CFA LEVEL 1: QUANTITATIVE METHODS WITH ALL
CORRECT & 100% VERIFIED ANSWERS |LATEST
VERSION |ALREADY GRADED A+
Growth in value comes not only from interest on the principal, but interest on the previously earned
interest
"Interest on interest" ✔Correct Answer-Compound interest
Involves projecting the cash flows forward, on the basis of an appropriate compound interest rate to
the end of the investment's life ✔Correct Answer-Future Value
Brings cash flows backwards to the beginning of an investment's life based on an appropriate
compound interest rate ✔Correct Answer-Present Value
Required Rates of return for a particular investment ✔Correct Answer-Equilibrium Interest Rates
The return that investors and savers require to willingly lend their funds ✔Correct Answer-Market
Rate of Return
If someone borrows funds at 10% then they should discount payments to be made in the future at
that rate in order to get their equivalent value in dollars
"Today's value of money to be received in the future" ✔Correct Answer-Interest rates = Discount
Rates
If the market rate of interest on a one-year security is 5%, that opportunity is foregone when current
consumption is chosen over saving ✔Correct Answer-Interest Rates = Opportunity Cost of Current
Consumption
A theoretical rate on a single-period loan that has no expectation of inflation on it ✔Correct
Answer-Real Risk-free Rate of Interest
An interest rate that has been adjusted for inflation
- inflation has been subtracted out ✔Correct Answer-Real Interest Rate
An investor's increase in purchasing power after adjusting for inflation ✔Correct Answer-Real Rate
of Return
Nominal Risk-free rates because they contain an inflation premium ✔Correct Answer-T-Bill Rates
Nominal Risk-free Rate
= Real Risk-free rate + expected inflation rate ✔Correct Answer-Nominal Risk-free rate equation
Three types of Risk in Securities ✔Correct Answer-1) Default Risk
2) Liquidity Risk
3) Maturity Risk
,Risk that a borrower will not make promised payments ✔Correct Answer-Default Risk
The risk of receiving less that fair value if an investment may have to be sold quickly for cash
✔Correct Answer-Liquidity Risk
Prices of longer term bonds have more volatility than short term bonds
- Longer term bonds require a premium
-there is more time that can contribute to uncertainty in payments or value of bonds ✔Correct
Answer-Maturity Risk
= Nominal Risk-free Rate
= Real Risk-free rate
+ Expected Inflation
+ Liquidity Premium
+ Maturity Premium ✔Correct Answer-Required Interest rate on a Security
EAR = (1 + Periodic Rate)^m -1
Periodic Rate = stated annual rate / m
m= # compound periods per year ✔Correct Answer-Effective Annual Rate Equation
Represents the actual annual rate of return being earned after adjustments have been made for
different compounding periods
Increases as compounding frequency increases ✔Correct Answer-Effective Annual Rate
FV = PV(1+i)^n ✔Correct Answer-Future Value of a Single Sum
PV = FV / (1+i)^n ✔Correct Answer-Present Value of a Single Sum
A stream of equal cash flows that occurs at equal intervals over a given period ✔Correct Answer-
Annuity
Cash Flow occurs at the end of the period
- the most common type ✔Correct Answer-Ordinary Annuity
Cash Flow occurs at the beginning of the period ✔Correct Answer-Annuity Due
the PV of a stream of cash flows equals the sum of the individual present values of the cash flows
✔Correct Answer-Cash Flow additivity principle
A financial instrument that pays a fixed amount of money at set intervals over an infinite period of
time
PV = PMT / i ✔Correct Answer-Perpetuity
Used for certain computations such sa the average cost of shares purchased over time
Xh = N / Σ 1/Xi ✔Correct Answer-Harmonic Mean
, "What will the return be next year?" ✔Correct Answer-Arithmetic Mean
"What is the average annual compound return?" ✔Correct Answer-Geometric Mean
Tabular presentation of statistical data that aids data analysis
Summarize statistical data by assigning it to specific groups or intervals (classes) ✔Correct Answer-
Frequency Distributions
Used to summarize the important characteristics of large data sets ✔Correct Answer-Descriptive
Statistics
Pertain to the procedures used to make forecasts, estimates, or judgements about a large data set on
the basis of the statistical characteristics of a smaller sample ✔Correct Answer-Inferential Statistics
The set of all possible members of a stated group ✔Correct Answer-Population
A subset of the population of interest ✔Correct Answer-Sample
1) Nominal Scales
2) Ordinal Scales
3) interval Scales
4) Ratio Scales
use NOIR to remember order of precision ✔Correct Answer-Types of Measurement Scales
Observations are classified or counted with no particular order ✔Correct Answer-Nominal scales
Every observation is assigned to one of several categories then ordered with respect to a specific
characteristic ✔Correct Answer-Ordinal Scales
Provide relative ranking plus the assurance that differences between scale values are equal
A measurement of zero does not indicate the total absence of what is being measured ✔Correct
Answer-Interval Scales
Provide ranking and equal differences between scale values and also have a true zero point as the
origin ✔Correct Answer-Ratio Scales
A measure used to describe a characteristic of a population ✔Correct Answer-Parameter
Used to measure the characteristic of a sample ✔Correct Answer-Sample Statistic
the Interval with the highest frequency ✔Correct Answer-Modal interval
The percentage of total observations falling within each interval
= Absolute Frequency / # of observations ✔Correct Answer-Relative Frequency
Sum the absolute or relative frequencies starting at the lowest interval through the highest
✔Correct Answer-Cumulative Frequencies
CORRECT & 100% VERIFIED ANSWERS |LATEST
VERSION |ALREADY GRADED A+
Growth in value comes not only from interest on the principal, but interest on the previously earned
interest
"Interest on interest" ✔Correct Answer-Compound interest
Involves projecting the cash flows forward, on the basis of an appropriate compound interest rate to
the end of the investment's life ✔Correct Answer-Future Value
Brings cash flows backwards to the beginning of an investment's life based on an appropriate
compound interest rate ✔Correct Answer-Present Value
Required Rates of return for a particular investment ✔Correct Answer-Equilibrium Interest Rates
The return that investors and savers require to willingly lend their funds ✔Correct Answer-Market
Rate of Return
If someone borrows funds at 10% then they should discount payments to be made in the future at
that rate in order to get their equivalent value in dollars
"Today's value of money to be received in the future" ✔Correct Answer-Interest rates = Discount
Rates
If the market rate of interest on a one-year security is 5%, that opportunity is foregone when current
consumption is chosen over saving ✔Correct Answer-Interest Rates = Opportunity Cost of Current
Consumption
A theoretical rate on a single-period loan that has no expectation of inflation on it ✔Correct
Answer-Real Risk-free Rate of Interest
An interest rate that has been adjusted for inflation
- inflation has been subtracted out ✔Correct Answer-Real Interest Rate
An investor's increase in purchasing power after adjusting for inflation ✔Correct Answer-Real Rate
of Return
Nominal Risk-free rates because they contain an inflation premium ✔Correct Answer-T-Bill Rates
Nominal Risk-free Rate
= Real Risk-free rate + expected inflation rate ✔Correct Answer-Nominal Risk-free rate equation
Three types of Risk in Securities ✔Correct Answer-1) Default Risk
2) Liquidity Risk
3) Maturity Risk
,Risk that a borrower will not make promised payments ✔Correct Answer-Default Risk
The risk of receiving less that fair value if an investment may have to be sold quickly for cash
✔Correct Answer-Liquidity Risk
Prices of longer term bonds have more volatility than short term bonds
- Longer term bonds require a premium
-there is more time that can contribute to uncertainty in payments or value of bonds ✔Correct
Answer-Maturity Risk
= Nominal Risk-free Rate
= Real Risk-free rate
+ Expected Inflation
+ Liquidity Premium
+ Maturity Premium ✔Correct Answer-Required Interest rate on a Security
EAR = (1 + Periodic Rate)^m -1
Periodic Rate = stated annual rate / m
m= # compound periods per year ✔Correct Answer-Effective Annual Rate Equation
Represents the actual annual rate of return being earned after adjustments have been made for
different compounding periods
Increases as compounding frequency increases ✔Correct Answer-Effective Annual Rate
FV = PV(1+i)^n ✔Correct Answer-Future Value of a Single Sum
PV = FV / (1+i)^n ✔Correct Answer-Present Value of a Single Sum
A stream of equal cash flows that occurs at equal intervals over a given period ✔Correct Answer-
Annuity
Cash Flow occurs at the end of the period
- the most common type ✔Correct Answer-Ordinary Annuity
Cash Flow occurs at the beginning of the period ✔Correct Answer-Annuity Due
the PV of a stream of cash flows equals the sum of the individual present values of the cash flows
✔Correct Answer-Cash Flow additivity principle
A financial instrument that pays a fixed amount of money at set intervals over an infinite period of
time
PV = PMT / i ✔Correct Answer-Perpetuity
Used for certain computations such sa the average cost of shares purchased over time
Xh = N / Σ 1/Xi ✔Correct Answer-Harmonic Mean
, "What will the return be next year?" ✔Correct Answer-Arithmetic Mean
"What is the average annual compound return?" ✔Correct Answer-Geometric Mean
Tabular presentation of statistical data that aids data analysis
Summarize statistical data by assigning it to specific groups or intervals (classes) ✔Correct Answer-
Frequency Distributions
Used to summarize the important characteristics of large data sets ✔Correct Answer-Descriptive
Statistics
Pertain to the procedures used to make forecasts, estimates, or judgements about a large data set on
the basis of the statistical characteristics of a smaller sample ✔Correct Answer-Inferential Statistics
The set of all possible members of a stated group ✔Correct Answer-Population
A subset of the population of interest ✔Correct Answer-Sample
1) Nominal Scales
2) Ordinal Scales
3) interval Scales
4) Ratio Scales
use NOIR to remember order of precision ✔Correct Answer-Types of Measurement Scales
Observations are classified or counted with no particular order ✔Correct Answer-Nominal scales
Every observation is assigned to one of several categories then ordered with respect to a specific
characteristic ✔Correct Answer-Ordinal Scales
Provide relative ranking plus the assurance that differences between scale values are equal
A measurement of zero does not indicate the total absence of what is being measured ✔Correct
Answer-Interval Scales
Provide ranking and equal differences between scale values and also have a true zero point as the
origin ✔Correct Answer-Ratio Scales
A measure used to describe a characteristic of a population ✔Correct Answer-Parameter
Used to measure the characteristic of a sample ✔Correct Answer-Sample Statistic
the Interval with the highest frequency ✔Correct Answer-Modal interval
The percentage of total observations falling within each interval
= Absolute Frequency / # of observations ✔Correct Answer-Relative Frequency
Sum the absolute or relative frequencies starting at the lowest interval through the highest
✔Correct Answer-Cumulative Frequencies
