© CFA Institute. For candidate use only. Not for distribution.

vi Contents

Measures of Central Tendency   386

The Arithmetic Mean   386
The Median   391
The Mode   393
Other Concepts of Mean   394
Other Measures of Location: Quantiles   403
Quartiles, Quintiles, Deciles, and Percentiles   403
Quantiles in Investment Practice   408
Measures of Dispersion   410
The Range   411
The Mean Absolute Deviation   411
Population Variance and Population Standard Deviation   413
Sample Variance and Sample Standard Deviation   416
Semivariance, Semideviation, and Related Concepts   419
Chebyshev’s Inequality   420
Coefficient of Variation   422
Symmetry and Skewness in Return Distributions   424
Kurtosis in Return Distributions   430
Using Geometric and Arithmetic Means   434
Summary   436
Practice Problems   439
Solutions   449

Reading 8 Probability Concepts   457

Introduction   458
Probability, Expected Value, and Variance   458
Portfolio Expected Return and Variance of Return   480
Topics in Probability   491
Bayes’ Formula   491
Principles of Counting   495
Summary   499
Practice Problems   502
Solutions   506

Study Session 3 Quantitative Methods (2)   511

Reading 9 Common Probability Distributions   513

Introduction to Common Probability Distributions   514
Discrete Random Variables   515
The Discrete Uniform Distribution   516
The Binomial Distribution   518
Continuous Random Variables   527
Continuous Uniform Distribution   528
The Normal Distribution   531
Applications of the Normal Distribution   537
The Lognormal Distribution   539
Monte Carlo Simulation   545

indicates an optional segment