Can someone please explain me a synthetic forward rate agreement with an example?
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Synthetic Forward rate agreement
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Schweser's QuickSheet
Has anyone ever focused on the topics outlined in Schweser’s QuickSheet in their CFA Level 1 exam preparation? if so, was it helpful?
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Ethics Question - well known Analyst's report/recommendation considered material NPI?
Hey Members/Candidates,
Alberto Cosini is the top-rated, sell-side analyst in the biotechnology industry. His recommendations significantly affect prices of industry stocks regularly. Yesterday Cosini changed his rating on Biopharm from “hold” to “buy,” and Cosini’s firm emailed the change to its clients although no public disclosure has yet been made. If Peter Allen, CFA, who heard about Cosini’s rating change for Biopharm from his brother, purchases Biopharm in his personal account, Allen will most likely:
Since Cosini is a well known/top rated analyst, his reports/recommendations are considered MATERIAL, correct? It even says in the material:
“When a particularly well-known or respected analyst issues a report or makes changes to his or her recommendation, that information alone may have an effect on the market and thus may be considered material.”
The correct answer was that there was no violation - could someone help me understand why using Cosini’s report to execute trades does NOT violate using material NPI?
Thanks!
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GAAP vs IFRS Lease classification
I’m having trouble remembering these, does anyone have any tips or tricks to remember these?
GAAP Lessee’s perspective
Capital lease if any hold
- Risk of ownership transferred
- PV of lease payments at inception greater than 90% of FV
- Hold asset for more than 75% is economic life
- Bargain purchase option
If none hold, operation
IFRS Lessee’s perspective
Financing lease if all risks and rewards transferred to lessee. If not Operating
I can get them down if I sit and think about it but just seeing if anyone has easy ways to remember them.
Thanks!
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Question on calculating justified price earnings ratio
Question
An analyst collects the following data on the return on equity (ROE) and the payout ratio for two companies, M and N. Using a required return of 12.4% for both companies, she computes the justified forward P/E ratios, which are also given below.
Company | Return on Equity(%) | Payout Ratio (%) | Justified Forward P/E
M 12 30 7.5
N 14 40 10
If Company M increases its dividend payout ratio to 40% and Company N decreases its dividend payout ratio to 30%, which of the following will most likely occur? The justified P/E ratio of:
A. both companies would increase.
B. both companies would decrease.
C. Company M would increase but that of Company N would decrease.
Answer given:
Justified forward P/E: P0/E1 = p/(r – g).
Using the new payout ratios, the justified forward P/Es, calculated below, of both firms would increase.
Company M:
New dividend growth rate = (1 – 0.4) x 12% = 7.2%;
New Justified forward P/E = 0.4/(0.124 – 0.072) = 7.7x.
Company N:
New dividend growth rate = (1 – 0.3) x 14% = 9.8%;
New Justified forward P/E = 0.3/(0.124 – 0.098) = 11.5x.
My question is where does the “0.124” , in the denominator of each of the new justified P/E ratios, come from? Isn’t it supposed to be r, the return on equity? so 12% for Company M and 14% for Company N?
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Multistage DDM
The question is as follows:
An analyst feels that Brown Company’s earnings and dividends will grow at 25% for two years, after which growth will fall to a constant rate of 6%. If the projected discount rate is 10%, and Brown’s most recently paid dividends was $1, the value of Brown’s stock using the multistage dividend discount model is closest to:
A. $31.25
B. $33.54
C. $36.65
The solution provided was:
$1(1.25) / 1.1 + [$1(1.25)2 / (0.1 - 0.06)] / 1.1 = $36.65
Because the second dividend is in the second year shouldn’t this be the correct formula?
$1(1.25) / 1.1 + [$1(1.25)2 / (0.1 - 0.06)] / (1.1)2 = $33.42
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Ethics - Distributing info uniformly
This question confused me a little bit.
Caroline Turner, an analyst for Lansing Asset Management, just completed an investment report in which she recommends changing a “buy” to a “sell” for Gallup Company. Her supervisor at Lansing approves of the change in recommendation. Turner wonders about whether she needs to disseminate this investment recommendation to Lansing’s clients and if so, how to distribute this information. According to CFA Institute Standards of Professional Conduct, Turner is:
A) required to disseminate the change in a prior investment recommendation to all clients and customers on a uniform basis.
B) not required to disseminate the change of recommendation from a buy to a sell because the change is not material.
C) required to design an equitable system to disseminate the change in a prior investment recommendation.
Answer is C, but I didn’t know we had to design an “equitable” system to disseminate.
What is the difference between A and C? and does this mean you must find a way to deliver the info to all customers at the same time?
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Maximum Leverage Ratio calculation
Can someone please explain why “Max Leverage Ratio = 1/ Minimum Margin”? I would like to know the logic behind this
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Official Mock Exams
What would be a safe score range in the official cfa level1 mock exams to pass actual? Do I need to score above 70% in aggregate ?
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CFAI Mock Exams
I just finished my last Mock Exam in CFAI with 66%, the category scores are as below:
Ethics 72%
Quant 67%
Econ 75%
FRA 67%
Corp 58%
Portfolio 75%
Equity 42%
Fixed Income 67%
Derivatives 40%
Alternative 80%
With one week to go to the sitting, what’s the most important things to do to improve? Is this score kinda safe to pass?
THanks guys
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Does anyone have a compilation of the key IFRS vs GAAP differences?
Just want to check if I’m missing anything
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IRR in CFAI practice
This is a question from the practice in CFAI:
Q. A project offers the following incremental after-tax cash flows (CF):
Year
0
1
2
3
4
5
6
Cash flow (€)
−12,500
2,000
4,000
5,000
2,000
1,000
500
The internal rate of return (IRR) of the project is closest to:
- 5.5%.
- 2.5%.
- 4.4%.
But using my calculator I found another answer: 7.053%
What did I do wrong?
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Last Week
What is everyone’s plan for last week? I’m trying not to panic asi scored high 60’s on CFAI and high 50’s on Kaplan mocks. I have to work the whole work as I don’t have any time off. What’s everyone’s strategy?
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Help with calculating ROI for a margin loan
QUESTION: The following data pertain to a margin purchase of a stock by an investor :
Stock’s purchase price $50/share
Sale price $55/share
Shares purchased 500
Margin 45%
Call money rate 6%
Dividend $1.80/share
Transaction commission on purchase $0.05/share
Transaction commission on sale $0.05/share
If the stock is sold exactly one year after the purchase, the total return on the investor’s investment is closest to:
A. 14%.
B. 19%.
C. 22%.
ANSWER : C is correct.
Proceeds on sale: $55 x 500 = $27,500
Less payoff loan: $50 x 500 x 0.55 = –$13,750
Less margin interest paid: $13,750 x 0.06 = –$825
Plus dividend received: $1.80 x 500 = $900
Less sales commission paid: $0.05 x 500 = –$25
Remaining equity = Sum of the above = $13,800
Initial investment (including commission): ($50 x 500 x 0.45) + ($0.05 x 500) = $11,275
Return on the initial investment: ($13,800 – $11,275)/$11,275 = 22.4%
My question is why do we have the bolded “Less payoff loan: $50 x 500 x 0.55 = –$13,750” part? In similar questions from other papers, the “Purchase price x Number of shares” was the amount subtracted from “Proceeds on Sales”…..but in this question, the amount being subtracted is “Loan Amount per share x Number of shares”
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GAAP loss reversal permitted for held for sale assets?
Hello,
A bit confused here. I know GAAP does not allow for reversal of impairment loss, but there is one exception for asset held for use. Is this correct?
“Under U.S. GAAP, once an impairment loss is recorded for assets held‐for‐use, it cannot be reversed. The value of these assets cannot be revised upward. However, for assets held for‐ sale, if the fair value of the asset increases subsequent to impairment recognition, the loss can be reversed and the asset’s value can be revised upward’. (source: WIley)
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Last Week Score Ranges
Anyone else starting to really freak out about not passing? I’ve put in over 350 hours but my average scores per category still hover in the 50-70 range with only ethics surpassing the 70…seems like chances of passing as slim but I’m not sure if that’s just me freaking out?
Also, anyone have any tips on handling anxiety? Feel like I start panicking and forget easy formulas due to stress. All this has come on in the last hour or so as I saw my countdown on the website go down to 4..
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Request for past CFA Level 1 exams
Greeting everyone, I am just wondering if anyone has available past real exams for CFA Level 1? I am taking it this Saturday and would love if I can use past exams as practice, thank you!
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what changed in 2018
Can anyone share study notes for below new revised topics.
I have old notes:
- Reading 34: Corporate Governance and ESG: An Introduction
- Reading 49: Equity Valuation: Concepts and Basic Tools
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Introduction to Alternative Investments
Hi,
Please share study material of new reading, if available :
Introduction to Alternative Investments, by Terri Duhon, George Spentzos, CFA, FSIP, and Scott D. Stewart, CFA
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Contract Methods like I'm 5
Could someone give a description of the different contract Methods under GAAP/IFRS? I know a few of them are Completed Contract, % of completion and the installment method but when do you use each one and how is revenue, expenses and profit impacted? Thanks a ton in advance!
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