ICAPM

CFA Level II
#21

I thought you only add the +1 if it’s the currency to itself. So if it was USD to itself, you +1? Can we get an official answer up in this piece?

#22

^ you got it zimzim

#23

Here is the official answer: 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. Who to believe?

#24

I dont care thats wrong, Schweser fails ICAPM

#25

For the first question, I agree with the people who think Schweser is wrong. Stockco is U.S. firm, sensitivity of Stockco to changes in the value of the U.S. dollar to be 1.2. So it is U.S. firm’s correlation with U.S. dollar. So 1.2 is local currency sensitivity.

#26

Yep, we’ve been discussing this for a couple days now

#27

This question is f’ing everyone up.

#28

I completely agree that +1 should be added on this question. This one really frustrates me

#29

Anybody report this question to schweser yet?

#30

I don’t think it’s wrong. “y” is supposed to be the sensitivity of the asset’s domestic currency to the changes of the foreign currency, which is exactly what they gave in the question: " Lee has measured the sensitivity of Stockco to changes in the value of the U.S. dollar to be 1.2." When they give you the local currency sensitivy or y(LC) then you have to add the “1” to convert to domestic sensitivity. Makes sense?

#31

nattyg… the US firm Stocko is the local firm and the US dollar is the local currency… so in this case the 1.2 is the local currency sensitivity…and you’d have to add 1 to it.

#32

yep, you guys are right… yuo have to add the 1… sorry for the additional confusion.

#33

forget this one