The Lognormal Distribution vs. the Normal Distribution
A variable X is said to have a lognormal distribution if Y = ln(X) is normally distributed, where “ln” denotes the natural logarithm. In other words, when the logarithms of values form a normal distribution, we say that the original…
Continuous Compounding
Continuous compounding applies either when the frequency with which we calculate interest is infinitely large or the time interval is infinitely small. Put quite simply, under continuous compounding, time is viewed as continuous. This differs from discrete compounding where we…
Monte Carlo Simulations
Monte Carlo simulations involve the creation of a computer-based model into which the variabilities and interrelationships between random variables are entered. A spread of results is obtained when the model is run many times – hundreds or thousands of times….
Monte Carlo Simulation vs. Historical Simulation
Monte Carlo simulation and historical simulation are both methods that can be used to determine the riskiness of a financial project. However, each method uses different assumptions and techniques to develop the probability distribution of possible outcomes.
CFA Level 1 Study Notes – Financial Statement and Analysis
Study Session 6 Reading 15 – Introduction to Financial Statement Analysis –LOS 15a: describe the roles of financial reporting and financial statement analysis –LOS 15b: describe the roles of the statement of financial position, statement of comprehensive income, statement of…
CFA Level 1 Study Notes – Portfolio Management
Study Session 18 Reading 51 (48 in 2022) – Portfolio Management: An Overview – LOS 51a: describe the portfolio approach to investing – LOS 51b: describe types of investors and distinctive characteristics and needs of each – LOS 51c: describe defined contribution and…
CFA Level 1 Study Notes – Equity Investments
Study Session 12 Reading 36 – Market Organization and Structure – LOS 36a: explain the main functions of the financial system – LOS 36b: describe classifications of assets and markets – LOS 36c: describe the major types of securities, currencies,…
Activity Variation With Business Cycle
Resource Use During a Recession Resources required for the production of goods and services are closely related to the business cycle. Aggregate demand reduces with the beginning of a downturn resulting in the accumulation of inventories. As a result, companies…
Economies and Diseconomies of Scale
Economies of Scale Economies of scale refer to the cost advantage brought about by an increase in the output of a product. Economies of scale arise due to the inverse relationship between the per-unit fixed cost and the quantity produced…
Perfect Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly
Market structure can be defined as the characteristics of a market, which can either be competitive or organizational. Moreover, market structure outlines the nature of the competition and the pricing procedure in a market. Therefore, it describes the number of…
