.com/examguide/cfalevel1/ethicsstandards/codeethics.asp#ixzz1waglg7Mu


