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Sample Questions Outcomes
Sample Questions Outcomes
Sample Questions Outcomes
9. Put attention when Time Weighted Return periods are within the
same year or in different years, due to this fact will affect the root of the
products.
10. Put attention on the type of yield the question asks for.
11. Coefficient of Variation = Standard Deviation / Mean
12. Sample (statistic) while Population (parameter).
13. A Frequency Polygon is composed by a line that links points
representing the absolute frequency of an outcome.
14. The Geometric Mean is always lower or equal than Arithmetic Mean.
15. The Compound Annual Rate is computed using the Geometric
Mean in the case of portfolios return.
16. Always use the Percentile Formula, never trust in the visual or quick
reasoning.
17. Take care about what percentile the question is asking for.
18. Put attention on whether the question is giving the Standard
Deviation or the Variance, in whom case we must compute the deviation.
19. The Range matters in skewness, the distance between the Mode and
extreme values of the range denotes the extent of skewness.
20. Arithmetic Mean (best estimator for the next year) while Geometric
Mean (best estimator for the compound growth rate).
21. An Event is a set of one or more possible outcomes of the random
variable.
22. A Random Variable always must be a number.
23. Odds = Prob / (1 Prob) Inverse Odds = (1 Prob) / Prob (This is related
with the next point)
30. Absolute value of Covariance does not matter, only its sign is
relevant.
31. When Covariance is 0 it can be due: 1/ no relationship at all or 2/ no
linear relationship, but a non-linear relationship may exist.
32. Only use expected value when we have the probability of an
outcome.
33. Not miss compute the square root of variance when calculating
the standard deviation of a given portfolio.
34. Dividends are considered as Outflows when computing the MoneyWeighted Return.
35. When computing variance using probabilities and weighted mean,
always make the square of the paragraph before the multiplication
by the probability.
36. Always draw the timeline when computing Time Weighted and
Money Weighted returns.
37. In Time Weighted and Money Weighted problems, t=1 means final of
year 1.
38. The median for a ranked sample (i.e. 0 to 10, 10 to 20) is not the
middle value of each group; we should compute the fraction within
the interval.
39. Do not use the percentile formula (50%) for the Median, better
use N/2 and then find the value among sorted values.
40. Put attention when question gives the cumulative function F(x), due
to it shows the probability lower than (x), and we do not need to sum all
the probabilities below.
41. Remember that formula for Binomial probability uses combination
(N! / (N X)! X!)
42. Time weighted return must be computed using all periods return,
even those where securities are not sold or bought.
43. Not matter the number of shares traded in computing time
weighted return, only need to calculate one share return.
44. T-bills are considered nominal risk-free rate indicators, due to they
contain an inflation premium (Nom = Real + Inflation)
45. The stated annual rate is equal to Nominal rate.
46. The periodic effective annual rate is simply (1+ (r/x)) ^ x where
periodic can be quarterly, monthly, biannual
47.
SESSION 3 QUANTITATIVE (II)
1. Read carefully when asking about the probability of a set of outcomes
or a specific outcome.
2. When calculating confidence intervals and the mean is given as a
percentage return of an asset, we must use the non-percentage value
(i.e. 2.5% -> 2.5) due to variance and sample size is not given as a
percentage.
3. Do not miss to compute the square root of the sample when
calculating the standard error.
4. Always check if a sample is lower than 30, due to in that case we
should use the T-Student distribution.
5.
SESSION 4 ECONOMICS (I)
1. Opportunity Costs = implicit costs (pure opportunity cost like
foregone interest, economic depreciation or normal profit) + explicit costs
(rent, material)
2. Always detect which kind of profit the question asks for (accounting,
economic, normal or economic rent).
3. Economic Rent = difference between we actually earn and the
other best alternative (while opportunity cost would be the amount
earned taking the second best option).
4. Always draw a diagram with curves or reasoning behind the concepts
the question involves.
5. For publicly traded corporations, the required rate of return is
interpreted as the implicit cost the firm faces.
6. Always draw the plot when facing problems about short or long term.
7. When calculating real exchange rate and interest rate parity, identify
clearly which currency is foreign and which currency is national.
8. Inventory-to-sales ratio and utilization of factors are indicators of
current contraction / expansion, not future predictors.
9.
SESSION 13 CORPORATE FINANCE
1. The turnover of an element is inversely related with the average
days of the element.