Some actual Level 1 questions. Not a..."What should I do question?"

[ski]

Hi all...

1) What is the opprotunity cost in Plain English?

2) What is the discount rate in plain English?

3) How do you decide what the rate is?

4) Is it linked to the current interest rate?

Thanks in advance

Ski

Holy Crap! Is this stuff fun or what!

 

[PeterBent]

the questions you posted are quite simple. I doubt it'll be on the CFA exam. I can answer it for you, but its already in the CFA level 1 textbook 1.

 

[analyst26]

1) The benefit you forego by not selecting the next best opportunity.
2)The rate used to account for the time value of money. The higher the risk, the higher the discount rate you'd use.
3)Several different ways. Typically a risk-free rate plus a risk premium. Risk premium determined a number of different ways, WACC, etc.
4) Linked? No. Correlated? Sure because the risk-free rate is generally something like the 10-year bond or LIBOR.