2005 CFA Exam

Did anyone else wonder where some of this material came from on the free 2005 essay section? some of it seems like they might not include it in the curriculum anymore, like the Q on the marketability discount. The monetary model was new to me too. Does the CFAI not test on this material anymore, or did I just miss it when I did my readings? Thanks.

fed model is still there. Marketablity discount I don;t think is around anymore…I didn’t find it too bad if it is. No Tobin’s Q…skip it

fed model is mentioned in like 1 or 2 lines :frowning: no way they gonna put a whole question on it

What is the Fed Model? I forget…

earnings yield vs bond yield – whichever is higher means that investment is more attractive.

Interest rates and Dividend Yield… When Dividend Yield is Higher than the 10 Y rate (I think) then it means the Fed will lower rates??? Or was it the opposite…

oh maybe i’m wrong??

From Wiki: The “Fed model” is a theory of equity valuation used by some security analysts that hypothesizes a relationship between long-term treasury notes and the expected return on equities. According to this valuation model, in equilibrium the real yield on the 10-year U.S. Treasury Bonds should be similar to the S&P 500 earnings yield (that is, S&P forward earnings divided by the S&P level). Differences in these yields identify an over-priced or under-priced equity market. More specifically, if the S&P earnings yield is higher than the treasury yield investors should sell treasuries and buy stocks (i.e. stocks are undervalued), while if the S&P earnings yield is lower investors should sell stocks and buy the more attractive treasuries (i.e. stocks are overvalued).

6 Qs on Marketablity discount …