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Study Session 2: Quantitative Methods: Basic Concepts

Taking a crack at lvl 1

I attempted to begin studying the lvl 1 material through Kaplan using their full package about a year ago in preparation for the June ‘18 lvl 1 exam. Basically what happened was I began to feel overwhelmed. I am a CFP (FWIW*) and have an understanding of basic TVM concepts however I felt that the QM basics were a little over my head.

CFA Level I Question

How would you solve this algebraically? Can you show your work? Thanks!

 

CFA Practice Question

Is there a quick way to do Question 19 on page 342 Reading 6: Time Value of Money on the ba ii plus (as opposed to typing all those numbers in and compounding)? And how would you do it? Thanks in advance. 

TVM of a perpetual annuity starting in the future

Hi All, I am challenged by this practice question:

“A perpetual preferred stock makes its first quarterly dividend payment of $2.00 in five quarters. If the required annual rate of return is 6% compounded quarterly, the stock’s present value is closest to …”

- We know the quarterly rate is annual rate / number of periods so 6% / 4 = 1.5%

- We know the present value of the perpetual annuity is Cash flow / rate so 2 / 1.5% = 133.33

How many digits did you set your BA II Plus calculator?

I previously set the calculator to 4 four digits.

Not really four digits. But here’s how it works.

0.4032. The calculator’s default is 0.40, for instance.

But recently I encountered a question and I got it wrong because it requires two more digits….Duh

So I like to ask all of you, how many digits should I set for my calculator, to be safe?

Thanks.

Probability Questions - Wiley

I came across these two Probability Questions while practicing Wiley QBank; Correct answers were provided but no explanations were given; hence this post. 

Variance A + variance B and portfolio variance

 From Variance (A+B) = variance A + variance B + 2 covariance(x,y)

and the portfolio variance consisting of stock A and B equally weighted.

= weight2( variance A) + weight2(variance B) + 2 (weight A)(weight B)( covariance)

i try using the same number for both of the equation but doesn’t yield the same result. Are those two formula the same?

thank you

Annuity Payment N Years Away Confusion!

“An investor wants to receive $10,000 annually for ten years with the first payment five years from today. If the investor can earn a 14% annual return, the amount that she will have to invest today is closest to:”