CFA Chartered Financial Analyst Level 1: Quant Questions with Correct Answers

Nominal risk free rate equals... Correct answer real risk free rate + expected inflation Required interest rate on a security correct answer nominal risk free rate + default risk premium + liquidity premium + maturity risk premium Ear or apy correct answer (1+periodic rate)^m - 1 Always higher than annual percentage rates (not compounded) Ordinary annuity correct answer cash flows that occur at the end of each compounding period Annuity due correct answer payments or receipts occur at the beginning of each period Pv of perpetuity correct answer payment/interest rate Effect of increase in the frequency of compounding rates correct answer increases fv, decreases pv Amortization schedule correct answer interest component = interest rate * beginning balance Principal component = payment - interest component Ending balance = period's beginning balance (last period's ending balance) - principal component Holding period return correct answer (ending value-beginning value) / beginning value or (ending value / beginning value) - 1 Time-weighted rate of return correct answer the compound rate of growth of one unit of currency invested in a portfolio during a stated measurement period; a measure of investment performance that is not sensitive to the timing and amount of withdrawals or additions to the portfolio. Also a geometric mean return Money weighted return correct answer irr based on cash inflows and outflows Bank discount yield correct answer rbd = d/f * 360/t where: d = dollar discount from face value, f = face value, t = days until maturity, 360 = days in a year Us t-bills are quoted on a bank discount basis