CIMA Cert Exam Study Guide

CIMA Cert Exam Study Guide the average squared difference between the mean and each item in the population or sample - variance measure of dispersion expressed as the square root of the variance; measure of volatility and the dispersion from an average; used in CAL, Sharpe, M2 and IR - standard deviation describes asymmetry of data points from a normal distribution - skewness measures the peakedness of probability distribution or normal distribution curve -positive - more slender, high peak/fat tails -negative - thinner tails, flatter peak - kurtosis statistical modeling used to approximate the probability of future outcomes through multiple simulations - Monte Carlo investment analysis that appears to show graphically how portfolio risk decreases over time due to clustering of returns around a long term average; risk goes down overtime due to diversification - investment consultant fallacy expected terminal value of an investment is much wider with more potential outcomes due to uncertainty overtime - Samuelson's and Merton's Graph how two variables are related, degree to which they move together; -negative means variables move inversely -high X means do not offer much diversification - covariance gives the proportion of variation in one variable that can be explained by another variable; gives the level of diversification in a portfolio; closeness of fit = (beta^2 X st mkt) / st dev portfolio - R2 or coefficient of determination interest rate before taking inflation into account. - nominal rate of interest take the compounding period into account and thus is a more accurate measure of interest charges - effective interest rate (1+real rate i)(1 + inflation rate) - nominal rate equation sum of present value of all cash flows; to help analyze profitability - Net Present Value the discount rate that makes the NPV of an investment zero - Internal Rate of Return (IRR) rate used to bring values from the future to the present - discount rate the current value of a future sum of money or stream of cash given a specified rate of return - present value set calc to g-beg for problems in which cash flows occur at the beginning of the period. - Annuity Due value increases for a unit up to a point at which the value begins decreasing - marginal utility considers money supply and government action, can cause boom/bust cycles from govt action - Austrian School of Economics short run economic activity is highly impacted by demand (spending). govt intervention is necessary - Keynesian economics advocates steady increase in money