i’m a bit confused working through schweser’s # 23 and # 24 concept checkers in PM book pg 255. # 23 makes sense to me- for a macroeconomic factor model, the intercept = the stock’s expected return, so that answer is fine w/ me. # 24, the wording still asks for expected return, but says the factor values given are forecasts of the upcoming year. to solve this, the 'schwes just plugs the factors into each equation, multiplies by the weighting, etc… easy enough. but now backpeddle to pg 236 in the blue example- it starts saying the portfolio sensitivity to each factor = the weighted ave of the 2 stock’s sensitivities and then derives the actual portfolio return equation below that. back to question # 24- did i know to just plug the factors into the equation and do like the answer says because it says “expected” and “forecast”- b/c forecast is the only real diff b/t # 23 and # 24? if this q had said to compute the ACTUAL returns, would we then have gone and done the intercept as .16(.6) + .08(.4)/2, etc… for each factor and made the equation like on pg 236? and then do you assume in these models the error term to equal zero? seems like very subtle wording changes mean you have to change up how you get your answers- just want to make sure i have this down. i haven’t consulted the CFAI texts yet. if nobody replies in a bit, i’ll do that.
bannisja Wrote: ------------------------------------------------------- > did i know to just plug the factors > into the equation and do like the answer says > because it says “expected” and “forecast”- b/c > forecast is the only real diff b/t # 23 and # 24? Only difference between Q23 and Q24 is ‘forecast’. So Q24 becomes more like a regression equation, where you know the independent variable and their weights, all you have to do is substitute and get the value of the dependent variable. Refer Ex in Book-1 pg 156 Regression. > if this q had said to compute the ACTUAL returns, > would we then have gone and done the intercept as > .16(.6) + .08(.4)/2, etc… for each factor and > made the equation like on pg 236? If they mentioned ‘Actual’. Then it comes down to the formula on page 236 > and then do you > assume in these models the error term to equal > zero? I think we can safely assume et as 0 here as Q23 and Q24 both says ‘closest value’
cool, thx swaptiongamma. for giggles i checked out the CFAI text- pg 381 in the example says “formulate an expression for the return on the portfolio” which is like pg 236 schweser- the weighted ave of the returns of the 2 stocks. it asks for the expected returns, which is like q 23- know to use the intercepts. and then it asks to calc the return (actual) given the factor surprises (which is not what q 24 did, but pg 236 showed the example like it). so schweser in q 24 took it i guess one step further with the forecasts- like you said, it then becomes like a regression equation, predicting the value. a’ight, feel good about that now, thx for walking through it with me. ICAPM, let’s see how far we can get with you this afternoon.
Keep it up bannisja & swaptiongamma (D?), miss you guys. SG, we may have to set up a NYC individual study session / gang out again in a month or two just to catch up. Heard much from Jalmy? LII Candidate Productivity & Morale > LIII Candidate Productivity & Morale I have a feeling I’ll be studying for LIII with you guys next year.
Yes Black Swan 
(D is correct). We are missing you guys too. Wish we all were at L3 (with you) crushingggg it hard. Redoing this L2 and the motivation is hard to find. Just done with Economics yet. So much to cover. Gosh… Did not hear anything from Jalmy. We’ll catch up on email or GTa.
swanny, i miss you. xoxo. don’t even say you’re not going to pass L3 though this year. you’ll pass. truth be told, only reason i’m productive is the fact that some new kid in the ops group just passed L1 and is buckling down hard doing like 2 hrs a day for L2 right now. if my ops guy passes and i don’t, i feel like this is a slap in the face, for the males out there a kick in the junk, you know… it’d be bad… i should probably give him my job and demote myself to ops pronto. so it’s less about me and more about the fact that i have to crush the kid in ops to maintain my swagger at work. if you’re reading this and had no idea that i’m on AF mr study 2 hrs a day ops guy, (you know who you are), i’m gunning for you big boy. no way you beat me on this thing. no way, no day bud. but keep at it- strangely, you’re my inspiration. PM NEVER ENDS AHHHHHH. Just finished ICAPM, moving on to treynor black. wtf is this new beefy section on taxes this year? i don’t understand how PM is not more than 1 item set, it’s not a small amount of material.
Don’t worry Banni…you are way too ahead from most of the people. Nobody can stop you this time. We have to move to L3 this year…no options.
Banni reached PM??? … lol. I am just done with Econ. cfaboston28 - where have you reached till?
Time series for tomorrow. Didn’t study at all yesterday. It was a trip to MGM Casino for V-day. I did some multi-regression today. It does make sense . I was blank last year in Quant but this time around can do at least 2/6…lol Accidently I got more than 70 in Quant last year…would you believe it?
Did you win some @ MGM?
60$ down…not bad.