I just discovered some new terms in the DuPont model listed in the CFAI text but not mentioned in Schweser. It was hit hard a couple times in the mock exams: Check out page 143 of the equity book. ROE = (NI/EBT)X(EBT/EBIT)X(EBIT/SALES)X(SALES/ASSETS)X(ASSETS/EQUITY) never saw before: NI/EBT is the tax retention rate, or 1-tax rate EBT/EBIT is the interest burden (max value of 1 if no interest payments) tax burden = EBT-NI This is pretty intuitive but I was surprised not having seen these terms mentioned in Schweezy.
i think i just used the three part dupont for that question… i’m not done reviewing yet…
yep it’s in the book
They are in Schweser. Book 4, p. 63 It doesn’t mention the name of the terms, though
yeah the terms is what i was referring to.
what about this downgrade risk vs credit spread risk question? man. did you get it right? i got worked by fixed income.
Yeah FI worked me on both mocks…67%. I actually did get that ? right b/c I figured since it was widely believed it would be downgraded, but just wasn’t fully priced in yet, the answer couldn’t be solely downgrade risk, which meant only credit spread made sense.