What is Bloom’s Taxonomy?
According to Wikipedia, Bloom’s Taxonomy is a classification of learning objectives within education. The taxonomy was first presented in 1956 through the publication The Taxonomy of Educational Objectives, The Classification of Educational Goals, Handbook I: Cognitive Domain, by Benjamin Bloom (editor), M. D. Englehart, E. J. Furst, W. H. Hill, and David Krathwohl. It is considered to be a foundational and essential building block within the education community.
There are six levels in the taxonomy, moving through the lowest order processes to the highest:
(See http://en.wikipedia.org/wiki/Bloom’s_taxonomy for more information.) Examples of CAS exam questions at each level in the taxonomy follow. The questions were taken from 2010 Exam 8.
- Knowledge—Exhibit memory of previously learned materials by recalling facts, terms, basic concepts, and answers.
- Comprehension—Demonstrative understanding of facts and ideas by organizing, comparing, translating, interpreting, giving descriptions, and stating main ideas.
- Application—Using new knowledge. Solve problems to new situations by applying acquired knowledge, facts, techniques, and rules in a different way.
- Analysis—Examine and break information into parts by identifying motives or causes. Make inferences and find evidence to support generalizations.
- Synthesis—Compile information together in a different way by combining elements in a new pattern or proposing alternative solutions.
- Evaluation—Present and defend opinions by making judgments about information, validity of ideas, or quality of work based on a set of criteria.
- Knowledge: Question 5a
Describe the equity premium puzzle.
- Comprehension: Question 1a
In a perfectly efficient market, one might conclude that randomly chosen stocks is as effective as rationally choosing a stock portfolio. Describe two reasons for active portfolio management.
- Application: Question 2a
Calculate the expected return of the portfolio if the investor wants the standard deviation of the portfolio to be 15%.
- The return of a risk free asset is 5%
- An investment company offers a risky asset, with a Sharpe ratio of 0.2
- An investor wants to hold a portfolio consisting of the risky asset and the risk-free asset
- Analysis: Question 9a
Given the following information:
Explain what assumptions Merton makes that allows Merton’s model to be used in estimating default probabilities for companies.
- Value of a company’s assets today is $19,000,000
- Value of a company’s equity to today is $5,000,000
- Risk-free rate is 3% per annum
- Debt of $15,000,000 to be repaid in one year
- Instantaneous volatility of equity = 0.5
- Volatility of assets = 0.25
- Synthesis: Question 12a
An investor would like to enter into a forward contract whereby in two years the investor exchanges a fixed amount of US Dollars for one million Euros.
Assume the current exchange rate is $1.50 per Euro and that the continuously compounded risk-free interest rates are 2% in Europe and 1% in the United States. The investor can borrow and invest at the risk-free rate.
Determine an investment strategy which would give the investor the same cash flows as the forward contract.
- Evaluation: Question 13a
When a known future cash outflow in a foreign currency is hedged by a company using a forward contract, there is no foreign exchange risk. When it is hedged using futures contracts, the marking-to-market process does leave a company exposed to some risk.
Explain whether a company is better off using a futures contract or a forward contract in the following situation:
The value of the foreign currency falls rapidly during the life of the contract.