Problems (2025-Style)/CFA Level 1 - Quan ta ve
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 infla(on added
- Nominal = Real Risk Free Rate + Expected Infla(on Rate
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
discoun(ng cash flows
Opportunity Cost - Answers The gain that is missed by not inves(ng in a par(cular investment
, Effec(ve Annual Rate - Answers The actualy rate of interst that is actually being earned a1er
compounding more than annually
Con(nuous Compounding - Answers 1. Mul(ply rate by (me
2. Mul(ple answer by e (Second LN)
3. Mul(ply by PV
Present Value of Perpetuity - Answers Financial instrument that pays a fixed amount of money
at set intervals over an infinite period of (me
Present Value of a Projected Perpetuity - Answers 1. Calculate PV of Perpetuity
2. Find present value of (N -1)
PV of Uneven Cash Flows - Answers 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 - Answers 1. Calculate the FV of each individual Cash Flow
2: Then add the results together
Calcula(ng the Growth Rate - Answers Or use TMV calculator
1. N = Periods, PV = PV, PMT = 0, FV = FV
2. Compute I/Y