CFA Level 1 - Quantitative Methods 2024
Default Risk - Risk that a borrower will not make promised payments
Liquidity Risk - Risk of recieving less than fair value for an investment if it must be
sold for cash quickly
Required Interest Rate on A Security - = Nominal Interest Rate
+ Default Risk Premium
+ Liquidity Premium
+ Maturity Risk Premium
Real Risk Free Rate / Nominal Risk Free Rate - - 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 - Required Rate of Return for an investor to willingly
invest
Discount Rate - Used interchangeably with interest rates, especially in use of
discounting cash flows
, CFA Level 1 - Quantitative Methods 2024
Opportunity Cost - The gain that is missed by not investing in a particular
investment
Effective Annual Rate - The actualy rate of interst that is actually being earned
after compounding more than annually
Continuous Compounding - 1. Multiply rate by time
2. Multiple answer by e (Second LN)
3. Multiply by PV
Present Value of Perpetuity - Financial instrument that pays a fixed amount of
money at set intervals over an infinite period of time
Present Value of a Projected Perpetuity - 1. Calculate PV of Perpetuity
2. Find present value of (N -1)
PV of Uneven Cash Flows - 1. Clear Memory
2. Enter 0 in CF0
3. Enter Cash Flows in Sequence
Default Risk - Risk that a borrower will not make promised payments
Liquidity Risk - Risk of recieving less than fair value for an investment if it must be
sold for cash quickly
Required Interest Rate on A Security - = Nominal Interest Rate
+ Default Risk Premium
+ Liquidity Premium
+ Maturity Risk Premium
Real Risk Free Rate / Nominal Risk Free Rate - - 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 - Required Rate of Return for an investor to willingly
invest
Discount Rate - Used interchangeably with interest rates, especially in use of
discounting cash flows
, CFA Level 1 - Quantitative Methods 2024
Opportunity Cost - The gain that is missed by not investing in a particular
investment
Effective Annual Rate - The actualy rate of interst that is actually being earned
after compounding more than annually
Continuous Compounding - 1. Multiply rate by time
2. Multiple answer by e (Second LN)
3. Multiply by PV
Present Value of Perpetuity - Financial instrument that pays a fixed amount of
money at set intervals over an infinite period of time
Present Value of a Projected Perpetuity - 1. Calculate PV of Perpetuity
2. Find present value of (N -1)
PV of Uneven Cash Flows - 1. Clear Memory
2. Enter 0 in CF0
3. Enter Cash Flows in Sequence
