Exam (elaborations)
CFA Level 1 Exam Questions And Answers 2023
- Course
- Institution
CFA Level 1 Exam Questions And Answers 2023
[Show more]
Seller
Follow
hadassar
Reviews received
Content preview
CFA Level 1 Exam Questions AndAnswers 2023
The principle of time value of money - correct answer-The notion that a given sum of
money is more valuable the sooner it is received, due to its capacity to earn interest.
The Five Components of Interest Rates - correct answer-1. Real Risk-Free Rate 2.
Expected Inflation 3. Default-Risk Premium 4. Liquidity Premium 5. Maturity Premium
Real Risk-Free Rate - correct answer-This assumes no risk or uncertainty, simply
reflecting differences in timing: the preference to spend now/pay back later versus lend
now/collect later.
Expected Inflation - correct answer-The market expects aggregate prices to rise, and
the currency's purchasing power is reduced by a rate known as the inflation rate.
Inflation makes real dollars less valuable in the future and is factored into determining
the nominal interest rate (from the economics material: nominal rate = real rate +
inflation rate).
Default-Risk Premium - correct answer-What is the chance that the borrower won't
make payments on time, or will be unable to pay what is owed? This component will be
high or low depending on the creditworthiness of the person or entity involved.
Liquidity Premium - correct answer-Some investments are highly liquid, meaning they
are easily exchanged for cash (U.S. Treasury debt, for example). Other securities are
less liquid, and there may be a certain loss expected if it's an issue that trades
infrequently. Holding other factors equal, a less liquid security must compensate the
holder by offering a higher interest rate.
Maturity Premium - correct answer-All else being equal, a bond obligation will be more
sensitive to interest rate fluctuations the longer to maturity it is.
The stated annual rate - correct answer-(or quoted rate) is the interest rate on an
investment if an institution were to pay interest only once a year.
In practice, institutions compound interest more frequently, either ... - correct
answer-...quarterly, monthly, daily and even continuously.
The effective annual yield... - correct answer-...represents the actual rate of return,
reflecting all of the compounding periods during the year.
Effective annual rate (EAR) - correct answer-= (1 + Periodic interest rate)^m - 1
(Where: m = number of compounding periods in one year, and periodic interest rate =
(stated interest rate) / m)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller hadassar. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $6.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82215 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now