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17 Cards in this Set
- Front
- Back
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What is EAR
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Effective Annual Rate. It is the actual annual growth rate, not the APR.
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How do you move from APR to EAR?
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1. APR/N
2. (1+r)^n-1 |
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How do you move from EAR to APR?
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1. (1+EAR)^1/n-1
2. r*n |
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What is a price-weighted index for stocks a,b,c?
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(price of a+price of b+price of c)/D (Divisor starts out as just n, but must be adjusted as stocks split)
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How do you calculate a value-weighted index?
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1. Start with index level of 100
2. w(i)=(market cap of i)/(total market cap) 3. Find increase and apply it to the previous index level. |
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What do we have to do to D on a price-weighted index if there's a stock split?
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Find what the index level would have been had there not been a stock split, then plug that into the normal equation and solve for D.
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How do you calculate an equally-weighted index?
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1. Start with 100 initial level
2. Each stock is weighted 1/n 3. Calculate new level based on equally-weighted return |
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What types of indexes are the Dow Jones', S&P 500, and Wilshire 5000?
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1. Price-weighted
2. Value-weighted 3. Value-weighted |
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How many companies do DJ, S&P, and Wishire 5000 list?
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1. 30
2. 500 3. 7000 |
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What is the most accurate forcast for the outcome of a random variable in a continuous PDF?
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Expectation
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Stat Rule #1
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If z=ax+by
Then E[z]=aE[x]+bE[y] |
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How do you calculate 5% VAR (value at risk)?
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take difference between expected return and the product of standard deviation and 1.64. this difference is the value or more that you can lose with a 5% probability.
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How do you know if something is an unbiased estimator?
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If the amount is very close to the true paramiter
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How do you know if something is a consistent estimator?
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If the standard deviation reduces as we increase the sample size, it is consistent.
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How do you annualize a monthly standard deviation?
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Time sigma by the square-root of 12.
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Sharpe Ratio
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(E[r]-risk free rate)/standard deviation
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How do you test a null hypothesis?
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Find standard error by dividing standard deviation by the square root of n, then take the difference between mean and null, then divide by the standard error.
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