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CFA Level 1 - 101 Must Knows With Complete Solutions Latest Update

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CFA Level 1 - 101 Must Knows With Complete Solutions Latest Update

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  • 20 de junio de 2024
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CFA Level 1 - 101 Must Knows With Complete
Solutions Latest Update

Addition Rule of Probability - correct answers ADDITION: P(A or B) = P(A) + P(B) -
P(AB)


Roy's Safety First Criterion - correct answers Safety First Ratio = (E(R) - Rₜ) / σ


Larger ratio is better


If (Rₜ) is risk free rate, then it becomes Sharpe Ratio


Sharpe Ratio - correct answers Sharpe Ratio = (E(R) - RFR) / σ


Larger ratio is better


If (Rt) is higher than RFR, then it becomes Safety First Ratio


Central Limit Theorem - correct answers If we take samples of a population, with a
large enough sample size, the distribution of all sample means is normal with:


- A mean equal to the population mean
- A variance equal to the population variance divided by sample size (σ² / n)

,Standard Error of Sample Mean - correct answers σ / n^½


Binomial Probability - correct answers One of two possible outcomes (i.e.
success/failure)


Possible outcomes can be demonstrated in binomial tree


Use "nCr" on calculator to solve:


nCr = P(success)^x * P(failure)^(n-x)


P - Value - correct answers Based on a calculated test statistic, rather than a
significance level (which is chosen)


p-value = smallest significance level at which an analyst can reject the null
hypothesis


one-tailed test - "less than or equal to"
two-tailed test - "equal to"


Cumulative Distribution Function - correct answers Gives the probability that a
random variable will have an outcome less than or equal to a specific value
(represented by F(x))


F(x) = probability of an outcome less than or equal to x

,Standard normal table (z) shows cumulative probabilities


Effective Annual Yield - correct answers EAY = (1 + (i/n))^n - 1
Stated Rate = (EAY^(1/n) - 1) * n


Continuous Compounding - correct answers ln(EAY) = continuously compounded
stated rate


e^(continuously compounded stated rate) = EAY


Type I Error - correct answers Incorrectly rejecting a true null hypothesis


(convicting an innocent person is Type I)


Type II Error - correct answers Failure to reject a false null hypothesis


(failure to convict a guilty person is Type II)


Significance Level / Power of a Test - correct answers Significance Level =
Probability of Type I


Power of a Test = (1 - Probability of Type I)


Covariance (Probability Model) - correct answers Covariance of random variables
A and B from probability model

, On the calculator:
1) Enter returns for set A and joint probabilities for AB; find mean A
2) Enter returns for set B and joint probabilities for AB; find mean B
3) Multiply each joint probability AB by each set's returns minus means
(ex: P(AB1)(A1 - Mean A)(B1 - Mean B) + P(AB2)(A2 - Mean A)(B2 - Mean B) + ... +
P(ABn)(An - Mean A)(Bn - Mean B))
4) The summed total is your covariance


Covariance (Sample) - correct answers Covariance of random variables A and B
from sample with historical data with n observations


Correlation Coefficient - correct answers COVab / σaσb


Bank Discount Yield (Discount basis) - correct answers (Discount / Face Value) *
(360 / Days)


Money Market Yield - correct answers (HPY) * (360 / Days)


Bond Equivalent Yield - correct answers (HPY) * (365 / Days)


Most appropriate for comparing yields!


Technical Analysis Indicators - correct answers Continuation:
TRIANGLE (or pennant) = Suggests a pause in the stock price movement that will
be followed by a continuation of the previous trend

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