does anyone know whether we need to know ch. 69 or not. I understand it’s not an optional section but the book specifies that candidates are not responsible for the formulas in section 4-6. What are we supposed to learn then? the portfolio creation entails knowing the formulas and so do the questions at the end of the chapter but the book clearly indicates that it’s not expected of us. I’m not sure I want to skip learning it because I can’t solve the questions w/o the formulas.

I would understand the components of the formulas, and what the steps deriving them are doing–and assume they will be given to you. I don’t think they are that bad, just keep the notion in your mind that you want high positive alpha (extra reward over required), and low non-sysytematic risk (variance of error). Both high alphas and low variances make the weight component higher. Based on experience and explanatory power, you can then make adjustments to the same formula for the weights. Positive weights mean buy (go long); negative weights mean sell (go short).

Throw the whole example into Excel so you can learn how the parts all move together. Then do the EOCs by hand. It’s a good exercise, and you’ll be able to answer some esoteric questions without having to memorize the formula. I know – you survived derivatives and now CFA throws you this parting shot.

Thanks everyone. Hank, I thought derivatives was the last of it and then bam! Gotta love their parting gifts to us Best of luck with the review everyone