The second step in calculation of the net payment cost index is: Calculate the future value of an ordinary annuity of an amount equal to the projected annual dividend (if any), compounded at 5% for 20 years. An ordinary annuity is used because dividend payments are made at the end of the period.
What is the projected annual dividend? Does a life policy pay any dividend annually?
AF will be read-only starting Friday at 4:00 PM EST through Sunday at 8:00 PM EST to prevent the inadvertent sharing of exam information. Good luck to all of the Level I CFA candidates taking the exam this weekend. As a member of the AF community you will be among the most prepared in the room. Thanks for making AnalystForum a great community.
When the forums open after the exam please honor your CFAI pledge not to discuss specific exam questions or attempt to re-create the exam.
If you have an interest rate swap (notional $100k) and you are a fixed rate receiver of say 7% interest rate and you pay libor. For simplicity your loan is also on libor. That means your net interest payable is effectively 7%. Assume libor is 8%.
For accounting purposes, you will record the loan interest of libor of 8% and does the value of the swap has to equal the 1% of $100k. I understand the value of swap is the present value of CF (fixed) - CF (floating). But shouldn’t this sum up to 1% im getting from the counterpart so that the effective interest is net 7%.
Why is the correlation equal to 1 in the ”risk premium with complete segmentation” calculation? I understand that the correlation is 1 because of the asset class’s correlation with the local market, but I don’t understand the reasoning behind it.
When complete integration is assumed, the correlation value represents correlation between the asset call and the GIM. However, when complete segmentation is assumed, the correlation value represents the asset class’s correlation with the local market, which is 1. Why isn’t the correlation just 0 as the market is completely segmented?
In the 16th reading of the LVL 2019 curriculum, it is stated that:
“The output gap is the difference between the value of GDP estimated as if the economy were on its trend growth path (sometimes referred to as potential output) and the actual value of GDP. A positive output gap opens in times of recession or slow growth”
This would imply: Output gap = Potential Output - Actual GDP.
However, I found numerous legit sources online where output gap is defined as Actual GDP-Potential Output.
Is there a reason why CFAI has reversed the equation?
The Ultimate LevelUp BootCamp experience is a total immersive educational, cram session for the Level III CFA exam. The class will be limited to 40 candidates. Candidates that chose this review will change their exam locations to Omaha, NE. Why? The Omaha exam center has less than 20 CFA Level III candidates taking the exam. The stress is low and like the “Cheers” bar…everyone knows your name. Additionally, the exam center is located directly across the street from the Marriott hotel.
The agenda for the Ultimate LevelUp BootCamp is simply hard work. We will cover the detailed aspects often tested in the candidate curriculum, we will work the difficult white text problems (found inside the CFA candidate readings), blue box examples, end of reading practice problems but most importantly we will work past exam questions. We will learn the topic then practice how to answer the exam question. So many candidates are “mis-led” on how to answer the questions with “fewer words to earn more points” but that is farthest from the truth. We will cover the “theory and practice” of exam solutions, we will cover the hidden traps candidates make on the exam. Hidden traps are “blind spots” in the exam where candidates don’t see the points they are missing or make mistakes they didn’t know they were making. The primary emphasis of the Ultimate BootCamp is working problems and quickly providing the best solutions to earn maximum points in the least amount of time.
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Included:
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Course agendas are identical for all Ultimate courses, regardless of location or venue. The ebb and flow may change slightly each day based on candidate questions.
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Located in the heart of Omaha, this Residence Inn by Marriott is part of a vibrant new mixed-use urban development. Only a few steps outside our door, you will find educational and corporate campuses, including the new Baxter Arena, University of Nebraska at Omaha, the Scott Conference Center, HDR HQ, First Data Corporation, Peter Kiewit Institute, Pacific Life and Blue Cross Blue Shield. Experience eclectic local restaurants including Ponzu, Jones Bros Cupcakes & Café, DJ’s Dugout, VooDoo Taco, Eat Fit Go, Freshii and Spirit World. Aksarben Cinema, voted the best of Omaha is steps away. Walk, run or bike on Omaha’s paved trails (Keystone Trail), located just 2 blocks away. Genesis Fitness is available for use with no extra charge for those staying at the Residence Inn. Lotus House of Yoga is also located directly across the street with classes available for a nominal charge.
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“With a whole life policy, the insurance company specifies an age at which the policy’s face value will be paid as an endowment to the policy owner if the insured person has not died by that time.”
I think this is for the situation where insured person has not died and the policy has been terminated by policy owner. In that case, policy cash value, rather than policy’s face value, will be paid as an endowment to the policy owner, right? If the policy has been terminated before insured dies, policy cash value will be withdrawn by policy owner and the beneficiary will get nothing, right?
Former level 3 bros - when you filled out the membership application.. did you use bullet points?
Question 5
In the candidates’ responses to Fox regarding the relevant characteristics of asset classes, the statement that is least accurate is:
B is correct. Although Trainor is correct that asset classes should be diversifying, low pairwise correlations with other asset classes is not sufficient. An asset class may be highly correlated with some linear combination of the other asset classes even when pairwise correlations are not high. Both of Kelly’s comments are correct: Asset classes should have high within-group correlations but low correlations with other classes. If liquidity and transaction costs are unfavorable for an investment of a size meaningful for an investor, an asset class may not be a suitable investment for that investor.
Can someone explain the bold statement, what does it mean by asset class may be highly correlated with some linear combination of the other asset classes even when pairwise correlations are not high?
Hi all,
Could you help me why :
1. Bottom up analysis + systematic strategy have no factor timing
2. Bottom up analysis + discretionary strategy have potential factor timing
(as per exhibit 6 - page 461)
I thought that factor timing is always important to generate alpha of active PM. Why the timing factor is not a matter in these mentioned above cases?
Thanks all
Why would Credit Method be the best possible solution vs Exemption Method
Can someone reconcile the categories? I tried and got most of it by lining up the 2 dimensions, but a few of the descriptions seem fairly off (categories marked with “?”)
Reading 9 (p.109-110) vs reading 10 (p.169-170)
Individualist = individualist
Adventurer = spontaneous
Guardian = methodical?
Celebrity = cautious?
I referenced IFT videos too and he got the same. It just seems like Straight Arrow = Methodical and Guardian = Cautious (Maybe I’m showing some framing bias) … Bleh
Thanks in advance.
I have a ba ii plus and ba ii plus professional. My plus screen is fading, the numbers are real dim unless you look at it at an angle. The same thing is now starting to happen to my plus professional.
Has anyone else seen this? Is there a way to adjust screen contrast?
I don’t want to buy ANOTHER calculator, but I’m also not going into the test with anything I don’t have 100% confidence in…
Curious to hear from all the AFers.
In ex. 4 it says that the objective function is explicitly stated for all three managers…can someone explain where it is explicitly stated for managers B and C? Or is this an error in the book?
thx
In CFA Level III textbook, the price-weighted index is ” price per share divided by sum of all the share prices in index”, but in other resources, it is ” price per share divided by the number of all shares”. Is CFA calculating the index differently?
Can someone explain what is money duration and why does BPV require to closely match with liability BPV?
Hello everyone
so in cfa volume 4, reading 23 page 63 there is a blue box example on cash flow matching. I struggle with the given solution on the example.
It suggests to buy a 4 year bond with 5,50% coupon rate to cover a fixed liability at at the end of the holding period. So far so good.
I don’t understand the way the book calculates the par value since it discounts the bond only by one year but holds it for 4 years. I can tell that the holding period is 4 years since the coupon payments are received throughout the holding period.
Can anyone help me.
Thank you!
A trader enters a short three-month non-deliverable forward on 2,000,000 CNY at CNY/USD 6.1155.
Based on that phase, does that mean the trader is on a contract to “sell” 327,037 USD in exchange for $2M CNY, or the opposite?
How do you know the short is associated to CNY or USD?
”If there isn’t a consistent relationship between the expected return and systematic risk, the optimizer will see this inconsistency as an opportunity and seek to take advantage of the more attractive attributes.”
How does reverse optimization see possible inconsistencies?
Trying to built a stochastic model to model silver prices. I am kind of new at this and don’t know where to start. Any help would be appreciated it.
