986 942 Question not answered EAR 1 periodic interest rate m 1 1 009 365 365 1

# 986 942 question not answered ear 1 periodic interest

This preview shows page 30 - 33 out of 53 pages. EAR = (1 + periodic interest rate) m – 1 = [1 + (0.09 / 365)] 365 – 1 = 0.094162, rounded to 9.42%. CFA Level I "The Time Value of Money," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle Sections 3.2, 3.3 Question 68 of 120 The belief that trends and patterns tend to repeat themselves and are, therefore, somewhat predictable best describes: arbitrage pricing theory. technical analysis. weak-form efficiency. Question not answered Technical analysts believe that trends and patterns tend to repeat themselves and are, therefore, somewhat predictable. CFA Level I "Technical Analysis," Barry M. Sine and Robert A. Strong Section 2.1 Question 69 of 120 Assume that a stock's price over the next two periods is as shown below. Time = 0 Time = 1 Time = 2 S 0 = 100 S u = 110 S uu = 121 S d = 92 S ud , du = 101.20 S dd = 84.64 The initial value of the stock is \$100. The probability of an up move in any given period is 40%, and the probability of a down move in any given period is 60%. Using the binomial model, the probability that the stock's price will be \$101.20 at the end of two periods is closest to: 48%. 16%. 24%. Question not answered Across two periods, there are four possibilities: an up move followed by an up move (\$121.00 end value), an up move followed by a down move (\$101.20 end value), a down move followed by an up move (\$101.20 end value), and a down move followed by a down move (\$84.64 end value). The probability of an up move followed by a down move is 0.40 × 0.60 = 0.24. The probability of a down move followed by an up move is 0.60 × 0.40, which also = 0.24. Both of these sequences result in an end value of \$101.20. Therefore, the probability of an end value of \$101.20 is 48%. Alternatively, the following formula could be used: where n = 2 (number of periods) x = 1 (number of up moves: ud and du ) p = 0.40 (probability of an up move) CFA Level I “Common Probability Distributions,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle Section 2.2 Question 70 of 120 Which of the following most accurately describes a distribution that is more peaked than normal? Platykurtotic Leptokurtotic Mesokurtotic Question not answered A distribution that is more peaked than normal is called leptokurtotic. CFA Level I "Statistical Concepts and Market Returns," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkle Section 9 Question 71 of 120 If two events, A and B , are independent and the probability of A does not equal the probability of B [i.e., P( A ) P( B )], then the probability of Event A given that Event B has occurred [i.e., P( A B )] is best described as: P( A ). P( B A ). P( B ). Question not answered Two events, A and B , are independent if and only if P( A B ) = P( A ) or, equivalently, P( B A ) = P( B ). The wording of the question precludes P( A ) = P( B ); therefore, P( B ) and P( B A ) cannot be correct. CFA Level I "Probability Concepts," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E.  #### You've reached the end of your free preview.

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