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CFA Level 1: Quant; Questions and Answers 100% Solved

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CFA Level 1: Quant; Questions and Answers 100% Solved nominal risk free rate equals... Correct answer-real risk free rate + expected inflation required interest rate on a security Correct answer-nominal risk free rate + default risk premium + liquidity premium + maturity risk premium EAR o...

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  • August 24, 2024
  • 57
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • cfa level 1 quant
  • questions and answers 100 solved

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  • CFA
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CFA Level 1: Quant; Questions and Answers
100% Solved
nominal risk free rate equals... Correct answer-real risk free rate +

expected inflation




required interest rate on a security Correct answer-nominal risk free rate

+ default risk premium + liquidity premium + maturity risk premium




EAR or APY Correct answer-(1+periodic rate)^m - 1




always higher than annual percentage rates (not compounded)




ordinary annuity Correct answer-cash flows that occur at the end of each

compounding period




annuity due Correct answer-payments or receipts occur at the beginning

of each period

, CFA Level 1: Quant; Questions and Answers
100% Solved


PV of Perpetuity Correct answer-Payment/interest rate




Effect of increase in the frequency of compounding rates Correct answer-

increases FV, decreases PV




amortization schedule Correct answer-interest component = interest rate

* beginning balance


principal component = payment - interest component


ending balance = period's beginning balance (last period's ending balance) -

principal component




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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