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ICAPM question

I don’t believe it. Any explanation? I guess somehow we are supposed to know that the sensitivity factor has already been adjusted for the correlation effect, although does not state it explicitly.

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really?

its says:

“Lee has measured the sensitivity of Stockco to changes in the value of the U.S. dollar to be 1.2.”

sensitivity of Stocko (based in US) IS 1.2 to US dollar

LC sensitivity - correlation between the return in stock denominated in LC (US in this sense) and changes in the value of the LC (US).

Sensitivity = Sen(LC) + 1. so why not add the 1?

C for Lance’s question.

I got messed up with this too… like all of you.. Here is the description from QBank.

In a single foreign currency world, the ICAPM simplifies to: E(Ri) = R0 + Biw ~ RPw + ƒÁi1 x FCRP1. Substituting in the numbers from the problem, we get: E(Ri) = 5% + 0.8 ~ (6%) + 1.2 ~ (2%) = 12.2%. Remember to use the domestic risk-free rate.

Garbage…

weird. is this Schweser?

yeps, Question- #8455

Lance what’s the answer to your q?

a for dinesh’s only cause I think I remeber this one and c for lances

#FreeCVM #FreeTurd #2007-2017

Here’s a cute one for all you angry lads…

Paul McCormack is a U.S. investor interested in valuing a Japanese security. Which of the following regression equations would be useful to McCormack in assessing the currency exposure of the Japanese security to changes in the dollar/yen exchange rate?

A) Domestic currency return = á + â (world market return).
B) Local currency return = á + â (world market return).
C) Domestic currency return = á + â (exchange rate movement).
D) Exchange rate movement = á + â (gross domestic product).

C is the correct answer. I put that one up there to help drill home the +1. I don’t care what that question says Dinesh, I’m adding the +1 on exam day. I studied this section in depth in the CFAI cirriculum.

one second too late, I remembered this cause it came up on af when you and I were studying dinesh

#FreeCVM #FreeTurd #2007-2017

Paul McCormack is a U.S. investor interested in valuing a Japanese security. Which of the following regression equations would be useful to McCormack in assessing the currency exposure of the Japanese security to changes in the dollar/yen exchange rate?

A) Domestic currency return = á + â (world market return).

B) Local currency return = á + â (world market return).

C) Domestic currency return = á + â (exchange rate movement).

D) Exchange rate movement = á + â (gross domestic product).

I want to say C, but seems to easy, theres always a TRICK

C for Lance’s Q. I don’t know what that heck B and D are with their #947!

c to the latest one?

And dinesh I don’t get why it’s a for your previous one, despite Schweser’s answer.

LanceTX Wrote:
——————————————————-
> I want to say C, but seems to easy, theres always
> a TRICK

I’d say C…. a lot of times the trick is there isn’t a trick. Last year on the exam we had to translate the Current Assets via the AC Method. I was like no way it could be this easy. It was.

LanceTX is correct - C is the ans

i’ll join the c bandwagon for the last q

thepinkman Wrote:
——————————————————-
> C for Lance’s Q. I don’t know what that heck B
> and D are with their #947!

I think that may be for “exposure”… is that an x-rated word or something?

What’s everyone’s confustion with Dinesh’s Question? Aren’t you supposed to use the domestic rfr?

dimitrous Wrote:
——————————————————-
> thepinkman Wrote:
> ————————————————–
> —–
> > C for Lance’s Q. I don’t know what that heck
> B
> > and D are with their #947!
>
>
> I think that may be for “exposure”… is that an
> x-rated word or something?

HAHAHA… you never know with their sick minds

yeah, so the Korean one. But why not add 1 to the 1.2?

thepinkman Wrote:
——————————————————-
> What’s everyone’s confustion with Dinesh’s
> Question? Aren’t you supposed to use the domestic
> rfr?

Yes you do, the question is why do you not a “1” to the 1.2. y= y(LC)+1 per schweser

“What’s everyone’s confustion with Dinesh’s Question? Aren’t you supposed to use the domestic rfr?”

You are, but confusion comes if we need to add 1 to the sensitivity

Did I not sent an easy question to chill you guys out?

Where the answer was : Domestic currency return = á + â (exchange rate movement).

For Dinesh’s Q I seemed to have gotten the correct answer a different way

3 + (.8*6) + ((1.2+1) * 2) = 12.2

They have

5 + (.8*6) + (1.2*2) = 12.2

Thoughts?

^^ Thats the million dollar question

pink you wouldn’t want to use the 3% risk free rate - that’s the US rate and the investors are korean, so you should use the korean risk free rate.

Pink, you shouldn’t use that 3% RFR. Schweser specifically says “Risk free asset of their own company”