N
observarion from normal distribution; represents /I of standard deviations a given observation is from population mean.
Z
l)Xi-ld
population variance: (12_-'i-"'I _
= observation源自- population standard deviation
m~-an
= x -I'
a
(A)
(B)
N
(C) (A) (6) (C)
f)x,
sample variance _ S","dard Holding
c;2
-x)l
.i_I -n
_
deoimion: square root of variance.
Compliallcntatnllmr:
X
Central limit Theorem Central limit theorem: when selecting simple random samples of size 11 from POp"lntiOIl with mean II and finite variance CT1, the sampling distriburion of sample mean approaches normal probability distribution with mean It and variance equal to 0'1/11 as the sample size becomes large. Standard Error Sl,l1ItUlrd fTTOr of II" wmpl~ mean i, the srandard devurion of disrriburion of the sample means. known population variance:
E(Rp) = w"E(RA)
+ wBE(Rs)
I
(A) (B) I (C) (D)
(A)
,.ar(Rp)= wl\u!(R\)+w~u2(R8)
+2w \ w8(7{RA )U(RR)P(R Normal Distributions Norma] distribution i~ completely mean and variance. 68% of observations fall within 90% fall within t 1.650 95% fall within t 1.960. 990" fall within ;t 2.58(7. Computing Z-Scores \.Ra)
E(R) ~ RFR + fP + RP
Means Arithmetic mean: sum of all observation values in sample/population. divided by II of observations. Geometri« "mill: used when calculating investment returns over multiple periods or ro measure compound growth rates. Geonmrir /liMn return:
bal Investmenr PS®)
"[Insert name of firm) has repared and presented rhis reporr in compliance with rhe Global lnvesrmene Performance tandards (GIPS)." Compliance must be applied n a firm-wide basis. Nine S~CliOTU:fundamenrals of compliance, nput data. calculation methodology. composite onstruction. disclosures. presentation and eponing, real estate, private equity. and wrap ee/separately managed account ponfolios.
CRITICAL CONCEPTS FOR THE 2014 CFA®
Approximation formula for nominal required rate:
ExAM
Exprctrd return, variance of2-S1ock portfolio:
THICAL AND PROFESSIONAL ANDARDS
population Intervals
variance: s,
Value of Money Basics UNlr( Ult/'IL (FV): amount to which investment rows after one or more compounding periods. uture ualu«: FY = PV(J + I/Y)'. resent ualu« (PV): current value of some future ash Aow PV = FY/(I + I/Y)N. nnuities: series of equal cash Aows that OCCurat venly spaced intervals over time. Ordinary annuity: cash Aow at md-of-time period. l1IlIIity due: cash Aow at brginnillg-of-rime period. t'rpel1liliff: annuities with infinite lives. PMT/(discount rate). PVI"".
(A) (B)
R _ P, P, , 1', Coefficient
D, or 1'.
+ DJ. -I
1',
I
SampllIIg distribution.
of Variation
Co4Jirirllf of variation (CV): expresses how much
dispersion exists relative to mean of a distribution; allows for direct comparison of dispersion across different data sets. CV is calculated by dividing standard deviation of a distribution by the mean or expected value of the distribution: CV=~ Sharpe
described by irs
t
(B) (A)
(B)
R •. 1(I+R)x
harmonic mean
•. (I.R,)]-1 N
1(1.
(C) (D) (E) (A) (6) (C)
t[l]
, I
X,
L-scol7: "standardizes"
from mean.
Variance
and Standard Deviation l17riallc~:avcrage of squared deviations
probability distribution of all possible sample S{d{IStlC computed from a set of equal-size samples randomly drawn from the same population. The samplillg distribution of'''~ mean is the distribution of estimates of the mean.
For both rarios, larger Expected Exprcud return:
berrcr, Deviation
Return/Standard = P(xi
CollfitUncr interual: gives range of values the mean
value will be between. with a given probability (say 90% or 95%). With known variance. formula for a confidence interval is: _ (1
E(X)
E(X) = 2::P(Xi) x. )xl + P(X2)X2 + ... + P(x.}x.
Probabilistic uariance:
(12(X)= 2::P(x,)lx, - E(X)t = P(X')[:<I E(X)]l + p(x2)lx2 - E(X)]2 +...+p(x.)lx. E(X)]2
Professionalism Knowledge of the Law, Independence and Objectiviry Misrepresentation. Misconduct. Inregrity of Capiml Markers Material Nonpublic Information. Market Manipulation. Duties to Clients Loyalty. Prudence. and Care. Fair Dealing. Suitability, Performance Presentation. Preservation of Confidenrialiry, Duties to Employers Loyalty. Additional Compensation Arrangements. Responsibilities of Supervisors. Investment Analysis, Recommendations, and Action Diligence and Reasonable Basis. Communication wirh Clients and Prospective Clients. Record Rereruion. Conflicts of Interest Disclosure of Conflicrs. Priority of Transacrions. Referral Fees, Responsibilhies as a CFA lnstirute Member Or CFA Candidate Conduct as Members and Candidates in the CFA Prograrn. Reference to CFA Institute. the CFA Designation. and the CFA Program. Performance Standards