Level I

In the Level I CFA curriculum there are, at the moment, these probability distributions that candidates must understand and be able to use: Discrete distributions Binomial Uniform  Continuous distributions Chi-square (χ2) F Normal Student’s t Uniform This article will describe discrete and continuous distributions in general and how to use them; the links, above, will […]

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Before reading this article, make sure that you have read the article on probability distributions in general. The continuous uniform distribution is almost as easy to understand as the discrete uniform distribution: although it has an infinite number of possible values that it can take – it is continuous, after all – those values comprise […]

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Before reading this article, make sure that you have read the article on probability distributions in general. The discrete uniform distribution is arguably one of the easiest to understand: it has only a finite number of possible values that it can take, and the probability of taking on any value is the same as the […]

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Before reading this article, make sure that you have read the article on probability distributions in general. The binomial probability distribution is a discrete distribution: it has only a finite number of possible values that it can take.  To understand the binomial distribution, you first have to understand the idea of a Bernoulli trial. A […]

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The first thing I’d like to say about Chebyshev’s inequality is that it’s a good thing for most CFA candidates that these exams are written, not oral.  If they were oral, most would fail simply because they cannot pronounce “Chebyshev” (or, for that matter, at Level II, “Modigliani” or “heteroskedasticity”).  The first part is pronounced […]

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Occasionally, you will need to know how to compute free cash flow to equity (FCFE) given free cash flow to the firm (FCFF), or how to compute FCFF given FCFE.  The formulae are relatively easy, but for sake of completeness I thought that I’d write a short article on them Recall that the formula for […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

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The idea of interest rate parity (IRP) is pretty simple.  In a nutshell, it says that if you hold a particular currency – say, GBP – and you want to to make a risk-free investment of that currency, you should earn the risk-free interest rate for that currency for the length of time of your […]

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The idea of roll yield – or roll return, same thing – is relatively straightforward: it’s part of the increase or decrease in the value of your portfolio that arises specifically when you roll over an expiring futures or forward contract into a new contract.  The other part of that increase or decrease is the […]

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