holding period return Correct answer-(ending value-beginning value) /
beginning value OR
(Ending value / beginning value) - 1
, CFA Level 1: Quant; Questions and Answers
100% Solved
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
, CFA Level 1: Quant; Questions and Answers
100% Solved
holding period yield Correct answer-Holding Period Return = (ending
value/beginning value) - 1
EAY^t/365 - 1
total return an investor earns between the purchase date and the sale or
maturity date
effective annual yield Correct answer-EAY = (1 + HPY)^365/t - 1 where t is
days to maturity. Remember that EAY > bank discount yield, for three reasons:
(a) yield is based on purchase price, not face value, (b) it is annualized with
compound interest (interest on interest), not simple interest, and (c) it is based
on a 365-day year rather than 360 days. Be prepared to compare these two
measures of yield and use these three reasons to explain why EAY is preferable.
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