Hi,
For the question on Venus company, in particular question 41 of CBOK
Exhibit 2, scenario 2 shows the growth rate of dividends; but the question does not explicitly state the required rate of return that would be required to calculate the terminal value. In the answer, the terminal value is calculated using 8% which is the beginning growth rate.
Is the beginning growth rate = to the required rate of return?
Thanks,
Hi,
In the CBOK reading 31 on Free cash flow valuation, practice question 11…
The question provides the following info:
“After three years, the growth rate of net income will be 8 percent and the net investment in operating assets (capital expenditures minus depreciation plus increase in working capital) each year will drop to 30 percent of net income.”
And in the answer provided in the CBOK, to determine Terminal Value, the author multiply the FCFE by 1.08, and in the denominator he/she takes the required rate of return subtract by 8%.
This implies that the author assumes that the FCFE growth rate is the NI growth rate, which in my opinion is not accurate. Because the Net investment in operating assets is not constant.
Or am I missing something here?
Many thanks.
CFAI define I-Spreads as 1) interpolated spreads, which reference a linearly interpolated yield. 2) Additionally, they are defined as bond rates net of SWAP RATES of the same maturities (according to the CFAI!).
Therefore, for the purposes of the CFA, I-Spread is basically (as defined above) the same thing as Z-Spread, except that it is the spread to the respective SWAP RATE given a particular maturity (instead of the spot rate).
On the other hand, my colleague says I-Spread can be defined as a spread that reference ANY linearly interpolated yield, so it does not have to be the spread to the swap curve. This also makes sense if one were to reference the CFAI’s first definition of I-Spread. However, this is incorrect once you reference CFAI’s the second definition of I-Spread.
Can someone please clarify the meaning of I-Spread for CFA purposes, and (if possible) your world applications as per your experience?
Thank you.
(can’t believe I’m not getting this but…)
Could someone please explain me whats the difference between Goodwill in equity method and partial Goodwill (acquisition)?
One of my favorite features of the new site is the ability to “tag” topics using one of the CFAI study sessions. For example, if you post a topic on ethics you can select Study Session 1: Ethical and Professional Standards so that your topic will show up in the filter for that study session. This will allow you and other members of AF to quickly access posts for a specific study session. To tag a new topic with a study session, simply choose that study session from the Filed Under categories above the Save button on the new forum topic page.
I’ve filed this topic under Study Session 1 to use as an example. You can see the Filed Under link on the right side of the page for easy access to all other topics filed under Study Session 1.
To access topics by a specific study session, please use the following links:
Study Session 1: Ethical and Professional Standards
Study Session 2: Ethical and Professional Standards: Application
Study Session 3: Quantitative Methods for Valuation
Study Session 4: Economics for Valuation
Study Session 5: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share Based Compensation, and Multinational Operations
Study Session 6: Financial Reporting and Analysis: Quality of Financial Reports and Financial Statement Analysis
Study Session 7: Corporate Finance
Study Session 8: Corporate Finance: Financing and Control Issues
Study Session 9: Equity Valuation: Valuation Concepts
Study Session 10: Equity Valuation: Industry and Company Analysis and Discounted Dividend Valuation
Study Session 11: Equity Investments: Free Cash Flow and Other Valuation Models
Study Session 12: Fixed Income: Valuation Concepts
Study Session 13: Fixed Income: Topics in Fixed Income Analysis
Study Session 14: Derivative Investments: Valuation and Strategies
Study Session 15: Alternative Investments
Study Session 16: Portfolio Management: Process, Asset Allocation, and Risk Management
Study Session 17: Portfolio Management: Economic Analysis, Active Management, and Trading
Dear all,
In R13 subsection 6.2, one line is confusing me:
“With inflexible domestic prices in the short run, any increase in nominal money supply results in a decline in the domestic interest rate”
Why? This is not intuitive to me.
From a practical standpoint, what do you use for the Effective Tax Rate in the unlevered beta calculation if the firm has pre-tax losses?
Hello,
Seems like there is a lot of variation on this site, but when I should try to finish the readings by?
I was thinking of finishing the readings by mid december, then work on practice problems until exam day.
I know it is really early to finish the readings and start practice problems, but I won’t be able to dedicate more than 20 hours per week going into 2018.
Does this seem reasonable? What may be the other downsides to finishing the readings this early other than burning out/forgetting the material as we head into next spring?
Thank you!
Hi to everybody,
How is it that Hedge Funds are not part of alternative investments topic?
Have you any idea?
Thanks
The example states Capital in year 1 of 400000, but isn’t it reduced by 100000 depreciation to 300000?
Assets are given as 400000 in year 0 so is it the initial investment of the project?
Hi,
For the question on Venus company, in particular question 41 of CBOK
Exhibit 2, scenario 2 shows the growth rate of dividends; but the question does not explicitly state the required rate of return that would be required to calculate the terminal value. In the answer, the terminal value is calculated using 8% which is the beginning growth rate.
Is the beginning growth rate = to the required rate of return?
Thanks,
Hi,
In the CBOK reading 31 on Free cash flow valuation, practice question 11…
The question provides the following info:
“After three years, the growth rate of net income will be 8 percent and the net investment in operating assets (capital expenditures minus depreciation plus increase in working capital) each year will drop to 30 percent of net income.”
And in the answer provided in the CBOK, to determine Terminal Value, the author multiply the FCFE by 1.08, and in the denominator he/she takes the required rate of return subtract by 8%.
This implies that the author assumes that the FCFE growth rate is the NI growth rate, which in my opinion is not accurate. Because the Net investment in operating assets is not constant.
Or am I missing something here?
Many thanks.
CFAI define I-Spreads as 1) interpolated spreads, which reference a linearly interpolated yield. 2) Additionally, they are defined as bond rates net of SWAP RATES of the same maturities (according to the CFAI!).
Therefore, for the purposes of the CFA, I-Spread is basically (as defined above) the same thing as Z-Spread, except that it is the spread to the respective SWAP RATE given a particular maturity (instead of the spot rate).
On the other hand, my colleague says I-Spread can be defined as a spread that reference ANY linearly interpolated yield, so it does not have to be the spread to the swap curve. This also makes sense if one were to reference the CFAI’s first definition of I-Spread. However, this is incorrect once you reference CFAI’s the second definition of I-Spread.
Can someone please clarify the meaning of I-Spread for CFA purposes, and (if possible) your world applications as per your experience?
Thank you.
(can’t believe I’m not getting this but…)
Could someone please explain me whats the difference between Goodwill in equity method and partial Goodwill (acquisition)?
One of my favorite features of the new site is the ability to “tag” topics using one of the CFAI study sessions. For example, if you post a topic on ethics you can select Study Session 1: Ethical and Professional Standards so that your topic will show up in the filter for that study session. This will allow you and other members of AF to quickly access posts for a specific study session. To tag a new topic with a study session, simply choose that study session from the Filed Under categories above the Save button on the new forum topic page.
I’ve filed this topic under Study Session 1 to use as an example. You can see the Filed Under link on the right side of the page for easy access to all other topics filed under Study Session 1.
To access topics by a specific study session, please use the following links:
Study Session 1: Ethical and Professional Standards
Study Session 2: Ethical and Professional Standards: Application
Study Session 3: Quantitative Methods for Valuation
Study Session 4: Economics for Valuation
Study Session 5: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share Based Compensation, and Multinational Operations
Study Session 6: Financial Reporting and Analysis: Quality of Financial Reports and Financial Statement Analysis
Study Session 7: Corporate Finance
Study Session 8: Corporate Finance: Financing and Control Issues
Study Session 9: Equity Valuation: Valuation Concepts
Study Session 10: Equity Valuation: Industry and Company Analysis and Discounted Dividend Valuation
Study Session 11: Equity Investments: Free Cash Flow and Other Valuation Models
Study Session 12: Fixed Income: Valuation Concepts
Study Session 13: Fixed Income: Topics in Fixed Income Analysis
Study Session 14: Derivative Investments: Valuation and Strategies
Study Session 15: Alternative Investments
Study Session 16: Portfolio Management: Process, Asset Allocation, and Risk Management
Study Session 17: Portfolio Management: Economic Analysis, Active Management, and Trading
Goodwill under the partial method will always be lower than goodwill under the full method. Is it true?
I mean, can acquisition price be higher than the market value?
How is it possible that if steepness increases, the long term maturity yield decreases? Isn’t a steep yield curve associated with high higher long term rates?
” B is correct. Because the factors in Exhibit 1 have been standardized to have unit standard deviations, a two standard deviation increase in the steepness factor will lead to the yield on the 20-year bond decreasing by 0.6030%.”
When spot rates turn out to be lower (higher) than implied by the
forward curve, the forward price will increase (decrease). A trader expecting lower future spot rates
(than implied by the current forward rates) would purchase the forward contract to profit from its
appreciation.
What is the logic behind this statement
I struggle to retain information on Derivatives which looks quite complicated . How are quality of questions in real exam? How did you handle this area. Please guide. Thanks
At this point in time, how often should we review flashcards? I do not want to spend an hour a day at this part of studying (in order to avoid burnout).