Level I

When I was an undergraduate student in university, I was fortunate enough to have to have written only two term papers.  One was in the capstone business management class I took my last semester, and the other was in a class in mathematical modeling.  The term paper I wrote for the latter class was on […]

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When the price of a good changes, there are two effects on the demand for that good: The substitution effect, which is a relative effect (i.e., how the demand for that good, by itself, changes relative to the demand for other goods) The income effect, which is an absolute effect (i.e., how the demand for […]

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After reading a number of posts on AnalystForum in which candidates have had difficulty with linear interpolation or extrapolation, I figured it was time to write an article on the subject.  At Level I it applies to binomial trees for calculating the weights for equity options, and for combining risky portfolios with the risk-free asset […]

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An equity index is nothing more nor less than a hypothetical stock portfolio.  The index pretends to invest in a bunch of stocks, and tracks their performance over time.  It’s the sort of thing that you may have done in a high school economics or history class.  I did, at least. I don’t intend to […]

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In economics, as in physics, an equilibrium is a point at which all opposing forces net to zero: once you’re there, there’s nothing that will drive you away. Do not assume that this means that all equilibria are created equal.  Far from it.  What matters is not what the forces do when you’re at an […]

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A yield spread is an amount of interest that is added to another interest rate (or rates) to achieve some specific goal.  For example, a yield spread might be added to the yield to maturity (YTM) of a risk-free bond to arrive at the YTM for a given risky bond of the same maturity.  Or […]

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Candidates galore have problems (nightmares, really . . . but let’s not rub it in) with p-values.  I’m here to tell you that understanding p-values is easy.  Seriously: easy. A p-value is nothing more nor less than an α: a level of significance.  The best description I’ve heard is that α is the chosen level […]

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I apologize in advance: this article’s long. Every inventory method has two important characteristics: How will costs be assigned to cost of goods sold (COGS) and ending inventory (EI)? When will those costs be assigned to COGS and EI? There are four possible answers to the first question: First-in, first-out (FIFO) Last-in, first-out (LIFO) Average […]

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Much of finance centers around the idea of the time value of money: a dollar (or euro, or yen, or pound, or yuan, or franc, or won, or ruble, or bhat, or rupee, or whatever) today is worth more than a dollar (or euro, or . . . well, you get the idea) tomorrow, because […]

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There are eight articles on hypothesis testing: