Reading 10: Sampling & Estimation

Lessons Learned:

• Know the central limit theorem well
• Lots of early definitions, shot LOS’s
• Realization: I can’t draw Alpha worth a crap
• I generally find confidence intervals and degree of freedom interesting
• Importance of n > 30
• Z & T tables will likely not show up on the exam and these numbers will be provided to you
• Memorize figure 3 in schweser notes; the criteria for selecting the appropriate test statistic
• Biases are very good, I actually think more time should have been spent on this topic.
• Normal distribution is easier to work with
• Calculating everything given ___ and without ____ (ex; given std. dev. and not given std. dev.)
• As degree of freedom increases, tails become thinner
• Higher df make the distribution look more normal
• 1 & 2 tailed tests

Reading 7: Statistical Concepts & Market Returns

Lessons Learned:

• Lots of high school math here, I need a refresh badly
• University courses covered a small part of the stats section
• Chebyshev sounds like a cut of meat….
• Measures of Central Tendency v Measures of Dispersion
• Descriptive v inferential statistics
• Types of Measurement Scales: Use NOIR
• Kurtosis sounds like something you’d say on street fighter while shooting fireballs out of your hands…..
• Constructing a frequency distribution
• Mode distributions
• Memorizing the essential letters like n, Xi, std dev….etc
• How the $^%* do you square a percentage schweser….hmmmmm
• Leptokurtic, Platykurtic and Mesokurtic distributions

I am being a little vauge here on purpose as I dont want to infringe on anybody copy-written materials.  I will try to include personal notes, but for the most part I am just summing up thoser key concepts that I took from this chapter.

Reading 5: The Time Value of Money

I spent a lot of time on this chapter, and not because it was hard, but because I was a bit to comprehensive.  I have covered this in great detail in my previous posts, so lets get started.  I was pretty familiar with these concepts going in, although some of the information was new.  Overall I give this a 4/5 in terms of comprehension and a 4/5 in terms of retention.

Lessons Learnt:

• Switch to BGN mode if a question is an annuity due
• Clear TVM, CF as often as you remember; ideally after the conclusion of every question that requires its functions.
• Discounting (PV) vs Compounding (FV)
• The intricacies of drawing a time-line….I originally blew this off until it became a necessity and now i’m addicted
• Nominal risk-free rate = real risk-free rate + expected inflation rate
• Additional premiums cover default risk, liquidity risk, maturity risk.
• Annual Interest Rates vs Periodic Rates vs Effective Annual Rate
• EAR increases as the compounding frequency increases
• Ordinary annuities vs annuity due
• BGN v END mode
• Perpetuity (PV/FV)
• How to use the CF function in my BA II Plus Professional
• A slight reminder of how annoying amortization is…..dread FRA
• Simple rule: opposite signs when using TVM Solver (-PV, +FV…)

Quant: Schweser v. CFAI

I just wanted to mention a quick, yet fundamental, difference between the Schweser and CFA Curriculum in regards to Quant reading 5. I haven’t read through Schweser yet, so I will likely comment on this more when I do.  However, I did review some concepts in Schweser today for additional understanding, and one thing I am pleased about is Schwesers focus on teaching the keystrokes.  Instead of teaching you how to calculate the formula, schweser focuses on teaching you how to obtain the same answer using the functions in the calculator.  I personally believe you need a sound foundation in the theory and the process of the formula, instead of relying all on a piece of technology, but that is a personal preference.  Come exam time I will be using the calculator, but I will also be able to decipher what the calculator is doing and why.

This makes it even more relevant that I go through the material with both sources, as now I can really build layers of understanding on each LOS.

- Steve

Dear Quant: Please jump off a tall bridge and plumet to your untimely demise…..thanks.

Disclaimer:  I had originally intended for this to be a one post deal, but the content was just way to large, so I intend to split it up into three posts: (1) this one, (2) Quant: Schweser v. CFAI (3) Quant: SS2 – Reading 5 notes

I take back whatever I said about quant in the past. Reading 5 was, simply, ridiculous.  I spent time figuring out the process to each example on all 41 pages of reading 5 in the CFA Curriculum. This was the original plan and I knew it would extend my overall projected time.   I think it really helped with my retention and understanding of the material, however it took me approximately 15 hours over two days to complete.  15 hours to cover 41 pages is by any measure, absolutely ridiculous, redundant and most importantly, extremely frustrating.  I finished the reading around 4 PM today, at which point I was supposed to move on to reading 6, but frankly, I was much to frustrated and discouraged to move on tonight.  It’s not that I found any of the content in this chapter relatively complex (although some minor details did give me some trouble at times), but its just the depth of the material and content inside this reading was immense.  Some of these issues stemmed from simple misunderstandings with basic mathematical principles and rules, while others required me to change variables and settings on my BA II Plus.

I am aware that we will not have to do these combersome questions on the exam, but I wanted to learn it for a number of reasons:

1. To increase my knowledge base
2. To prepare for more advanced quant I will be studying for FRM in November
3. To prepare for more advanced quant in CFA-L2

Quant in finance is a fundamental component of any valuation and analysis, and I knew I had a long road ahead of me before I truly mastered quant the way I want to.  However, truly mastering the minute details associated with each formula was a daunting task.  This chapter is supposed to be a fundamental part of the course, as well as the CAIA and CFP designations I will be taking in the near future.  So justifying the time is not the problem.  However, I am also under time constraints and my study schedule has now be severely altered.  I am also not sure if this chapter is a representative of the amount of time I need to put into every reading to gain this level of mastery or not.  These questions are causing a little bit of anxiousness and nervousness when looking at the overall study plan.  What makes me more nervous is the relative amount of content I have to cover.  I assume this is a natural feeling, and it will dissipate once I get through Quant, Economics & FSA.  However, at this pace quant would take 18 days for the curriculum material alone, which is not acceptable.  Its the not knowing that drives me nuts, so I hope I can get a feeling of my overall progress in this section soon.

For me, the ultimate frustration came in that, every single example I went through I had some sort of problem with. Whether it was my calculator rounding up, or entering in the wrong numbers, misreading the question, recalling the purpose of the formula or how to calculate a portion of a larger formula. I am usually a fairly patient guy, but when every single problem presents some sort of issue, I begin to get a tad bit irritated.  I am sure other people have similar issues, this is just me venting my own personal opinions.  Ultimately I feel that at the end of this painful process, I will be much better off.  Being done reading 5 I am fairly confident that I can score a 60% and above without having any revision or looking at the schweser notes.  This may not sound very good to some of you, but a 60% for me in quant is a significant improvement.  With my process (described in other posts) and thorough review, I think this painful approach will pay off. Not only do I review the extend content, but I review the narrowed down content (schweser notes & secret sauce), memory retention (cue cards) and practice (end of chapter problems, calculating examples, qbank).  This process for quant will be cumbersome and difficult to make it through, but I think I can really nail the concepts to my goal of 80%.  I also must say that these frustrating rants may continue while I am in quant, if these circumstances continue as well.

- Steve

Bought my BA-II Plus……

I decided on getting the BA-II Plus after realizing the difference between the two allowed calculators: absolutely nothing.  I played around with both, and beyond some formatting differences, they both did the same thing.  I went with what I knew, Texas Instruments.  I don’t see a calculator being a make or break decision here, either one will do.  Just remember to play around with it and get used to the functions.  For your own purposes, I would check out the handful of links in the sidebar under “Calculator”.  There is some great stuff there.