CIMA Cert Exam

The average squared difference between the mean and each item in the population or sample - Answer- variance Measure of dispersion expressed as the square root of the variance; measure of volatility and the dispersion from an average; used in CAL, Sharpe, M2 and IR - Answer- standard deviation Describes asymmetry of data points from a normal distribution - Answer- skewness Measures the peakedness of probability distribution or normal distribution curve -positive - more slender, high peak/fat tails -negative - thinner tails, flatter peak - Answer- kurtosis Statistical modeling used to approximate the probability of future outcomes through multiple simulations - Answer- Monte Carlo Investment analysis that appears to show graphically how portfolio risk decreases over time due to clustering of returns around a long term average; risk goes down overtime due to diversification - Answer- investment consultant fallacy Expected terminal value of an investment is much wider with more potential outcomes due to uncertainty overtime - Answer- Samuelson's and Merton's Graph How two variables are related, degree to which they move together; -negative means variables move inversely -high X means do not offer much diversification - Answer- covariance Gives the proportion of variation in one variable that can be explained by another variable; gives the level of diversification in a portfolio; closeness of fit = (beta^2 X st mkt) / st dev portfolio - Answer- R2 or coefficient of determination Interest rate before taking inflation into account. - Answer- nominal rate of interest Take the compounding period into account and thus is a more accurate measure of interest charges - Answer- effective interest rate (1+real rate i)(1 + inflation rate) - Answer- nominal rate equation Sum of present value of all cash flows; to help analyze profitability - Answer- Net Present Value