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CFA Notes Chapter 7

CFA Notes Chapter 7

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Published by Logan Best
This document contains my notes on chapter seven.
This document contains my notes on chapter seven.

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Published by: Logan Best on Mar 06, 2011
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08/09/2013

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Chapter 7Statistical Concepts and Returns
1.
 
Intro
Re
turn
dis
tr
ib
ut 
i
on
s2.
 
F
un
dame
nt 
al C
onc
ep
s1.
 
Na
tur
e
of 
S
a
is
i
c
si.
 
Des
cr
ip
ive S
a
is
i
c
s:
th
e s
tu
dy
of 
 
how
da
a
c
a
n
be s
u
mma
r
ized e
ff 
e
ct 
ively
to
 des
cr
ibe
th
e imp
ort 
a
nt 
aspe
ct 
s
of 
la
rg
e da
a se
s.ii.
 
S
a
is
i
c
al
Inf 
e
r
e
nc
e:
In
v
o
lves maki
ng
 
for
e
c
as
s, es
ima
es,
or
j
u
d
g
me
nt 
sab
out 
a la
rg
e
r
 
grou
p
fro
m
th
e smalle
r
 
grou
p a
ctu
ally
o
bse
r
ved.2.
 
P
o
p
u
la
i
on
s a
n
d Samplesi.
 
P
o
p
u
la
i
on
: as all membe
r
s
of 
a spe
c
i
ied
grou
pii.
 
Sample: a s
u
bse
 
of 
a p
o
p
u
la
i
on
 iii.
 
Sample S
a
is
i
c
: is a q
u
a
nt 
i
y
co
mp
ut 
ed
fro
m
or
 
u
sed
to
des
cr
ibe a sample3.
 
Meas
ur
eme
nt 
S
c
alesi.
 
Nominal Scales
:
nu
me
r
i
c
al
c
a
e
gor
ies
If 
 
w
e assi
gn
ed i
nt 
e
g
e
r
s
to
m
utu
al
fun
ds
th
a
 
fo
ll
ow
di
ff 
e
r
e
nt 
i
n
ves
me
nt 
s
tr
a
e
g
ies,
th
e
nu
mbe
r
1 mi
ght 
 
r
e
e
r
 
to
 a small-
c
ap val
u
e
fun
d,
th
e
nu
mbe
r
2
to
a la
rg
e-
c
ap val
u
e
fun
d, a
n
d s
o
 
on
 
for
 ea
ch
p
o
ssible s
yle.ii.
 
Ord
inal Scales
: A
nu
mbe
r
assi
gn
ed
to
a
c
a
e
gor
y
to
 
r
ep
r
ese
nt 
pe
rfor
ma
nc
eb
ut 
i
d
o
es
not 
 
ell y
ou
a
n
y
th
i
ng
 
how
a
i
r
m i
n
 
c
a
e
gor
y
on
e did
r
ela
ive
to
 spe
c
i
i
c
 
i
r
m B i
n
 
c
a
e
gor
y 2. T
h
e di
ff 
e
r
e
nc
e be
tw
ee
n
 
r
a
n
ki
ng
s is
not 
 
n
e
c
essa
r
ily eq
u
al.
IE
 
th
e p
ro
babili
y
of 
de
a
u
l
is
not 
eq
u
al be
tw
ee
n
AAA a
n
dAA is
not 
 
E
q
u
al
to
BBB a
n
d BB.iii.
 
I
nte
rv
al scales
: T
h
ese
not 
 
on
ly p
ro
vide
r
a
n
ki
ng
b
ut 
als
o
ass
ur
a
nc
e
th
a
 
th
edi
ff 
e
r
e
nc
e be
tw
ee
n
s
c
ale val
u
es is eq
u
al.iv.
 
R
atio Scales
: T
h
is is
th
e s
trong
es
 
for
m
of 
meas
ur
eme
nt 
. T
h
ey
h
ave all
th
e
ch
a
r
a
ct 
e
r
is
i
c
s
of 
i
nt 
e
r
val meas
ur
eme
nt 
s
c
ales as
w
ell as a
tru
e se
ro
p
o
i
nt 
as
th
e
or
i
g
i
n
.3.
 
S
u
mma
r
izi
ng
Da
a
u
si
ng
F
r
eq
u
e
nc
y Dis
tr
ib
ut 
i
on
 i.
 
F
r
eq
u
e
nc
y Dis
tr
ib
ut 
i
on
: a
ab
u
la
r
display
of 
da
a s
u
mma
r
ized i
nto
a
r
ela
ively small
nu
mbe
r
 
of 
i
nt 
e
r
vals.1.
 
H
o
ldi
ng
Pe
r
i
o
d Re
turn
 
for
m
u
laa.
 
b.
 
P
t=
p
r
i
c
e pe
r
s
h
a
r
e a
 
th
e e
n
d
of 
 
ime pe
r
i
o
d
 
c
.
 
P (
-1)
=
p
r
i
c
e pe
r
s
h
a
r
e a
 
th
e e
n
d
of 
 
ime pe
r
i
o
d
-1d.
 
D
t=
 
c
as
h
dis
tr
ib
ut 
i
on
s
r
e
c
eived d
ur
i
ng
 
ime pe
r
i
o
d
 e.
 
It 
 
h
as a
r
a
e
of 
 
ime a
tt 
a
ch
ed
to
i
a
n
d i
d
o
es
not 
ma
e
r
 
wh
a
 
curr
e
nc
y i
is val
u
ed i
n
be
c
a
u
se
th
e
nu
me
r
a
tor
a
n
d
th
ede
no
mi
n
a
tor
 
c
a
nc
el
out 
.
 
ii.
 
Int 
e
r
val: a se
 
of 
val
u
es
w
i
th
i
n
 
wh
i
ch
a
n
 
o
bse
r
va
i
on
 
alls.iii.
 
Abs
o
l
ut 
e F
r
eq
u
e
nc
y:
th
e a
ctu
al
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
s i
n
a
g
ive
n
i
nt 
e
r
val.iv.
 
Rela
ive F
r
eq
u
e
nc
y:
th
e abs
o
l
ut 
e
fr
eq
u
e
nc
y
of 
ea
ch
i
nt 
e
r
val divided by
th
e
tot 
al
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
s.v.
 
C
u
m
u
la
ive Rela
ive F
r
eq
u
e
nc
y:
th
e
r
ela
ive
fr
eq
u
e
nc
ies as
w
e m
o
ve
fro
m
th
e
i
r
s
 
to
 
th
e las
i
nt 
e
r
val.4.
 
T
h
e His
togr
am1.
 
His
togr
am: a ba
r
 
ch
a
rt 
 
of 
da
a
th
a
 
h
ave bee
n
 
grou
ped i
nto
a
fr
eq
u
e
nc
y dis
tr
ib
ut 
i
on
.2.
 
T
h
e
fr
eq
u
e
nc
y p
o
ly
gon
a
n
d
th
e
cu
m
u
la
ive
fr
eq
u
e
nc
y dis
tr
ib
ut 
i
on
 i.
 
F
r
eq
u
e
nc
y p
o
ly
gon
: Re
turn
i
nt 
e
r
vals
on
 
th
e x a
n
d
fr
eq
u
e
nc
y
on
 
th
e y axis5.
 
Meas
ur
es
of 
Ce
ntr
al Te
n
de
nc
y
      
easu
r
e of Cent 
r
al Ten
d
ency
: spe
c
i
ies
wh
e
r
e
th
e da
a a
r
e
c
e
nt 
e
r
ed
Measu
r
es of Location:
i
nc
l
u
de
not 
 
on
ly meas
ur
es
of 
 
c
e
ntr
al
e
n
de
nc
y b
ut 
 
oth
e
r
 meas
ur
es
th
a
ill
u
s
tr
a
e
th
e l
oc
a
i
on
 
or
dis
tr
ib
ut 
i
on
da
a.i.
 
A
r
i
th
me
i
c
Mea
n
 1.
 
T
h
e s
u
m
of 
 
th
e
o
bse
r
va
i
on
s divide by
th
e
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
sii.
 
P
o
p
u
la
i
on
Mea
n
F
or
m
u
la1.
 
P
g
.2842.
 
I
s
th
e a
r
i
th
me
i
c
mea
n
val
u
e
of 
a p
o
p
u
la
i
on
. F
or
a
i
n
i
e p
o
p
u
la
i
on
 
th
e mea
n
is m
u
,
wh
e
r
e N is
th
e
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
s i
n
 
th
e e
nt 
i
r
ep
o
p
u
la
i
on
a
n
d Xi is
th
e i
th
 
o
bse
r
va
i
on
s.iii.
 
Sample Mea
n
 1.
 
P
g
2842.
 
T
h
e sample mea
n
 
or
ave
r
a
g
e is
th
e a
r
i
th
me
i
c
mea
n
val
u
e
of 
a sample
wh
e
r
e
n
is
th
e
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
s i
n
 
th
e sample.iv.
 
C
r
oss sectional
is meas
ur
eme
nt 
 
of 
da
a a
a spe
c
i
i
c
p
o
i
nt 
i
n
 
ime a
n
d
TimeSe
r
ies
is
th
e meas
ur
eme
nt 
 
of 
a pe
r
i
o
d
of 
 
ime.v.
 
P
ro
blem
w
i
th
A
r
i
th
me
i
c
mea
n
is i
s se
n
si
ivi
y
to
ex
tr
eme val
u
es (
IE
 1,2,3,4,5,6,1000
th
e mea
n
 
wou
ld be 146)2.
 
Media
n
 i.
 
I
s
th
e val
u
e
of 
 
th
e middle i
em
of 
a da
a se
. (i
n
 
th
e eve
n
 
nu
mbe
r
ed da
a se
i
 is
th
e mea
n
 
of 
 
th
e middle
two
)3.
 
T
h
e M
o
dei.
 
T
h
e m
o
s
 
fr
eq
u
e
nt 
ly
occurr
i
ng
val
u
eii.
 
M
o
dal i
nt 
e
r
val:
th
e i
nt 
e
r
val
w
i
th
 
th
e
h
i
gh
es
 
fr
eq
u
e
nc
y.4.
 
Wei
ght 
ed Mea
n
 i.
 
P
g
. 293ii.
 
W
h
e
r
e
th
e s
u
m
of 
 
th
e
w
ei
ght 
s eq
u
als 1;
th
a
is s
u
m
of 
 
w
 
=
15.
 
Ge
o
me
tr
i
c
Mea
n
 i.
 
P
g
296
 
ii.
 
Wi
th
Xi>0
for
i
=
1,2,3,
n
 6.
 
Ge
o
me
tr
i
c
Mea
n
Re
turn
F
or
m
u
lai.
 
P
g
297ii.
 
We
c
a
n
 
u
se
th
is eq
u
a
i
on
 
to
s
o
lve
for
 
th
e
g
e
o
me
tr
i
c
mea
n
 
r
e
turn
 
for
a
n
y
r
e
turn
da
a se
r
ies.7.
 
Ha
r
m
on
i
c
Mea
n
 i.
 
P
g
300ii.
 
I
s
th
e val
u
e
o
b
ai
n
ed by s
u
mmi
ng
 
th
e
r
e
c
ip
roc
als
of 
 
th
e
o
bse
r
va
i
on
s (1/Xi)
th
e
n
ave
r
a
g
i
ng
 
th
e s
u
m by dividi
ng
i
by
th
e
nu
mbe
r
 
of 
 
o
bse
r
va
i
on
s a
n
d
th
e
n
 
aki
ng
 
th
e
r
e
c
ip
roc
al
of 
 
th
e ave
r
a
g
e.iii.
 
T
h
e m
o
s
 
co
mm
on
appli
c
a
i
on
is
co
s
ave
r
a
g
i
ng
 8.
 
The mathematical fact conce
r
ning the Ha
r
monic, Geomet 
r
ic, an
d
a
r
ithmeticmeans is that unless all the obse
rv
ations in a
d
ataset ha
v
e the same
v
alue, theha
r
monic mean is < the geomet 
r
ic mean which is < a
r
ithmetic mean.
6.
 
O
th
e
r
Meas
ur
es
of 
L
oc
a
i
on
: Q
u
a
nt 
iles (
th
e m
o
s
 
g
e
n
e
r
al
e
r
m
for
a val
u
e a
 
or
bel
ow
 
wh
i
ch
 a s
a
ed
fr
a
ct 
i
on
 
of 
 
th
e da
a lies.)1.
 
Q
u
a
rt 
iles
=
4
th
s2.
 
Q
u
i
nt 
iles
=
5
th
s3.
 
De
c
iles
=
10
th
s4.
 
Pe
rc
e
nt 
iles
=
100
th
sii.
 
Ly
=
(
n+
1)(y/100)1.
 
W
h
e
r
e y is
th
e pe
rc
e
nt 
a
g
e p
o
i
nt 
a
 
wh
i
ch
 
w
e a
r
e dividi
ng
 
th
edis
tr
ib
ut 
i
on
a
n
d Ly is
th
e l
oc
a
i
on
L
of 
 
th
e pe
rc
e
nt 
ile Py i
n
 
th
e a
rr
ays
ort 
ed i
n
as
c
e
n
di
ng
 
or
de
r
.2.
 
If 
Ly is
not 
a
who
le
nu
mbe
r
 
th
e
n
Py
c
a
n
be
c
al
cu
la
ed asa.
 
If 
Ly is 12.75 a
n
d
th
e
n
ex
 
who
le l
ow
e
r
 
nu
mbe
r
is 12 a
n
d
th
e
n
ex
 
who
le
h
i
gh
e
r
 
nu
mbe
r
is 13
th
e
n
,b.
 
Py
=
X12
+
(12.75  12)(X13-X12)Py
=
 3.
 
Li
n
ea
r
 
Int 
e
r
p
o
la
i
on
: es
ima
i
on
a
n
 
un
nown
val
u
e
on
 
th
e basis
of 
 
two
 7.
 
Meas
ur
es
of 
Dispe
r
si
on
si.
 
T
h
e va
r
iabili
y a
roun
d
th
e
c
e
ntr
al
e
n
de
nc
y.
If 
mea
n
 
r
e
turn
add
r
esses
r
e
w
a
r
d, dispe
r
si
on
add
r
esses
r
isk.
IE
(
r
a
ng
e, mea
n
abs
o
l
ut 
e devia
i
on
,va
r
ia
nc
e, a
n
d s
a
n
da
r
d devia
i
on
)ii.
 
Abs
o
l
ut 
e Dispe
r
si
on
: am
ount 
 
of 
va
r
iabili
y p
r
ese
nt 
 
w
i
thout 
 
co
mpa
r
is
on
 
to
 a
n
y
r
e
e
r
e
nc
e p
o
i
nt 
 
or
be
nch
ma
r
k.iii.
 
T
h
e Ra
ng
e:
th
e di
ff 
e
r
e
nc
e be
tw
ee
n
 
th
e maxim
u
m a
n
d mi
n
im
u
m val
u
es i
n
ada
a se
.1.
 
Ra
ng
e
=
max  mi
n
 2.
 
Mea
n
Abs
o
l
ut 
e Devia
i
on
(MAD)i.
 
P
g
308

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