ICAPM question

CFA Level II
#21

oops, forgot to add the 1. C. (i guess that oops won’t work on CFA test)

#22

Either one of you are correct. It’s either 12.2% or 14.2%

#23

I say C

#24

whats the answer?

#25

C: korean risk free + (global beta x global mrp) + (FCRP x (local sensitivity +1)) = 14.2

#26

Scorecard: nobody for A but 4 AF’ers for C.

#27

Suppose that a U.K. investor holds a U.S. security. The U.S. security has a negative correlation with changes in the value of the U.S. dollar in local currency terms. What does the negative correlation mean for the U.K. investor? The: A) security exaggerates the impact of currency movements. B) local currency γ is greater than one. C) security provides a natural hedge against currency movements. D) domestic currency γ is greater than one.

#28

C

#29

LanceTX Wrote: ------------------------------------------------------- > Suppose that a U.K. investor holds a U.S. > security. The U.S. security has a negative > correlation with changes in the value of the U.S. > dollar in local currency terms. What does the > negative correlation mean for the U.K. investor? > The: > A) security exaggerates the impact of currency > movements. > B) local currency γ is greater than one. > C) security provides a natural hedge against > currency movements. > D) domestic currency γ is greater than one. I am C for this question…

#30

FOR MY QUESTION: ALL OF YOU ARE WRONG! CORRECT ANS IS A

#31

C.

#32

I don’t believe it. Any explanation? I guess somehow we are supposed to know that the sensitivity factor has already been adjusted for the correlation effect, although does not state it explicitly.

#33

really? its says: “Lee has measured the sensitivity of Stockco to changes in the value of the U.S. dollar to be 1.2.” sensitivity of Stocko (based in US) IS 1.2 to US dollar LC sensitivity - correlation between the return in stock denominated in LC (US in this sense) and changes in the value of the LC (US). Sensitivity = Sen(LC) + 1. so why not add the 1?

#34

C for Lance’s question.

#35

I got messed up with this too… like all of you… Here is the description from QBank. In a single foreign currency world, the ICAPM simplifies to: E(Ri) = R0 + Biw ~ RPw + ƒÁi1 x FCRP1. Substituting in the numbers from the problem, we get: E(Ri) = 5% + 0.8 ~ (6%) + 1.2 ~ (2%) = 12.2%. Remember to use the domestic risk-free rate.

#36

Garbage…

#37

weird. is this Schweser?

#38

yeps, Question- #8455

#39

Lance what’s the answer to your q?

#40

a for dinesh’s only cause I think I remeber this one and c for lances