For IPS return calculations, what does it mean when they ask you to calculate the return for the “forthcoming” and “coming” year?
If we’re given this year’s expenses for example, do we need to inflate it by inflation?
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What does "Forthcoming" and "Coming" year actually mean?
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2015 AM Q 10C
Question : One of the non-EUR currency exposures in the Portfolio is GBP. Aron frequently adjusts his GBP positions based on his short-term tactical outlook. Aron forecasts that the GBP will appreciate by 5% against the USD over the next six months. The current USD/GBP rate is
1.60 (1 GBP = 1.60 USD). Aron is considering the following six-month European option positions with the primary objective of increasing his GBP exposure in line with his forecast, and a secondary objective of minimizing the initial cash outlay:
Trade 1: Buy call with 1.68 strike Sell call with 1.72 strike
Trade 2 : Buy call with 1.60 strike Sell call with 1.68 strike
Trade 3 : Buy call with 1.60 strike Sell call with 1.72 strike
C. Determine the trade that will most likely satisfy Aron’s objectives at expiration. Justify your response.
Answer is Trade 2. I had chosen Trade 3. Wouldn’t the stock be called away since it is written at the forecasted price of 1.68, once it reaches that price?
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Misfit Return vs Misfit Active Return
So I have seen misfit active return a few times in performance evaluation and it is defined as:
misfit active return= managers benchmark - investors benchmark
In the context of macro attribution it seems to be also called misfit risk or style bias. However, the definition here does not seem to have anything to do with the previous one, that is there is no investor benchmark given. And the term misfit risk only appears at the very bottom of that paragraph in the book as a sidenote, so it seems to me that the term misfit risk here is 1) not the same as above 2) and not very fitting.
It is defined as the incremental return added by over/underweighting styles (e.g.value vs. growth)
Can someone confirm
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Trusts - 2011 1.A.i
The question says that income, realized capital gains and estate assets (on death) are taxed at 20%. In revocable trusts, cost basis of investments steps up to current market value upon grantor’s death, and are subject to estate tax. In irrevocable trusts, cost basis won’t change and assets are not subject to estate tax.
The grantor has placed shares with $2mn (market value) and $200k (cost basis) in both a revocable and irrevocable trust and has an immediate objective of selling $1mn of shares while minimizing total taxes.
I answered that it doesn’t matter which trust he sells the shares from to achieve his object, since, if he sold from the irrevocable trust, he’d get charged capital gains tax on the difference between market value and current cost basis, while if he sold from the revocable trust, the same cost basis would be used since this is a sale before his death. Additionally, since this is a sale before his death, estate taxes shouldn’t come into the equation.
However, the answer says that irrevocable trust shares aren’t subject to estate tax, while the cost basis on shares in the revocable trust will step up to current market value upon the grantor’s death, thereby reducing tax expenses when selling from the revocable trust, and therefore selling from the revocable trust is most appropriate for achieving the objective.
What am I missing here?
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Order of tackling AM questions
What is the order of topics you’d tackle the exam?
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Overhedge or underhedge (Fixed Income)
Source: CFAI 2018 mock PM session, question no 32
In the contingent immunization,
- Asset BPV is 91.6k
- Liability BPV is 59.6k
- Future BPV is 97.4
- Required number of future to be short is 329
- But, 254 number of futures has been short. So, the position is underhedged.
What is the manager’s expectation regarding the yield curve movement
- Rise
- Fall
- No change
The answer is Fall
I actually can’t rationalize regarding the explanation.
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CFAI Online Mock TTs
CFAI Online Mock TTs wont let me reset a practice session. When I click reset category it says”You are not able to reset questions because you have unsynced activity.”
When I try to sync. Nothing happens. Anyone else with this error?
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Loyalty vs Additional compensation arrangement
Hi everyone,
I am pretty confused about the difference between loyalty and additional compensation arrangement. Can someone help me out? Thank you.
My Question
How do we differentiate between the two? My understanding is that under loyalty, the conflict that arises from independent practice occurs outside the course of work (ie. outside work). However, for additional compensation arrangement, the conflict arises during the course of work (ie. within work). For example, I get paid extra $ for my research report. However, the questions below confuse me.
In Question 1, Connie is undertaking outside work matters and so loyalty was brought up in the answer as the area of conflict.
In Question 2, David is similarly undertaking outside work matters but this time additional compensation arrangement is brought up as the issue.
Question 1
Connie Fletcher, CFA, works for a small money management firm that specializes in pension accounts. Recently, a friend asked her to act as an unpaid volunteer manager for the city’s street sweep pension fund. As part of the position, the city would grant Fletcher a free parking space in front of her downtown office. Before Fletcher accepts, she should most appropriately:
A. do nothing because this is a volunteer position.
B. inform her current clients in writing and discuss the offer with her employer.
C. disclose the details of the volunteer position to her employer and obtain written permission from her employer.
Answer 1
According to Standard IV(A) Loyalty, members and candidates are expected to act for the benefit of their employer and not deprive the employer of their skills. Fletcher is performing work similar to the services that her employer provides. Whether it is voluntary is not material to the need to disclose the details of the position to her employer and get written permission before accepting the position. Informing her other clients (i.e., the clients of her employer) is not normally appropriate; the issue is with her employer.
Question 2 (taken from https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/9988749)
David Saul, CFA, heads the trust department at Savage National Bank. Fairway Enterprises invites Saul to sit on its Board of Directors. In return for his services on the Board, Fairway offers to provide Saul and his family with access to the facilities at Wilmont Country Club at no cost. Saul will not receive any monetary compensation for his services on the Board. According to CFA Institute Standards of Professional Conduct, which of the following actions must Saul take?
A) Saul must obtain written consent from all parties to only if he decides to accept the offer to serve on the Board of Directors.
B) Saul must disclose in writing to Savage Bank the terms of the offer whether or not he accepts the offer to serve on the Board of Directors.
C) Saul must reject the offer to serve on the Board of Directors.
Answer 2
Your answer: A was correct!
Standard IV(B) requires that members obtain written consent from all parties involved before accepting monetary compensation or other benefits that they receive for their services that are in addition to compensation or benefits conferred by a member’s employer. In this situation, Saul may also be obligated to disclose his participation on Fairway’s Board to clients, prospective clients, and employer under Standard VI(A), Disclosure of Conflicts.
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Mock 2017 Q3 B
Collignon has full control over the timing and size of cashflows. Isn’t MWR the appropriate measure ? Why is the answer TWR?
Thanks
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PSA: 12 new questions has been added to the online Practice qbank
12 new questions has been added to the online Practice qbank.
6 for Asset Allocation and 6 for Fixed Income (1 vignette/scenario each)
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direct real estate diversification
Hi,
Direct investments in real estate have correlations of returns with both stocks and bonds that are very close to zero; this means that direct real estate investments may provide good diversification benefits with both stock and bonds
I have the following explanation from Schweser and I don’t understand what it means bonds that close to zero. How to have be correlated and still provide good diversification? Can please someone explain?
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Abiquia Mutual Case Scenario error in solutions?
“Puhuyesva’s approach matches the interest rate sensitivity of the asset portfolio to that of the liabilities. If she has reasonably strong beliefs about how interest rates will change in the near future and the surplus exceeds her threshold of 10% of assets, she will adjust the interest rate sensitivity of the asset portfolio to attempt to increase the surplus. She typically uses derivatives positions to adjust the asset portfolio’s interest rate sensitivity, rather than buying and selling securities.”
compared with the other portfolio styles.
Q. The most appropriate action given Puhuyesva’s views on interest rates and the information in Exhibit 1 would be to buy:
- 492 contracts.
- 614 contracts.
- 552 contracts.
Solution
B is correct. The number of futures contracts needed to fully remove the duration gap between the asset and liability portfolios is given by Nf=BPVL−BPVABPVfNf=BPVL−BPVABPVf, where BPV is basis point value (of the liability portfolio, asset portfolio, and futures contract, respectively). In this case, Nf=299,860−243,376102.30=+552.1Nf=299,860−243,376102.30=+552.1, where the plus sign indicates a long position in or buying 552 futures contracts. Because the value of assets is more than 2% greater than the value of liabilities (217.3/206.8 – 1 = 5.1%) and Puhuyesva believes interest rates will fall, the duration of assets should be greater than the duration of liabilities so that the surplus will rise if interest rates do fall. Therefore, more than 552 contracts should be bought.
It seems they didn’t use the same threshold as given in the problem…
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Taking Days Off from Work
8 days left guys!!
Anyone taking days off from Work to ramp up the wrap up lol
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Would belief in market efficiency affect corridor width?
If market is efficient, it should mean revert to the target and corridor should be wider, right? However I have seen materials say mean reverting environment suggests narrower corridor and that market efficiency doesn’t affect corridor at all….I’m lost….
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yield curve stretegies
Page 165 of volume 4-middle of the page - it says that we sell 6800 of par value of the bond. How did they get 6800? I see no calculations for that- can anyone help me her ?
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IPS return requirements
How they manage to make these basically easy tasks so confusing that I always lose a lot of points on my AM sessions is beyond me.
Is there anyone who reliably gets the right answer on these calculations when they try a new question? And if so, what exactly did you do for preparation?
I have done all AM sessions from 2007 - 2017 and as far as I remember I have always lost some points for inflation or tax adjustments or similar stuff on the return requirements somewhere in the AM exam.
Not sure what to do about this now, I still self grade my AMs at >70% but I am very uncomfortable losing so many points on the same stuff over and over again. I mean, it is the same “stuff” but it is sufficiently different to get me…
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Last week strategy
So I have done 13 AM 3 Hours sessions and 4 PM sessions,
Scored 64% on first AM and 75-80% on all AM sessions since the third one. A major weakness I have are those required return calculations, as I consistently lose some points there due to inflation/tax adjustments or other things I do not “see”/understand when reading through those things in exam like conditions. Have not seen much improvement since the third AM session other than speed (first sessions were not timed). Also, I see some wiggle room in the ratings, so that I imagine that in a real exam a grader may give me -10% in the worst case.
I have done 4 PM sessions (2 from CFAI and 2 ITF PMs). Scored 82-83% on the two CFAI mocks and one ITF mock and 95% on the second ITF session (I think they are too easy…).
So basically I have only ITF AM and PM mock left and am not sure on how to use the last week in the best way.
I thought about repeating the 2015 - 2017 AM mock sessions (or maybe just the parts where I had weak scores in the first run) and the PM mocks from CFAI, maybe some more CFAI topic tests (I have done them already - avg. score of 86%, but I have done some sections twice, so it is skewed upwards).
Or should I put the focus on repeating content/flashcards?
I am really uncertain. On the one hand, I am much more prepared than for level 1 or 2 (where I had like 4 mocks and just scored around 70%). On the other hand, this level is such a beast from my POV (especially because of the AM session and its subjectivity) that I am seriously unsure about how to get the most bang for my buck (figuratively speaking).
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Record Retention - 2018 Official Textbook, Reading 3, Problem #26, 5 years instead of 7 years?
“Khadri implements an electronic record-retention policy when she becomes the Westlake manager. In accordance with her policy, all records for the fund, including investment analyses, transactions, and investment-related communications with clients and prospective clients, are scanned and electronically stored. Vinken maintained the same records in hard-copy format for the five years that he managed the Westlake Fund. Khadri has begun the process of scanning all of the past records of the Westlake Fund; however, Vinken complains that Khadri is wasting company resources by scanning old records. Vinken insists that he will continue to maintain only hard-copy records for the Stonebridge Fund for the five years required by regulators.”
Are the record-retention policies of both Khadri and Vinken consistent with CFA Institute Standards?
Yes.
No, Khadri’s policy is not consistent.
No, Vinken’s policy is not consistent.
I bet lots of people think C is correct, because 5 years of record retention is not recommended
But the answer is:
“A is correct. The policies of both Khadri and Vinken are consistent with Standard V(C)—Record Retention, which states that members and candidates must develop and maintain appropriate records to support their investment analyses, recommendation, actions, performance and other communications with clients and prospective clients. The records required to support recommendations and/or investment actions depend on the role of the member or candidate in the investment decision-making process. Records can be maintained either in hard copy or electronic form. Even though they use different methods, Khadri and Vinken each maintain the appropriate records and have adequate systems of record control.”
In this case, 5 years of record retention is acceptable and consistent with Code of Standard of “recommended 7 years of record retention”??? Any ideas? thanks. The errata does not include this question
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Yield Beta on Bond Futures
I’m confused as to when to factor in Yield Beta in addition to MD when calculating # of contracts to use on a hedge. Seems like it’s a distracter and not used in some questions but not so in others? What am I missing here? Having a problem with question 50 in the schweser practice exam volume 2 test 1 (afternoon).
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