Guys… take a look at how much of what we put together was tested. Truly amazing. I put stars (****) by the topics that were tested. The AF community could have written the exam. Dwight Wrote: ------------------------------------------------------- > Source: > http://www.analystforum.com/phorums/read.php?13,96 > 7038 > > -------------------------------------------------- > ----------------------------- > > If our Human Capital is Bond-like, we should > invest more aggressively (equity) and our demand > for life insurance increases. > > ****> A short position in an option is either > out-of-the-money and no payment is due, or it is > in-the-money and the short owes payment to the > long. Therefore the short position bears NO CREDIT > RISK. **** > > ****> Honour willingness as long as it is below or equal > to ability – except for the wealthy independent! **** > > > Additional compensation arrangement requires both > clients and employer give the written approval. > > > Box Spread: combo of a Bull Call and Bear Put > Spread; a non-directional strategy. . . seeks to > exploit arbitrage opportunities between options > prices of the same underlying. > > **** > Taylor Rule: gives an estimate for central bank > interest rate decisions: **** > > ****> R target = R Neutral + 0.5*(GDP expected - GDP > trend) + 0.5*(Inflation expected - Inflation > target) **** > > > When distinguishing between Type I and Type II > errors, remember “Type I HORN.” > Type I HO (Null Hypothesis) RN (Reject Null) > Null = Manager adds no value; Reject and conclude > that manager adds value when he actually does > not. > > ****> SAMURAI (For properties of a valid benchmark): > Specified in advance, Appropriate, Measurable, > Unambiguous, Reflective of manager’s current > opinions, Accountable (Manager), Investable.**** > > ****> Types of benchmarks - MBS FRAC! > Manager Universe - Broad Mrkt indices - Style > indices > Factor model - Returns based - Absoute - Custom**** > > > If only defense - lack of action or inaction > Ceteris paribus - because of unexpected > action/event, all else same > > > Legal / Regulatory Constraints for Endowments and > Foundations: UMIFA and Prudent Investor > > > ERISA prohibits investment of more than 10% of DB > plan assets in the company stock, but NO such law > applies to DC plans > > ****> Durations: Dfixed-Dfloating>0. To shorten duration > take floating Asset (i.e. receive floating and pay > fixed)**** > > > Claw back provision: If PE sponsor received early > distribution but failed to deliver the expected > profit; he has to give back money. > > ****> Private equity has low liquidity and allocation to > this class should be 5% or less with a plan to > keep the money invested for 7-10 yrs**** > > > Adding REITs to stock / bond --> higher return --> > marginally lower sd --> higher sharpe ratio > Adding direct real estate investment to stock / > bond --> lower return --> significantly lower sd > --> higher sharpe ratio > > ****> Going long a pay-fixed swap will lower your > portfolio duration, while going long a > pay-floating swap will increase your portfolio > duration. **** > > > For a domestic investor, currency risk is about > half the risk of foreign stocks and about twice > the risk of foreign bonds. > > > There are four main reasons not to trade bonds - > “please stop bothering susan” > please = Portfolio constraints (biggest cause of > inefficiency in bond markets) > stop = story disagreements > bothering = buy and hold > susan = seasonality > > > There are eight main reasons to trade bonds - > “really can cook, no salt you say?” > really = relative value pick up (biggest reason) > can = credit upside > cook = credit defence > no = new issue trades > salt = secot-rotation trades > you = yield curve pickups > say? = structure trades > > > Distressed Debt Arbitrage = long debt and short > equity of the same company. > > ****> Total Active Return = True active return + Misfit > active return > true = Manager return - Normal port return > misfit = Normal port return - Benchmark**** > > > Increase in Age -> Lower demand for life insurance > > Higher risk aversion -> Higher demand for life > insurance > Greater initial wealth -> Lower demand for life > insurance > Stronger Bequest Motive -> Higher demand for life > insurance > > > Stock-based compensation and bonuses: Complements > > Explicit Incentives and Implicit Incentives: > Substitutes > > ****> In a non-trending market, Constant Mix outperforms > Buy-and-Hold outperforms CPPI > In a trending market, CPPI outperforms > Buy-and-Hold outperforms Constant Mix**** > > > Investor’s Utility Adjusted Return = Expected > Return Portfolio - 0.005 * Risk Aversion Score * > Portfolio Variance > > > “(Insert name of firm) has prepared and presented > this report in compliance with the Global > Investment Performance Standards (GIPS®).” > > ****> Total commodity return = collateral return + roll > return + spot return > *For roll return it is the futures differential > minus the spot return**** > > ****> Without rebalancing, classical immunization only > works for a 1-time instaneneous change in i-rates. > We cease to be immunized when (1) i-rates change > and (2) Time passes**** > > > Currency Management Strategies: > Balanced Mandate - Asset Manager also manages > currency > Currency Overlay - Currency managed within IPS by > another currency manager > Seperate Asset Class - Currency managed under its > own seperate guidelines > (Note - CFAI says it’s a suboptimal strategy if > managed in two-steps. Simultaneous management > would be better.) > > ****> For Grinold/Kroener: always look for real or > nominal g! - real should be used, as inflation is > a separate component; thus, do not sum nominal g > and i**** > > > Beta of A = standard deviation of A / standard > deviation of market * correlation > Covariance of A and B = Beta of A * beta of B * > square of standard devation of market > > > Jensen’s Alpha: Portfolio Return - Expected > Portfolio Return based on SML > IR: Active Return / Standard Deviation of Active > Returns > * Note: IR doesn’t capture all portfolio > variability, just the variability of excess > returns * > Sharpe: (Return Portfolio - Rf) / (Standard > Deviation Portfolio) > Treynor: (Return Portfolio - Rf) / Beta Portfolio > ****> M2: Rf + Sharpe * Standard Deviation Market**** > > > Implication of cyclical and secular changes in the > corporate bond market include: > 1. securities with embedded options will command a > premium due to their scarcity > 2. the percentage of long-term issues will decline > - effective duration and aggregate interest rate > risk sensitivity will also decline. > > > Moral Hazard Problems (Corporate Governance): > a) Insufficent effort results when company execs > are too occupied with various non work related > interests (i.e. golf game, buying expensive art, > etc.) instead of focusing and putting enough > effort to get the job done > b) Exravagant projects is when management continue > to invest in high profile or pet projects even > though the return on the investments is not in the > best interest of the company and its shareholders > > c) Entrechement – when managers invest in bad > projects but in projects where they have a strong > understanding so that they become more valuable to > the company > d) Self-Dealing – I am not 100% sure, but I think > when they funel business to companies they own or > family and friends. > > > ****> Corridor Widths > Factor…(Value - effect on > corridor widths) > Transaction > Costs…(higher-high > er) > Risk > tolerance…(hi > gher-higher) > Correlation… > …(higher-higher) > Volatility… > …(higher-lower) > Volatility of the rest of the > portfolio…(higher-lower)**** > > ****> A contango commodity market occurs when the lease > rate is less than the risk free rate.**** > > > Cross Default Provision: issue considered in > default if defaulted on another credit agreements > > Jump to Default: AKA current credit risk > > ****> Grinold and Kroner: > R(i) = Div1/P0 + i + g - (DELTA) S + (DELTA) P/E > Ri = expected return on stock i > Div1 = dividend next period > P0 = current stock price > i = expected inflation rate > g = real growth rate in total earnings > (DELTA) S = change in shares outstanding > (DELTA) P/E = change in P/E ratio **** > > > Market Neutral Strategy has a Beta of Zero. > Manager can add Beta exposure using futures, > swaps, etc. > Short Extension Strategy: Net Portfolio beta=Beta > Long+Beta Short, hence can outperform long only > strategy as it exploits benefits of short-selling > > > Payer’s Swaption–gives the buyer of the option > the right to enter into a swap where the option > buyer pays the fixed rate . Converts a future FRN > into fixed rate obligation. > Receiver’s Swaption–gives the buyer of the option > the right to enter into a swap where the option > buyer receives the fixed rate. Converts a future > fixed rate obligation into floating rate > obligation.
VERY GOOD LIST, How about Macro/Micr Attribution, Life Insurance needs, a Gips performance presentation, Corner Portfolios, calculating Segmentation/Integration… Alll major areas missed !!!
I count 18 bullet points compiled from the “don’t miss thread” that were on the test. 26 bullet points were not tested. 18/44 = .41 So we had a 41% hit rate. Pretty ridiculous.
No joke Dwight, in my book you get forum poster of the year for this thread and the study sheets you helped put together. A sincere THANK YOU for all your hard work!
^ Thanks nerdattax. It’s been more valuable to me to post stuff than I’m sure it has been for anyone to read it. I’ve been on vacation in the mountains for the past few days and I’ve forgotten everything from the test. Hopefully we won’t have to take this again next year because I don’t think I will remember any of it. Reading the study points above will be like trying to read a foreign language in a couple of months.
Bump…last year’s “Don’t Miss” thread. Not as extensive as ours, but they had a good hit rate for what was on the exam.
MT
what’s the reason of Increase in Age -> Lower demand for life insurance Is that because? Increase in Age ->Lower HC–> Lower demand for life insurance
think about it - when you are young, you accumulate debt. if you are married and die early, your spouse is on the hook for your debt (say it’s a home). if you are older, you’ve paid down (or off) your debt, and you don’t need as much life insurance.
Implication of cyclical and secular changes in the corporate bond market include: 2. the percentage of long-term issues will decline - effective duration and aggregate interest rate risk sensitivity will also decline. what’s the reason for 2nd statement? in notes, I just see manager will pay premium for longer duration bond because of the tendency to intermediate maturities. this is a great post. I mean really great; worth my time to read it word by word.
hey Cpiere mind reuploading that pdf? scribd has it deleted.
thanks man
+1
Bumped for 2013 candidates. 2 months to go, everyone! Let’s do it!!
My issue with this is that it was first posted in may 2009. Im sure the curriculum has been updated since then.
Thanks clark !
Zanalyst - just take it as it comes and you can add your own list to this.
rebump
What is this a Level III time capsule to see what candidates were studying in 2009?