ok, so this is not mentioned at all in the LOS Its in the CFAI text, and there is an EOC question about it. Are we responsible for it? Its not anywhere in the schweser at all (not that that means anything)
I think just remember it’s a downward adjustment of 1.25% to the Morningstar-Ibbotsen Historical ERP. Not too much to worry about.
No the calculation was crazy. It was like r = ((1 + real earnings growth) * (1 + long term inflation) * (1 + P/E/g)) + Dividend Yield) - Risk Free Rate A question like this probably has a 0.5% chance of making it on the test.
If it’s not in the LOS, I wouldn’t worry about it. It didn’t show up on last year’s exam.
If it shows up, bad luck. Don’t bother trying to remember it, try to remember the important stuff instead.
Dude, that’s why Schweser doesn’t do well. You should use finquiz.com for test answers. Here’s the formula: r = [(1+ expected growth REAL EPS)(1 + expected growth REAL PE)(1 + expected inflation rate)] - 1 + income component (dividend yield) - RFR
IMO anything that’s not mentioned in the readings of the CFAI book is a luxury to learn. Unless you’re pretty comfortable with the main topics, I wouldn’t be using my brain cells for a formula this long while I still need them cells for major topics. I’ll take the risk. That’s just me though.
davidyoung@sitkapacific.com Wrote: ------------------------------------------------------- > Dude, that’s why Schweser doesn’t do well. You > should use finquiz.com for test answers. > > Here’s the formula: > > r = [(1+ expected growth REAL EPS)(1 + expected > growth REAL PE)(1 + expected inflation rate)] - 1 > + income component (dividend yield) - RFR +1
Funny that it wasn’t in the Schweser books but was in Schweser’s first mock exam.