Time value of money (CFA Level I Suggested Reading)
- How to calculate the future value (FV) and present value (PV) of: a single sum of money; a regular annuity and an annuity due; a series of uneven cash flows; a perpetuity
- How to calculate an unknown variable, given the other relevant variables, in: single-sum problems; annuity problems; and perpetuity problems
- The equivalence between present value and discounted future value
- How to solve time value of money problems when compounding periods are other than annual
- The difference between the stated annual interest rate and the effective annual rate
- How to calculate the effective annual rate, given the stated annual interest rate and the frequency of compounding
DCF Applications (CFA Level I Suggested Reading)
- Net present value and internal rate of return of a capital investment project
- The decision rule for making investment decisions under the net present value and internal rate of return methods
- Problems associated with the internal rate of return method
- Money-weighted versus time-weighted rates of return
- The bank discount yield, holding period yield, effective annual yield, and money market yield for a US Treasury bill
- Conversion between holding period yields, money market yields, and equivalent annual yields
- Calculation of bond equivalent yield
Investment Statistics (CFA Level I Suggested Reading)
- Parameters and the different types of measurement scales
- Frequency distributions
- A holding period return
- The use of intervals to summarize data
- Calculating relative frequencies, given a frequency distribution
- The properties of data presented as a histogram or a frequency polygon
- Measures of central tendency: the population mean, sample mean, arithmetic mean, geometric mean, weighted mean, median, and mode
- The differences between arithmetic and geometric means
- Quartiles, quintiles, deciles, and percentiles
- Portfolio return as a weighted mean, weighted average or mean, a range and mean absolute deviation, and a sample and a population variance and standard deviation
- Items falling within a specified number of standard deviations of the mean, using
Chebyshev's inequality
- Coefficient of variation and the Sharpe measure of risk-adjusted performance
- The relative locations of the mean, median, and mode for a nonsymmetrical distribution
- Measures of skewness and kurtosis
- Why a semi-logarithmic scale is often used for return performance graphs
Probability concepts (CFA Level I Suggested Reading)
- The investment consequences of probabilities that are inconsistent and the difference between unconditional and conditional probabilities
- Dependent and independent events
- How to calculate: a joint probability of two events; a joint probability of any number of independent events; an unconditional probability using the total probability rule; expected value, variance, and standard deviation; Covariance and correlation and the relationship among covariance, standard deviation, and correlation
- The expected return and the variance for return on a portfolio and covariance given a joint probability function
- Updated probability, using Bayes' formula
- How a specified number of tasks can be performed using the multiplication rule of counting
- Solving counting problems using the factorial, combination, and permutation notations
- The difference between problems for which different counting methods are appropriate
- The number of ways to choose r objects from a total of n objects, when the order in which the r objects is listed does or does not matter
Probability distributions (CFA Level I Suggested Reading)
- Discrete and continuous random variables
- The range of possible outcomes of a specified random variable
- Key properties of a probability function and a cumulative distribution function
- Calculating probabilities for a random variable, given a cumulative distribution function
- How to calculate: probabilities given a discrete uniform probability distribution; probabilities given a binomial probability distribution; and the expected value and variance of a binomial random variable
- Using binomial trees to describe stock price movement and calculate the expected terminal stock price
- Continuous distribution, normal and standard normal distributions
- Confidence intervals for a normally distributed random variable
- The difference between univariate and multivariate distributions
- Shortfall risk and Roy's safety-first criterion
- Lognormal and normal distributions and the difference between discretely and continuously compounded rates of return
- The major applications and limitations of Monte Carlo simulation and historical simulation
Sampling and estimation (CFA Level I Suggested Reading)
- Simple random sampling, sampling error, a sampling distribution and the difference between simple random and stratified random sampling; and between time-series and cross-sectional data
- Central limit theorem and the standard error of the sample mean
- Point estimate and confidence interval estimate of a population parameter
- A confidence interval for a population mean, given a normal distribution with either known or unknown population variance
- The properties of Student's t-distribution
- The issues surrounding selection of the appropriate sample size, as well as data-snooping/data-mining bias, sample selection bias, survivorship bias, look-ahead bias, and time-period bias
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