Anyone notice that CFAI used total assets vs. only equity in the leveraged portfolio return calculation question? Question states leverage is 40%, but with 40 of borrowed funds and “100” of equity, leverage would only be 29%. (B/E) should have been 40/60. Working the problem logically long-hand you arrive at the same issue. Cost me a 90% on the exam… Also, there was a question where IRP didn’t hold!!! The interest rate differentials were different from the forward/spot differential. Depending on which you used to calculate hedged return, answers varied.
i think levered 40% mean 140/100. not 40/60. the irp question if you just do the interest rate diff this is only an approximantion. it is not the exact number. the question wanted you to use the exact number. i guess if they give you both always use the exact irp equation dont use the approx
The multiplicative IRP is NOT an approximation, and it must equal the spread/premium with regard to stated forward and spot rates (F-S/S). Usually the question gives you one or the other–this one gave both and they were not equal! For the levered question, they used 40/100, which is wrong according to both Schweser and the source material. NOT 140/100 as you suggest. Probably not many people have taken the sample yet, so unlikely to get a captive audience on these issues.
I remember struggling with their definition as I was taking the sample exam. I went with 40/100 because when they described the use of leverage in the IPS, it was stated as a percentage of equity (not assets).
You’re absolutely right, maratikus, they do define leverage as a percent of equity, which, though retarded and unconventional, does explain the given answer.
maratikus Wrote: ------------------------------------------------------- > I remember struggling with their definition as I > was taking the sample exam. I went with 40/100 > because when they described the use of leverage in > the IPS, it was stated as a percentage of equity > (not assets). The definition of leverage in sample exam confused me. I supposed it is a debt/assets ratio… Now, I will remember it.
hi could someone provide-if possible the exact wording of the question-CFA have had an ongoing problem in this area
I think it said the company was 40% levered. i dont remember exactly. someone must have a screen shot.
nikko0355 Wrote: ------------------------------------------------------- > I think it said the company was 40% levered. i > dont remember exactly. someone must have a screen > shot. Does making a screen shot violate any Standards and Codes?
In the beginning it said something like, the company’s mandate allows them to borrow between 0 and 75 percent of the *equity* in a portfolio. Later in the statement, it mentions the portfolio has 40% leverage.
Can someone confirm if the sample exam did in fact state the leveage as a percentage of equity. I recalled the problem as stating that the portfolio was levered 40%
outq13 Wrote: ------------------------------------------------------- > Can someone confirm if the sample exam did in fact > state the leveage as a percentage of equity. > > I recalled the problem as stating that the > portfolio was levered 40% What I typed above was confirmed. % of equity. Easy to miss on this exam, as the two statements regarding leverage were separated.
Good to know. I will keep an eye out for that. Thanks for the follow up
so how does it add up? i still don’t get it.