emarkhans Wrote: ------------------------------------------------------- > sandy_capone Wrote: > -------------------------------------------------- > ----- > > borrower quality is the right choice. > > > > Risk free rate is not correct because it > > correlates with prevailing interest rates (or > > federal funds rate) which is explicitly listed > as > > one of the factors on which it depends. I had > all > > the factors in my notes and felt like an idiot > for > > spending so much time on trying to remember > these. > > I disagree that the repo rate closely corresponds > with interest rates as a whole in the economy, > which is what the choice was. > > I also disagree that Bear Stearns the day before > it blew up could have got repo money at the same > rate as Goldman, even for the same collateral. > > However, you will have the right answer and I will > have the wrong. I agree, if anything, quality of borrower should be the MOST important
I think the trick is dividend stays stable, not the payout ratio. Payout ratio dropped from 35% to 30%. emarkhans Wrote: ------------------------------------------------------- > CFAAtlanta Wrote: > -------------------------------------------------- > ----- > > P/E = 16.3 I think. > > > > g came out to 14.8% I think. > > Was there a trick in how the payout ratio would > have changed between 07 & 08? If so, I got it > wrong. > > (Of course, this was a question I could have done > in my sleep after drinking a case on LII, and they > choose to ask it on LIII. Ridiculous.)
emarkhans Wrote: ------------------------------------------------------- > CFAAtlanta Wrote: > -------------------------------------------------- > ----- > > P/E = 16.3 I think. > > > > g came out to 14.8% I think. > > Was there a trick in how the payout ratio would > have changed between 07 & 08? If so, I got it > wrong. > > (Of course, this was a question I could have done > in my sleep after drinking a case on LII, and they > choose to ask it on LIII. Ridiculous.) Ha Ha, I was saying the same thing. I’m cursing myself because I must have spent a 1/2 hour on the bloody thing when I could have been salvaging other valuable points
If you have collateral the quality of borrower is not so important. Iwould lend 100 to bear stearn if they put tresurys value 120% of amount they borrow.
In CFAI text and in Schweser notes, the interest rates were at the last place in the factors influencing the repo rate. I answered based on that.
Moldem Wrote: ------------------------------------------------------- > If you have collateral the quality of borrower is > not so important. Iwould lend 100 to bear stearn > if they put tresurys value 120% of amount they > borrow. true but would anyone actually lend at the risk free rate then post that loan as collateral to borrow at T+? I mean doesn’t the quality of the borrower determine how much you’re willing to lend and what kind of collateral they’ll have to put up and for how long?
s23dino Wrote: ------------------------------------------------------- > My thinking for borrower quality was if they post > a treasury security for collateral does it really > matter how good the quality of the borrower is…? No, but it matters if the collateral is so-so and you’re a zillion times more likely to have to take it rather than your money. Borrower quality was the right answer, though.
jmychasi Wrote: ------------------------------------------------------- > oh nice one…i put both > > ive never seen this come up and spent some time > thinking about…but i say…why not??? > > the only rule i remember seing is you cant say > you’re a candicdate unless you’re enrolled. in > this case he was enrolled. but at same time, he > did pass level 2. there was no mention of being a > CFA 2 or partial designation. simple fact. Level 2 > was completed. > > i dont know…anyone? Both seemed perfectly fine to me.
emarkhans Wrote: ------------------------------------------------------- > s23dino Wrote: > -------------------------------------------------- > ----- > > My thinking for borrower quality was if they > post > > a treasury security for collateral does it > really > > matter how good the quality of the borrower > is…? > > > No, but it matters if the collateral is so-so and > you’re a zillion times more likely to have to take > it rather than your money. > > Borrower quality was the right answer, though. yep, i even think i remember this Q from QBank
Question specifically said “Deliverable Collateral” hence borrower quality doesn’t matter. In case of non deliverable one quality will matter …
Why would most of the bond yields be lower than the risk free rates for the countries? Was the yield number actually an excess yield already?
Because the risk-free rate used was Libor, which obviously could have floated above the bonds over time. Another lovely piece of confusion by the Institute, but I also got Japan, Japan, UK.
bluelily Wrote: ------------------------------------------------------- > I think the trick is dividend stays stable, not > the payout ratio. Payout ratio dropped from 35% > to 30%. > > > > emarkhans Wrote: > -------------------------------------------------- > ----- > > CFAAtlanta Wrote: > > > -------------------------------------------------- > > > ----- > > > P/E = 16.3 I think. > > > > > > g came out to 14.8% I think. > > > > Was there a trick in how the payout ratio would > > have changed between 07 & 08? If so, I got it > > wrong. > > > > (Of course, this was a question I could have > done > > in my sleep after drinking a case on LII, and > they > > choose to ask it on LIII. Ridiculous.) But the question didn’t say they wouldn’t raise the dividend to keep the same payout ratio. You needed to have some way to get D1.
Libor could float above the coupon, but then wouldn’t the yield still be above Libor and the price would adjust downward?
i got 17.6 since i took the dividend and multiplied it times 1 + the growth rate. apparently i’m the only one though.
I had the same problem. But then if you look at the pattern of the dividends, the earnings increased from 2007 to 2008 but dividend payment actually decreased a little bit. I went with 16.3 in the end but I don’t think they should even write a question like this. I clearly remember from level 2 when it talked about the limitations of DDM model: payout ratio needs to be constant. oskigo Wrote: ------------------------------------------------------- > i got 17.6 since i took the dividend and > multiplied it times 1 + the growth rate. > apparently i’m the only one though.
Keep_going Wrote: ------------------------------------------------------- > Question specifically said “Deliverable > Collateral” hence borrower quality doesn’t matter. > In case of non deliverable one quality will matter > … The only time the collateral’s delivered is if there’s a default. Nobody will ever convince me that a repo lender is indifferent as to default, which is what the “borrower quality” answer means. On the other hand, there is no inherent relationship whatsoever between general interest rates and repo rates. If you have a steep yield curve, repo rates can be 4 and other rates 7-10, or they could be 4 when other rates are 2-3. But, again, in CFA land I’m wrong.
Not discussing any particular question here… but how are repo terms quoted? Are they daily %, or annualized %?
general interest rates in the economy makes no sense. the repo rate is influenced by the fed funds rate.
prockets Wrote: ------------------------------------------------------- > i pretty sure i was small-cap. large cap are more > likely to violate SRI and growth only could > encompass both…i would say small cap trumps > growth. You have to go with Growth instead of small cap on this one…im positive. The question specifically mentioned “utility and energy stocks”. They were trying to get you to lean towards Growth I think