CFA LEVEL 1 - LATEST
QUANTITATIVE
METHODS EXAM
Default Risk - ANSWERS-Risk that a borrower will not make promised
payments
Liquidity Risk - ANSWERS-Risk of recieving less than fair value for an
investment if it must be sold for cash quickly
Required Interest Rate on A Security - ANSWERS-= Nominal Interest
Rate
+ Default Risk Premium
+ Liquidity Premium
+ Maturity Risk Premium
Real Risk Free Rate / Nominal Risk Free Rate - ANSWERS-- Single
period interest rate for a completely risk-free security with no inflation
added
- Nominal = Real Risk Free Rate + Expected Inflation Rate
END OF
PAGE
1
, CFA LEVEL 1 - LATEST
QUANTITATIVE
METHODS EXAM
Required Rate of Return - ANSWERS-Required Rate of Return for an
investor to willingly invest
Discount Rate - ANSWERS-Used interchangeably with interest rates,
especially in use of discounting cash flows
Opportunity Cost - ANSWERS-The gain that is missed by not investing
in a particular investment
Effective Annual Rate - ANSWERS-The actualy rate of interst that is
actually being earned after compounding more than annually
Continuous Compounding - ANSWERS-1. Multiply rate by time
2. Multiple answer by e (Second LN)
3. Multiply by PV
Present Value of Perpetuity - ANSWERS-Financial instrument that pays
a fixed amount of money at set intervals over an infinite period of time
END OF
PAGE
2
QUANTITATIVE
METHODS EXAM
Default Risk - ANSWERS-Risk that a borrower will not make promised
payments
Liquidity Risk - ANSWERS-Risk of recieving less than fair value for an
investment if it must be sold for cash quickly
Required Interest Rate on A Security - ANSWERS-= Nominal Interest
Rate
+ Default Risk Premium
+ Liquidity Premium
+ Maturity Risk Premium
Real Risk Free Rate / Nominal Risk Free Rate - ANSWERS-- Single
period interest rate for a completely risk-free security with no inflation
added
- Nominal = Real Risk Free Rate + Expected Inflation Rate
END OF
PAGE
1
, CFA LEVEL 1 - LATEST
QUANTITATIVE
METHODS EXAM
Required Rate of Return - ANSWERS-Required Rate of Return for an
investor to willingly invest
Discount Rate - ANSWERS-Used interchangeably with interest rates,
especially in use of discounting cash flows
Opportunity Cost - ANSWERS-The gain that is missed by not investing
in a particular investment
Effective Annual Rate - ANSWERS-The actualy rate of interst that is
actually being earned after compounding more than annually
Continuous Compounding - ANSWERS-1. Multiply rate by time
2. Multiple answer by e (Second LN)
3. Multiply by PV
Present Value of Perpetuity - ANSWERS-Financial instrument that pays
a fixed amount of money at set intervals over an infinite period of time
END OF
PAGE
2
