CFA Level 1 - Quantitative Methods Practice Guide.

Default Risk - correct answer.Risk that a borrower will not make promised payments Liquidity Risk - correct answer.Risk of recieving less than fair value for an investment if it must be sold for cash quickly Required Interest Rate on A Security - correct answer.= Nominal Interest Rate + Default Risk Premium + Liquidity Premium + Maturity Risk Premium Real Risk Free Rate / Nominal Risk Free Rate - correct answer.- Single period interest rate for a completely risk-free security with no inflation added - Nominal = Real Risk Free Rate + Expected Inflation Rate Required Rate of Return - correct answer.Required Rate of Return for an investor to willingly invest Discount Rate - correct answer.Used interchangeably with interest rates, especially in use of discounting cash flows Opportunity Cost - correct answer.The gain that is missed by not investing in a particular investment Effective Annual Rate - correct answer.The actualy rate of interst that is actually being earned after compounding more than annually Continuous Compounding - correct answer.1. Multiply rate by time 2. Multiple answer by e (Second LN) 3. Multiply by PV Present Value of Perpetuity - correct answer.Financial instrument that pays a fixed amount of money at set intervals over an infinite period of time Present Value of a Projected Perpetuity - correct answer.1. Calculate PV of Perpetuity 2. Find present value of (N -1) PV of Uneven Cash Flows - correct answer.1. Clear Memory 2. Enter 0 in CF0 3. Enter Cash Flows in Sequence 4. NPV = Discount Rate 5. ComputeT NPV FV of Uneven Cash Flows - correct answer.1. Calculate the FV of each individual Cash Flow 2: Then add the results together Calculating the Growth Rate - correct answer.Or use TMV calculator 1. N = Periods, PV = PV, PMT = 0, FV = FV 2. Compute I/Y Annual Payments (Amortization) - correct answer.1. N = Years, I/Y = Interest, PV = Loan Amount, FV = 0 2. Compute Payments Calculate Amortization Schedule - correct answer.1. Calculate Loan Payment 2. Calculate Interest Component (Beginning balance x I/Y) 3. Calculate Principal component (Payment - Interest Component)