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# Category: Level I General

## Correlation . . . of, What, Exactly?

I already wrote an article on the tendency of people in finance to be sloppy in the language they use; you’ll find it here. The purpose of this article is to expand on one specific area in which the language of finance people is particularly sloppy: correlation. The problem, as I see it, is that…

## Sloppy Language, Sloppy Thinking: Don’t Try This at Home

As a mathematician, I’ve been trained to write and speak (and, consequently, to think) using precise, accurate terminology. There are, of course, occasions when even mathematicians abbreviate the things that they write or say, but on those occasions: We know that we’re abbreviating, and All mathematicians have agreed to the abbreviations used. As an educator,…

## Linear Interpolation/Extrapolation

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…

## Choice of Calculator

Lots of Level I candidates agonize over the choice of calculator: Should I choose the HP 12C or should I choose the TI BA II Plus? The answer to this question used to boil down to whether you prefer algebraic notation or reverse Polish notation (RPN): the TI used the former while the HP used…

## Amortization Tables

Although you are not allowed to use Excel (or any other spreadsheet program) on the exam – you have to survive with your lowly financial calculator – it’s still useful to be able to create amortization tables in a spreadsheet, to help you visualize the cash flows and account balances in a variety of financial…

## Cash (Currency): the Wonky Commodity

Throughout Level II and Level III – and a little bit at Level I – we see calculations that involve commodities; e.g., calculating the price or value of a forward or futures contract on an underlying commodity. In all of those calculations, the quantity of the commodity is constant; for example, if you’re given the…

## Arbitrage

Arbitrage means the ability to earn a profit without risk. One method by which arbitrage is commonly accomplished by buying an asset in one market, and simultaneously selling an identical asset in another market at a higher price (e.g., T-Notes or T-Bonds). Another is by borrowing an asset (e.g., a currency) and investing it at…

## Is This Answer Reasonable?

In many of the topics in the Level I CFA curriculum you are required to calculate a numerical answer: You have to calculate an NPV in Quantitative Methods or Corporate Finance You have to calculate the yield of a bond in Fixed Income You have to calculate a forward interest rate in Fixed Income and…

## Applying Level I Economics to Your Level I Studying

The most important topic in Econ is marginal revenue product: the idea that you maximize your profit (minimize your cost) when the ratio of marginal revenue product to input price for all inputs is the same: \[\frac{MRP_{1}}{P_{1}} = \frac{MRP_{2}}{P_{2}} = \cdots = \frac{MRP_{n}}{P_{n}}\] That is, it’s the most important if you can apply it to…

## How to Approach the Level I CFA Exam

If you’ve never taken the Level I CFA exam, you’re in for a real treat. (If you’ve taken it before, you already know what I mean.) This exam will be six hours – three in the morning, and three in the afternoon – and it will be exhausting, both mentally and physically. Thus, you need…