Hi guys
How difficult are these two? I found PM in L1 easy and Alt Inv was alright.
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Alt Inv and PM
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P/L vs oci
In regards to pension expense, what are the pros and cons of a company immediately expensing the expense vs accounting for it in other comprehensive income.
As a follow up what is the effect of being able to amortize the oci expense?
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Reading 35 . Didn't understand the answer to a Question
Canan Enver is evaluating a portfolio of zero-coupon bonds with maturities of 1, 5 and 10 years. Enver is analyzing what happens as rates change across the yield curve. He assumes the following portfolio sensitivities to factors given in Table 1. The portfolio has equal weightings in each key rate duration and an effective duration of 5.33. Enver’s supervisor asks him to examine the effect on the portfolio return if rates rise evenly across the curve and when the curve flattens but does not twist.
Table 1: Factor Movements and Key Rate Durations
Year 1 5 10
Parallel 1 1 1
Steepness 1 0 -1
Curvature 1 0 1
Key Rate Durations 0.33 1.67 3.33
Based on Table 1 and the supervisor’s assumptions, the impact on the portfolio would most likely be a loss in value from changes in:
A. level and a loss from changes in steepness.
B. level and a gain from changes in steepness.
C. steepness and a gain from changes in curvature.
A is correct a parallel shift of the yield curve would result in a loss across each key rate duration given a sensitivity of 1. For example, a 100 basis point (bps) parallel shift would result in 5.33% (approximately) loss in value. A flattening of the yield curve in the long
end would result in a loss given a sensitivity of –1. For example, a 100 bps decline in the 10-year key rate duration would result in a loss of approximately 1.11% (–100 × –0.01 ×–3.33 × 0.333). There is no impact from curvature, since the curve did not “twist”. Section 6.4. LO.l.
what I didn’t understand is that if the steepness is -1 in 10-year rate i.e. the long-term rate went down therefore there should be a gain in value then why is it a loss from changes in steepness.
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FRA 16: Calculating New Shareholder's Equity on a Business Combination when Purchase Price Exceeds Fair Value
Hello,
I haven’t found a clear answer on this when googling/searching the forum. Would someone clarify how to calculate shareholder’s equity when the purchase price exceeds fair value?
I ran into an EOC problem (Chp 16, #26) in which the purchase price exceeds the fair value. I didn’t understand how the new shareholder’s equity was calculated.
Investor Equity + Investee Equity + (Minority Interest) is how I normally think of it, but how do you factor in the excess?
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Value at Risk
Value at Risk: The Fund has a one-day 95% value at risk (VaR) of $6.5 million.
Which of the following statements regarding the VaR of the Fund is correct?
A) The expected maximum loss for the portfolio is $6.5 million.
B) Five percent of the time, the portfolio can be expected to experience a loss of at least $6.5 million.
C) Ninety-five percent of the time, the portfolio can be expected to experience a one-day loss of no more than $6.5 million.
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I really do not see how any of the above are the answers but the indicated answer is B.
If the question stated The Fund has a one-day 5% value at risk (VaR) of $6.5 million I could see how this would be the case? Any idea?
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Equity : Reading 30 , Schweser 2017 LOS 30.o 2nd example: SGR and ROE
In the example for Far Horizons Company:
Income statement given for 2018
Bal Sheet for 2017 and 2018
For calculating ROE, Profit margin is calculated using 2018 numbers but asset turnover and financial leverage using 2017 numbers!
Is this correct?
Shouldn’t we be using 2018 numbers if all values are available?
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FR&A Curriculum R16 Practice Problems Q16
FR&A Curriculum R16 Practice Problems Q16
Exhibit 1. Confabulated’s Investment Portfolio (€ Thousands)
Characteristic
Bugle AG
Cathay Corp
Dumas SA
Classification
Available-for-sale
Held-to-maturity
Held-to-maturity
Cost*
€25,000
€40,000
€50,000
Market value, 31 December 2008
29,000
38,000
54,000
Market value, 31 December 2009
28,000
37,000
55,000
Compared to Confabulated’s reported earnings before taxes in 2009, if Bugle had been classified as a held for trading security, the earnings before taxes (in € thousands) would have been:
the same.
€1,000 lower.
€3,000 higher.
B is correct. Unrealized gains and losses are included in income when securities are classified as held for trading securities. During 2009 there was an unrealized loss of €1,000.
Institute, CFA. 2018 CFA Program Level II Volume 2 Financial Reporting and Analysis. CFA Institute, 07/2017. VitalBook file.
How come it is B? Shouldn’t the unrealized gains and losses be transferred from other comprehensive income to net income when reclassifying from available-for-sale to held-for-trading and thus the correct answer should be C??
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CFA Level 2 Fixed Income - Arbitrage free valuation
In CFA institute Study material end of chapter question # 13 & 14 under arbitrage free valuation (Reading 36), the computation of bond value is not consistent. In q 13 the coupon amount is not included, however in q 14 it is included. Can someone explain the reason?
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EVA and EP
Is EVA and Economic profit the same? When reading Reading 33, they explained EVA with the same formula as EP.
thanks for your help.
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Binomial option valuation
Hello,
I am having some trouble wrapping my head around the binomial option valuation using no arbitrage approach.. The formula for a call option is c = hS + PV(-hS- + c-). I understand how the formula was arrived but have problem interpreting it. The book says this is long on stock and partly financed. If borrowing is considered positive cash flow then isn’t going long on a stock which is an investment be negative cash flow? In this case both are positive. What am I missing here?
Thanks,
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Greater the premium over straight value less attractive the price of the convertible bond
Why would this be the case?
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Wiley vs schweser notes
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Two tailed vs. One tailed
I am confused which tests do i use a two tailed test and which do i use one tailed test at a certain level of significance, let’s say level of significance of 5%?
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structural form models - credit risk assessment on bonds
Hello,
Couple of questions on the structural form models on bonds -
How does one use the structrual form model to value the risky bond? Specifically, I do not understand how the equation (PV of assets at maturity given default) + (PV of the payment of zero coupon bond given default) is used to compute the value of a risky bond.
How does this structrual form equation provide the probability of default on the bond. Specifically, do not understand how they use the risky credit bond value to compute the loss given default and probability of default on the bond.
Thanks,
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structural model question
There’s an example in the book that asks basically A company sells some of its existing assets and purchases new assets with the same value but higher risk. How will these transactions affect the value of outstanding bonds and common stock if we view the equity as a European call option?
I don’t quite understand on risky or non risky assets affect your stock/bond?
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Practice Problems on CFAI
Anyone doing the CFAI study plan with the practice questions.. holy cow, they are hard.. I normally get 75-90% on all the scheweser qbank material and just started CFAI practice questions. each one is so involving.. getting about 50-60% right only.
Hows everoyne experience with that practice questions?
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Reduced form vs. strutural model
The book says that the reduced model imposes assumptions on the output of the structural model.
What do they mean by this? Specifically, what exactly is the output of the structrual model and how does it explicitly relate to credit risk?
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Freaking out..
I work full time in a commercial bank. Started studying in Jan but couldn’t focus long. So far, I only got through the equity section so let’s say 7-8 readings. Not worry about ethics until Jun.
Due to lack of time i’m only going to stick to Wiley notes, videos and EOC and BB. I score almost 75-85% in Eoc.
What else should I do? Freaking out that time is running out…
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About to buy more questions / Tests
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CDS EOC question
given:
outlook1: italy’s economy will weaken
outlook2: US economy will strengthen relative to Canada
outlook3: credit quality of electric car mfg will improve relative to that or traditional.
based on those 3 outlooks, profitable long/short trade would be:
a) long canadian CDX IG, short US CDX IG
b) short iTraxx crossover, long iTraxx Main
c) short electric car CDS, long traditional car CDS
care to explain ? thanks
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