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Study Session 4-5: Private Wealth Management


I’m shocked!

Guys, if you look at Book 2, p170 of pdf they wrote it completely wrong.

“Similarly, a bull put spread is the reverse of a bear put spread, in this case a long XYZ May 55 put ($6.61) and a short XYZ May 50 put ($3.87)”

It should be short May 55 and long May 50!!!

And on the same page they have written formulas incorrectly for Bear Put Spread!!

Growth, Inflation & Bond Yields

The below fact is stated in both readings 10 and 11 of the CFAI text. Why is this? Does someone understand it enough to give a practical example? What is a demand/supply driver?

When growth and inflation are primarily driven by aggregate demand, nominal bond returns tend to be negatively correlated with growth. When driven by aggregate supply, nominal bond returns are positively correlated.


Private Wealth - short sale against the box

In a short sale against the box technique, you borrow shares from a lender, and sell them (you are long and short on the same underlying asset - so you are hedged re price risk). 

I would have 2 questions please:

1. Borrowing and selling do not happen at a very short time one after the other, right? i.e. you can defer selling and hence the capital gains tax 

2. You do not have any counterparty risk, right? But does the lender of the shares have this counterparty risk? (e.g. you cannot sell the shares as desired, so you cannot deliver them back as agreed?)

Private Wealth - Exam Question

Wald has a realized capital gain of CLC 50,000 in another taxable account. Her advisor reviews that account and notices that Stock Y has an unrealized loss of CLC 45,000 and a cost basis of CLC 220,000. The advisor explains two alternate plans to Wald:

Plan A: Sell Stock Y in Year 1 to realize the loss and replace it with Stock Z, which the advisor believes will have the same expected return as Stock Y. In Year 2, sell Stock Z at an expected market value of CLC 250,000.

Plan B: Hold Stock Y until Year 2 and then sell it at an expected market value of CLC 250,000. B.

Private Wealth - double taxation

The oil firm that Jacobs controls is headquartered in the island country of Mahjong, located near Sahjong. Because of the foreign location of the oil firm, Simson believes there might be opportunities to reduce taxes.

Private Wealth - goals-based vs Monte Carlo

Murray describes the differences between deterministic forecasting and Monte Carlo simulation in investment planning and the traditional and goal-based approach in constructing portfolios. After hearing about these methods, Virginia states that she thinks that the goal-based investing approach is best suited for her needs because

  • it allows her to specify a level of risk tolerance for each goal,

  • growth toward each goal on a straight-line basis is much easier to understand, and

Private Wealth - tax

After discussing her short- and long-term goals, Murray tells Virginia that he is concerned about her current tax situation. He asks her to confirm that for tax purposes, her cost base for the shares that she inherited from Richard was virtually zero. When she does, he reminds her that Canada has no inheritance tax but a capital gains tax in which one-half of the capital gain is taxable at the individual’s marginal tax rate on the disposal of the property.

Taylor rule -capital market expectations

Hello There,

i would like to understand how the taylor rule works.  In CFA Books, it is r(neutral) + i expected.

in schweser it says r(neutral) + i target

which one is correct?  I see many answers to the questions in qbank that doesnt even use inflation (target or expected).


R32 Q7

Why is statement 1 incorrect?