# Study Session 2: Quantitative Methods: Basic Concepts

## I'm just not able to get Quants for the life of me

I’m getting decent scores in all other sections except Quants which I’m just not able to grasp . I’ve tried to memorize all the formulas and concepts but I still have a hard time understanding probabilities, standard deviations, coefficient correlation, variance covariance, one tail two tail, z test f test etc.

I think this section will be the one which will screw my scores. Any preparation advice for the last 10 days? Continue reading

Five years ago, an investor borrowed \$5,000 from a financial institution
that charged a 6% annual interest rate, and he immediately took his family
to live in Nepal. He made no payments during the time he was away.
When he returned, he agreed to repay the original loan plus the accrued
interest by making five end-of-year payments starting one year after he
returned. If the interest rate on the loan is held constant at 6% per year,
what annual payment must the investor make in order to retire the loan?
A. \$ 1 ,3 3 8 .23 .

## Time-weighted Return

On January 1, Jonathan Wood invests \$50,000. At the end of March, his investment is worth \$51,000. On April 1, Wood deposits \$10,000 into his account, and by the end of June, his account is worth \$60,000. Wood withdraws \$30,000 on July 1 and makes no additional deposits or withdrawals the rest of the year. By the end of the year, his account is worth \$33,000. The time-weighted return for the year is closest to:

A) 7.0%.
B) 5.5%.
C) 10.4%.
January – March return = 51,000 / 50,000 − 1 = 2.00%

## Post Your Level I Quant Questions Here

I you have any Level I Quant questions you can post them under this thread by end of day today (8 May).  I will try to address as many of these questions as possible.

## Effective annual interest rate

If an investment of \$4000 will grow to \$6520 in four years with monthly compounding, the effective annual interest rate will be closest to:

1. 11.2%
2. 12.3%
3. 13.0%

I used (1+r/12)^48 to get the interest rate of 12.3%. But the answer is 13.0%. The solutions says “The question asks for the effective annual rate and gives the beginning and ending values. Monthly compounding is not relevant”. Why is this? Continue reading

## z table

Is z table provided in the exam Continue reading

Hello, I hope I put this in the right section.

When calculating Jensens alpha, do you use the expected market return, or the actual market return for a specific period?

In (Jensen, 1968, p. 391) Jensen writes: Continue reading

## simple TVM question

Can you guys help me and do this strictly in END mode? I can’t seem to get the correct answer. In the first line I get PV as \$45059.70. Then I have an annuity of 9 years instead of 10, but I get PMT as \$3049.59.

If, however, I discount it by 10 years, I get \$2,567.69. Multiply this by the discount rate of 12% and I get the correct answer of \$2,875.81.

Why is there a discrepancy? And also on the exam, is it better to leave your calculator in END mode and be consistent or should I change from END to BGN depending on the question? Continue reading

## Covariance question

There must be a quick way to get to this answer but I am stumped.  I understand the basic formula for correlation is COV divided by product of Standard Deviations.  Any suggestions?