@spatel15
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Up6
Thanks for the tips! Didn’t mean to reject your answer, I just wanna keep em coming haha. Probably shouldn’t have set this up as a question.
Just took a practice run at 50 FRA MCQ: 72% but that was with immediate feedback.
Up5They are almost identical you are right in that, but I’m not sure where the issue lies? Imagine if you ignore the currency Xchange portion and just think of it as two different currencies, so you can do it out for for each one. Bare with the notation, too lazy to go crazy lol.
A: Price of a “snack” in USD at t0
E(B): Price of a “snack” in USD at t1
c: USD inflation between t0 and t1.If the inflation is “c,” and you can buy a “snack0” today for “A/snack0”, you would expect that tomorrow you’ll have to pay (1+c)*A/”snack0″, right? Your dollar is “worth” less, so of course you would, so long as those damn retailers don’t pull any shenanigans and give you less per bag and replace it with air — you know what I’m talking about…
But now imagine that by tomorrow, those bastards took a chip(x% of the snack) out of the bag, which we shall call “snack1”. But remember a snack is a snack, you won’t see Lays version their bag of chips when they change what’s in it. This is the inflation of the other currency fyi. Personally, if I expected to pay (1+c)*A for a “snack” I expect, no, I demand that “snack” I now get have the same weight as it did before. So how must the retailer compensate? By giving me enough “snack1” to replace “snack0” which is approximately (1+x%)*snack1.
So what am I expecting to pay
I expect to pay (1+c)A/(1+x)*snack1 = E(B)
And what am I receiving?
a snack. Remember, a snack is a snack. No versions in real life, sadly.
So…to nicely pair these equations with what you’re seeing:
E(B) = A/snack1 * [(1+c)/(1+x)]
And like I said a snack is a snack, so A/snack1 = A/snack.
And there it is, the final equation:E(B) = A/snack * [(1+c)/(1+x))]
where….
A/snack is the exchange rate;
c is the inflation on USD;
and x is the (ironically literal) inflation of the snack.Up4Two more questions (next thread is going to be open ended to attract the crowds haha):
1. What’s a healthy number number of MCQ to have complete by exam day? Disregard my start date, I’m looking for an average for someone who’s had time. Clearly, I’m gonna have to do an unhealthy amount haha, just looking for a quote before using some mock exams, dont want those to go to waste on an empty brain.
2. What’s to verdict on Schweser MCQ vs. Vignettes in terms of timing? The few vignettes I just saw, though overwhelming to see, were much quicker than 6 individual MCQ’s. If I do the vignettes in a timely manner, does that do the trick, or should I aim to have both my individual MCQ’s and vignette questions below the time limit(1min/ or whatever).
Sorry I know these are dumb questions I could look up…but time is not on my side =/
Up4FYI the only flaw I’m seeing in my masterpiece is the how many snack1’s are required to replace snack0. =)
I said 1+x, but technically(if we wanna get reallll deep) the correct amount is 1/(1-x).
Eg. If x was 10%, I would demand 1.111111 snack1’s, not 1.10. Potato, tomato….right?Also beware of the real bitch on this topic, which I’m not sure is covered…but the formula for Expected Real Exchange Rates. Haven’t read the book in its entirety, but if you have…beware this is the guy that does NOT align with the other formulae.
Up4I agree the way they set up the problems, made me lose my mind. I spent a solid amount of time just looking at the wrong exhibit. That said, the answer they chose is definitely correct.
Also, before I start my essay, my own question….does anyone know how we should be measuring up to those topic tests? I got 5/6 on that, but it took me oh– say an hour? Please tell me I’m not screwed…Okay…so here it goes:
I’m not sure if you’re issue is with the E1 or the D(whatever#) they use, so I’ll try to hit both:
E1: Conceptually speaking (before I get to the shitty part that you’ll laugh over), if you think about the equation, it’s bifurcating the growth portion from the non-growth portion. That means for the nongrowth potion “E/r”, E1=E2=E3=E4, you get the point. I hope that clarifies that portion.
Next, the laughter. If you re-read the question, it asks about Stack’s question. Now if you re-read the essay, you’ll note that he’s concerned about the blah blah blah “in 2019 when the perpetuity growth period begins.” When I said “laugh” I meant let’s just all make a pact and jump off a cliff if this is how these mediocre-lived examiners plan to fail us. Back to the story, now if you take that sentence, pair it with this 6-year H-model, and count on your hands when the perpetuity begins, you’ll note it begins at the start of 2020. So yes, you are right if they expected the earnings in 2019 to be “E1” then the dividend calculation for PV at the beginning of 2019 would be “D1” or whatever you’d like to call it. But, given the CFAI has implemented a test of finger-counting abilities, you need to add additional year, so that’s why they are multiplying it once more by the growth rate. The growth part grows…so D1 doesn’t equal D2, and so on.
SIDE RANT:
The best part of this set though has to be Q5, where after several questions of disregarding the only true concept that g=ROE*retention, we now are supposed to realize that Stack has taken up that approach? And Stack was somehow concerned with a 2019 growth rate of 5%, but totally chill with a 2023 rate of 12%. Solid CFAI, solid. And worse, for the first 5, the clown that made this set thought we should be tested on an equation that literally disregards the very core of time value of money and replaces it with a “guesstimate” which by the way you can’t even do in your head, i.e. what guesstimates are for– Love when finance people use things they should not dabble with. The answer to any question considering an H-model as a superior model must not be aware of spreadsheets. If we can do 3 period, why the hell do we start needing to do estimates for 4+. Is there no trust that after testing us on 3-period models, we probably know how to do any # of periods, and also probably know how to use a computer?P.S. When I said laughter, I meant serious reconsideration of what society I’m trying to become a part of.
Up4Also, I’m not sure if anyone else can verify this, but from the sets I’ve done, I have not seen many questions with answers close enough to know if you compound or not. The other two answers usually seem to be using a totally different method that is far off either of these two methods, ie. you may not calc the same answer, but it’s going to be within a dollar of one of the answers(but the not the others)
Up4Another 70 today!
Up4Also under the acquisition method, you’d see a “full” amortization of the increase in FV of PPE. So it’d be
12,375 – (5,250/15) ;; but then at the bottom you take out the NCI portion(70%), which is the same as giving yourself 30% of the income and deducting 30% of the amortized amount from yourself. They end up the same, whether you’re taking 30% of the net amount or 30% of each.
Like googs said though, the increase in FV for depreciable items does in fact need to be amortized, regardless of your reporting method.
Up4I know its late, but if anyone is on, I’m desperate lol:
Are they not just erroneously interchanging d and e when they “rearranged” the equation? r-g somehow turned into r-d. and the denominator 1+g turned into 1+d. They seem to be saying d and g are 3.7% but somehow solve for g to also be 7%?
Up3In this case, it seems like the “change in estimates/policies” are just being disregarded. When I say estimates I am referring to the gain/losses due to actuarial assumptions. And when I say change in policies, I am referring to the adjustment for prior service costs(eg. decision to pay out 85%, rather than 80% at retirement for future and past employees.)
Are we able to disregard these amortization reclasses (from OCI to IS) because they are referencing a prior period and do not really impact “normal”/pro forma Income Statements, and already are hitting the balance sheet? Is the assumption that the required return on PBO(increased due those items) covers any prior adjustments, by increasing interest expense?
I agree smoothing out earnings benefits analysts, but should they not either recognize those types of adjustments(PSC and Actuarial G/L) either up front, or “smoothly” amortized over the service years? It seems to just be not considered above. UNLESS of course, we use OCI as part of the analysis from the get-go, right?
Up3Makes sense, think of breadth as how many choices you have to make times the number of options to choose from. Like if you made daily bets on equity or stock, breadth would be 365*2; sometimes like in this equation they break equity into literal stock choices, so its a more detailed breadth. Its not just about choices made, which seems to be where you’re getting confused. Best way to think about it its number of choices to make*choices possible (whether the choices possible are in terms of types of assets, stocks within equity, whether to go dark/medium/blonde coffee, it doesn’t matter).
Imagine if you had to choose the type of coffee you had, which you MUST as a financial pro have 3 times a day. If you had the choice of Dark/Medium/Blonde, you’re breadth would be 3*3*365, assuming you worked everyday.
Up3Ugh. 60/70 on the CFAI AM/PM exams….I’m freaking out now…
Up2Beautiful response haha. That definitely helped a looot in terms of adjusting my strategy. Just finished reading Fixed Income. Going to take a stab at as much Equity I can do right now and take a mock tomorrow. I know my weak areas are going to be the Alternatives, Portfolio Mgmt, and Quant. I took the FAR cpa exam last august and did well, so I’m hoping FRA won’t bite me too hard, the readings definitely did not. Thanks again googs!
Up2JK 73 on the PM — fyi, the online version has different answers then the pdf version! 170K*600 bucks and still can’t afford quality control.
Edit: Not related to the above issue, I figured it out!
Up1Took an AM portion. Somehow pulled off a 71.67 lol. No confidence in my answers though.Starred about 26 of the 60… a lottta vocab freebies to pick up though so that’s good looking forward.
Up1It seems like you’ve got it, but just in case (plus it helps me to talk about it haha)….
The General T-test is just a subsititute for the Z-test when your sample size is small and you are not given a population standard deviation. I think the thresold is 30 for sample size? These two are the go to ones we all know about and use for basically everything, the reason being standard deviation of the variable is either given or calculable/estimable.
The correlation T-test, though I’m not certain on the exact reasoning, but I would dare to claim that this is the equation for seeing if the variable(r) represent the “avg” because correlation coefficients aren’t based on a single point in time, as B’ would be. Given you can “see” a B’, you can know how far off it is from the average(B). But how can you calculate r’ if it is already a variable using multiple points in time? Even worse how could one calculate a standard deviation of a correlation coefficient. You’ve already inputted time as a variable into establishing our correlation coefficient. The standard deviation would have to be based on another observation that the average coefficient incorporates, but the already-incalculable r’ does not(just like Bavg incorporates time while B’ does not). This new equation(without me being able to explain the how), adjusts for this idea that you cannot calculate an r’ or standard deviation of r.
Basically if the world was nice and dandy, and information were abundant, we would be able to just memorize the one Z-score equation, but these two versions provide for when either
1. we dont enough have info
2. And/or our variable wasn’t calculable by one observation alone in the first place.One thing that may be worth noting: The general test is usually used for looking for changes; i.e. the average SAT score for a school is 2000. Technically speaking, the test could just be looking for a “one-tailed” approach. Either way, these tests don’t usually have an answer you “want, but rather you will adjust for whatever the answer ends up being. (eg. Harvard recruiters want to see if their high school feeder-school is still feeder-worthy. The one tailed t-test says the avg SAT score is now 1800. Recruiters adjust and stop recruiting so many people from that school). They didn’t really care if the average was worse or the same, they just used the output to adjust their efforts.
On the other hand with the correlation, you’re almost always looking to have a huge T-calc (two tailed test), because that means the variable that you as an analyst chose, actually does correlate to your dependent variable(returns). If it ends up being small i.e. you “accept the null,” well, that test has just proved that you’ve wasted your time using variable that has no correlation to your end of goal of getting higher returns.
To get really complicated…the harvard recruiter could do a connection between the best students and SAT scores haha. This would fall under the correlation t-test. But for the example above, the recruiters assume the SATs do assess “greatness.”
Hope someone doesn’t pick this all apart =)
Up0As always, thanks googs!
Up0If you check out the online CFAI version they have a footnote for that page. Basically says, if you’re doing it as “real investor” stick to the compound version. Speculating/too busy cramming to check, but I think they may just be quoted in that manner? I’ve never seen a real fx quote though lol. equities and options for mee
