SAMPLE QUESTIONS OUTCOMES

1. READ ALWAYS THE QUESTION CAREFULLY AND PUT

ATTENTION ON ALL THE KEY WORDS AND GRAMMATICAL
IMPLICATIONS OF THE SENTENCE.
SESSION 1 ETHICS AND PROFESSIONAL STANDARDS
1. GIPS does not allow for partial compliance.
2. GIPS not permit define a firm as a regional branch, only one claim must
include all regional branches of the firm (whole firm compliant).
3. Measures to separate investment banking division and brokerage
department are firewalls or restricted list (not legal list).
4. Nobody, unless the author, is able to read the pre-release of an
investment recommendation.
5. Not all proxies should be voted, only should be voted those selected
after a cost-benefit analysis.
6.
SESSION 2 QUANTITATIVE (I)
1. Conceptual differences between required return (minimum level
required by investor), discount rate (rate at which we discount cash flows
and computed based on rates earned in other affordable projects) and
opportunity cost (earnings not realized due to undertake a project).
2. Stated Rate = (holding period return) * (number of periods); not miss
that the periodicity of stated rate is relevant when solving questions.
3. Take care of differences between Annuities and Annuities Due.
4. Annuities always start at the first date of the first period, always
should take into account this fact.
5. First outflow in investment projects is always in t=0 (i.e. next 4 periods
would end in t=4, not in period 5).
6. When calculating Holding Period Return always must take into
account the coupon, not only compute it using initial and final prices.
7. Money Weighted Return = IRR of a given portfolio.
8. Always take into account dividends in Money Weighted and Time
Weighted problems and do not miss that dividends correspond to one
share, and we should compute for all the shares.

9. Put attention when Time Weighted Return periods are within the
same year or in different years, due to this fact will affect the root of the
products.
10. Put attention on the type of yield the question asks for.
11. Coefficient of Variation = Standard Deviation / Mean
12. Sample (statistic) while Population (parameter).
13. A Frequency Polygon is composed by a line that links points
representing the absolute frequency of an outcome.
14. The Geometric Mean is always lower or equal than Arithmetic Mean.
15. The Compound Annual Rate is computed using the Geometric
Mean in the case of portfolios return.
16. Always use the Percentile Formula, never trust in the visual or quick
reasoning.
17. Take care about what percentile the question is asking for.
18. Put attention on whether the question is giving the Standard
Deviation or the Variance, in whom case we must compute the deviation.
19. The Range matters in skewness, the distance between the Mode and
extreme values of the range denotes the extent of skewness.
20. Arithmetic Mean (best estimator for the next year) while Geometric
Mean (best estimator for the compound growth rate).
21. An Event is a set of one or more possible outcomes of the random
variable.
22. A Random Variable always must be a number.
23. Odds = Prob / (1 Prob) Inverse Odds = (1 Prob) / Prob (This is related
with the next point)

24. Odds Inverse = 1 to x+1 or x-1 to 1 depending on where is 1 in the

original odd (i.e. 12 to 1 -> 1 to 13 and inverse)
25. Unconditional Probability = P (A)
26. Bayes Theorem: always used when the event we know has produced in
the second phase of the diagram tree.
27. Statistically Independent = Independent (standard term).
28. Conditional Expectation: it means that you redefine the probability of
an event given new information affecting it.
29. Covariance: it can be positive or negative.

30. Absolute value of Covariance does not matter, only its sign is
relevant.
31. When Covariance is 0 it can be due: 1/ no relationship at all or 2/ no
linear relationship, but a non-linear relationship may exist.
32. Only use expected value when we have the probability of an
outcome.
33. Not miss compute the square root of variance when calculating
the standard deviation of a given portfolio.
34. Dividends are considered as Outflows when computing the MoneyWeighted Return.
35. When computing variance using probabilities and weighted mean,
always make the square of the paragraph before the multiplication
by the probability.
36. Always draw the timeline when computing Time Weighted and
Money Weighted returns.
37. In Time Weighted and Money Weighted problems, t=1 means final of
year 1.
38. The median for a ranked sample (i.e. 0 to 10, 10 to 20) is not the
middle value of each group; we should compute the fraction within
the interval.
39. Do not use the percentile formula (50%) for the Median, better
use N/2 and then find the value among sorted values.
40. Put attention when question gives the cumulative function F(x), due
to it shows the probability lower than (x), and we do not need to sum all
the probabilities below.
41. Remember that formula for Binomial probability uses combination
(N! / (N X)! X!)
42. Time weighted return must be computed using all periods return,
even those where securities are not sold or bought.
43. Not matter the number of shares traded in computing time
weighted return, only need to calculate one share return.
44. T-bills are considered nominal risk-free rate indicators, due to they
contain an inflation premium (Nom = Real + Inflation)
45. The stated annual rate is equal to Nominal rate.
46. The periodic effective annual rate is simply (1+ (r/x)) ^ x where
periodic can be quarterly, monthly, biannual

47.
SESSION 3 QUANTITATIVE (II)
1. Read carefully when asking about the probability of a set of outcomes
or a specific outcome.
2. When calculating confidence intervals and the mean is given as a
percentage return of an asset, we must use the non-percentage value
(i.e. 2.5% -> 2.5) due to variance and sample size is not given as a
percentage.
3. Do not miss to compute the square root of the sample when
calculating the standard error.
4. Always check if a sample is lower than 30, due to in that case we
should use the T-Student distribution.
5.
SESSION 4 ECONOMICS (I)
1. Opportunity Costs = implicit costs (pure opportunity cost like
foregone interest, economic depreciation or normal profit) + explicit costs
(rent, material)
2. Always detect which kind of profit the question asks for (accounting,
economic, normal or economic rent).
3. Economic Rent = difference between we actually earn and the
other best alternative (while opportunity cost would be the amount
earned taking the second best option).
4. Always draw a diagram with curves or reasoning behind the concepts
the question involves.
5. For publicly traded corporations, the required rate of return is
interpreted as the implicit cost the firm faces.
6. Always draw the plot when facing problems about short or long term.
7. When calculating real exchange rate and interest rate parity, identify
clearly which currency is foreign and which currency is national.
8. Inventory-to-sales ratio and utilization of factors are indicators of
current contraction / expansion, not future predictors.
9.
SESSION 13 CORPORATE FINANCE
1. The turnover of an element is inversely related with the average
days of the element.

2. The average collection period refers to the number of days the

credit clients take to pay.
3.
4.

SESSION 14-15 EQUITY INVESTMENTS

1. The ROE also can be computed as ROA multiplied by Financial
Leverage.
2. Preferred stock does not pay dividends in an earnings basis; it
pays fixed payments, so we must exclude effect of earnings and
dividends growth in the Discount Model calculation.
3. An investor cannot earn abnormal profit with strategies contrary
to market sentiment when markets are efficient.
4.