1、CFA level 1conceptionThe currency with the higher (lower) interest rate will always trade at a discount (premium) in the forward market. The lower interest rate in the domestic country will be offset by the appreciation of the domestic countrys currency over the investment horizon.The value of a Eur
2、opean put option will decrease as the risk-free interest rate increases.When a commodity market is in contango, futures prices are higher than spot prices. When spot prices are higher than the futures price, the market is said to be in backwardation.B is incorrect because backwardation is the opposi
3、te of contango; the futures price is below the spot price.C is incorrect because carry refers to storage plus interest costs. It does not say anything about futures prices relative to spot prices.A distribution that is more peaked than normal is called leptokurtic. A distribution that is neither mor
4、e peaked nor less peaked than normal is called mesokurtic.A distribution that is less peaked than normal is called platykurtic.The duration of a portfolio is the weighted average of the bonds durations in which the weight for each bond is its contribution to the portfolios valueMonte Carlo simulatio
5、n lends itself to “what if” analysis and requires the user to provide a probability distribution or distributions. It can be a complement to analytical methods.Monte Carlo simulation provides a distribution of possible solutions to complex functions. The central tendency and the variance of the dist
6、ribution of solutions give important clues to decision makers regarding expected results and risk.The sampling error is the difference between the observed value of a statistic and the quantity it is intended to estimate.ZZ-score (standardized value) = (X )/，计算取值X距离平均值的标准差的个数The most appropriate tes
7、t is chi-square, with 36 1 = 35 degrees of freedom. Reminber: The dominator just for calculating the standard deviation of sample with size of n is (n-1).A normal distribution has kurtosis of 3.0.while for the calculating of t statistic, the standard error of sample in formula is s/n0.5. The standar
8、d error of the sample=Standard Deviation/n0.5The security market line is a graphical representation of the CAPM with beta on thex-axis and expected return on they-axis. The slope of the line is given by the market risk premium, the difference between the equity market return and the risk-free rate o
9、f interest.The beta of Stock A=Correlation of Stock A with the market Standard deviation of Stock As return Standard deviation of the markets returnThe optimal risky portfolio lies at the point of tangency between the capital allocation line and the efficient frontier of risky assets.the optimal inv
10、estor portfolio lies at the point of tangency between the investors indifference curve and the capital allocation line.the global minimum-variance portfolio is the left-most point on the minimum-variance frontier.If a client offers a bonus that depend on the future performance of her account, this i
11、s an additional compensation arrangement that requires written consent in advance.If a client offers a bonus to reward a member for her accounts past performance, this is a gift that requires disclosure to the members employer with standard I(B) Independence and Objective.For an investor who holds a
12、 fully diversified portfolio, the Treynor ratio and Jensens alpha are the appropriate portfolio performance measures. They are appropriate because in a fully diversified portfolio, only systematic risk matters; both these metrics measure performance relative to beta or systematic risk.The Treynor ra
13、tio measures the return premium of a portfolio versus the risk-free asset relative to the portfolios beta, which is a measure of systematic risk.The Sharpe ratio is similar to the Treynor ratio, but it uses portfolio standard deviation, which is a measure of total risk, instead of standard deviation
14、.M-squared incorporates the standard deviation of the market and portfolio, which are measures of total risk.The CAPM requires that there are no restrictions on short selling (which is an assumption underlying frictionless markets) and that the amount invested in an asset can be as much or as little
15、 as the investor wants (that is, investments are infinitely divisible). The CAPM also assumes that all investors analyze securities in the same way using the same inputs for future cash flows and the same probability distributions; that is, it assumes that investors have homogenous expectations.The
16、provisions within the GIPS standards are divided into the following nine sections: Fundamentals of Compliance, Input Data, Calculation Methodology, Composite Construction, Disclosure, Presentation and Reporting, Real Estate, Private Equity, and Wrap Fee/Separately Managed Account (SMA) Portfolios.Th
17、e investment decision rule using IRR(Internal Rate of Return), the IRR rule, states the following: “Accept projects or investments for which the IRR is greater than the opportunity cost of capital.” The IRR rule uses the opportunity cost of capital as a hurdle rate, or rate that a projects IRR must
18、exceed for the project to be accepted. Note that if the opportunity cost of capital is equal to the IRR, then the NPV is equal to 0. If the projects opportunity cost is less than the IRR, the NPV is greater than 0 (using a discount rate less than the IRR will make the NPV positive).The time-weighted
19、 rate of return measures the compound rate of growth of $1 initially invested in the portfolio over a stated measurement period. In contrast to the money-weighted rate of return, the time-weighted rate of return is not affected by cash withdrawals or additions to the portfolio. The term “time-weight
20、ed” refers to the fact that returns are averaged over time. To compute an exact time-weighted rate of return on a portfolio, take the following three steps:1.Price the portfolio immediately prior to any significant addition or withdrawal of funds. Break the overall evaluation period into subperiods
21、based on the dates of cash inflows and outflows.2.Calculate the holding period return on the portfolio for each subperiod.3.Link or compound holding period returns to obtain an annual rate of return for the year (the time-weighted rate of return for the year). If the investment is for more than one
22、year, take the geometric mean of the annual returns to obtain the time-weighted rate of return over that measurement period.The money market is the market for short-term debt instruments (one-year maturity or less). Some instruments require the issuer to repay the lender the amount borrowed plus int
23、erest. Others are pure discount instruments that pay interest as the difference between the amount borrowed and the amount paid back.All data measurements are taken on one of four major scales: nominal, ordinal, interval, or ratio.1.Nominal scales represent the weakest level of measurement: They cat
24、egorize data but do not rank them. If we assigned integers to mutual funds that follow different investment strategies, the number 1 might refer to a small-cap value fund, the number 2 to a large-cap value fund, and so on for each possible style. This nominal scale categorizes the funds according to
25、 their style but does not rank them.2.Ordinal scales reflect a stronger level of measurement. Ordinal scales sort data into categories that are ordered with respect to some characteristic. For example, the Morningstar and Standard & Poors star ratings for mutual funds represent an ordinal scale in w
26、hich one star represents a group of funds judged to have had relatively the worst performance, with two, three, four, and five stars representing groups with increasingly better performance, as evaluated by those services. An ordinal scale may also involve numbers to identify categories. For example
27、, in ranking balanced mutual funds based on their five-year cumulative return, we might assign the number 1 to the top 10 percent of funds, and so on, so that the number 10 represents the bottom 10 percent of funds. The ordinal scale is stronger than the nominal scale because it reveals that a fund
28、ranked 1 performed better than a fund ranked 2. The scale tells us nothing, however, about the difference in performance between funds ranked 1 and 2 compared with the difference in performance between funds ranked 3 and 4, or 9 and 10.3.Interval scales provide not only ranking but also assurance th
29、at the differences between scale values are equal. As a result, scale values can be added and subtracted meaningfully. The Celsius and Fahrenheit scales are interval measurement scales. The difference in temperature between 10C and 11C is the same amount as the difference between 40C and 41C. We can
30、 state accurately that 12C = 9C + 3C, for example. Nevertheless, the zero point of an interval scale does not reflect complete absence of what is being measured; it is not a true zero point or natural zero. Zero degrees Celsius corresponds to the freezing point of water, not the absence of temperatu
31、re. As a consequence of the absence of a true zero point, we cannot meaningfully form ratios on interval scales. As an example, 50C, although five times as large a number as 10C, does not represent five times as much temperature. Also, questionnaire scales are often treated as interval scales. If an
32、 investor is asked to rank his risk aversion on a scale from 1 (extremely risk-averse) to 7 (extremely risk-loving), the difference between a response of 1 and a response of 2 is sometimes assumed to represent the same difference in risk aversion as the difference between a response of 6 and a response of 7. When that assumption can be justified, the data are measured on an interval scale.4.Ratio scales represent the strongest level of measurement. They have all the characteristics of interval measurement scales as well as a true zero point as the origin. With ratio
