a company that can’t pass on all of inflation through will have a (higher/lower- pick one) P/E ratio than a firm that can pass off inflation fully. part 2: r = .12 you can pass through 60% inflation inflation = 5% what’s your P/E?
The firm that can’t pass on inflation has a lower PE. 7.14 vs. 8.33
Q 1: P/e = 1/(rr + (1-Passthro)I) to do this I go with numbers: rr = 5, passthro=10%, I=3% so if passthro = 1 (full passthro) P/E = 1/rr = 1/.05 = 20 if cannot pass thro fully 1/(.05+.9(.03)) = 1/(0.077) = 12.99 So Lower. Q2: 1/(.12+(.4)(.05)) = 7.14 (for 2nd problem I assumed it was Real Rate provided).
very nice. yeah i f’d up one of the CFAI q’s today b/c i forgot to change nominal to real. i won’t make that mistake again. gold stars for both of you. easy formula- there was a problem last year on it… was one of those oh sh*t moments if you had forgotten the formula. there are quite a few easy little formulas like this. let’s keep them fresh and win those points.
Yep I remember this the one similar last year. They gave the nominal and you definitely wanted to pay attention to Real Return in the formula. Bannis you taken the mock exams yet?
so in the 2nd q it was explicitly stated that it was the real rate? if it was not - rr would be approx (r-0.05) = 0.07 or better still 1.12/1.05 - 1 = 0.0667 so then p/e = 1/(0.0667+.4(0.05)) = 11.54
negative on that. took 1 sample, 73% and took book 6 1 AM/PM- 81.67% on both sides. pretty good, but i have a ton still to do. prob will take another sample this week sometime. the mocks i’ll prob take closer to test time. `is it just those 2 free ones this year? so 3 samples and the 1 full exam mock AM/PM? or are there more mocks?
I took her question and used it as the real rate. Yep you have the math up above correct and pay nitpicky type attention to how they phrase their terminology.
cpk- i just made the q up- threw any # out there. i guess in my head i was thinking real rate- just wanted to freshen up quickly on the formula. if nominal, you know what to do. nominal - inflation to get real and then do the whole flow through add 1 - pass through (i) part in the denominator. you’re golden. last year it was a simple plug/chug, but in the grand scheme of formulas, i think there were quite a few folks that couldn’t remember it on test day.
I have 4 days of review left before I hit any of the sample tests at all. Good scores Bannis. I hope to follow in your footsteps.
when it comes to review - gmof and bannis - how are you doing it? when I start to look at something, everything looks brand new, and then it is an intense session to get back (a few hours at least) thro’ what I wanted to start out reviewing. and at the end of it all, I do not feel confident at all.
my 1st sample CFAI one last year I scored in the 50’s, so was a good improvement. and for anyone who bombs a mock/sample, don’t worry. there’s still time and your scores will improve. i think i’d put the samples/mocks at a very similar difficulty level to the real thing.
Review for me right now. Going SS by SS and reviewing my handmade notes. (my version of the Secret Sauce). Then hitting all CFAI questions in their curriculum, then hitting Schweser Qbank. The CFAI questions are golden in my opinion. Real similar to a lot that we saw on L2 last year. CP you are the man. You’ve got a great handle it seems on all of this. There is still a ton of time. In the last month just keep reviewing and taking timed mock/samples tests and review where you are weak. I should probably be asking you for advice!
cpk - I’m with you on that. My plan is to keep plugging away. It will all look familiar eventually (I hope)
review is hard b/c there’s just so much. hard to keep it all fresh. i’ve been trying to focus in a bit harder on the big topics (FSA and equity), but have been doing little qbanks here and there on other stuff just to remind me it’s out there still… did a 20 q last night on quant before i went to sleep for example. nobody can remember everything. well, maybe you being that exception cpk. but for us mere mortals, it’s trying to get reasonably comfortable with the bigger areas and then have enough surface understanding of the smaller stuff that i think you want to at worst worst go 3/6 on an item set you don’t love. a 2/6 is hard to rebound from. in my cfai equity review i have end of chapter q’s left on reading 41 (will do tonight), 42 i’ve done, so 43, 44, and 45 for this week and some qbank. next weekend we’ll see what i feel crappy about. i need to do some PM soon… keep putting that off. i’d say let’s all keep throwing up little q’s like this one to keep stuff fresh. easy formulas that you just forget. it’s funny how if you answer it here, you’ll remember it come test day once we all chat about it. someone posted stuff on the min variance frontier here a few days before the test and i swear, that saved me on that item set last year. just keep throwing stuff out there. something has to stick soon.
This is a great post … thanks Banni. Quick question to all of you, how are you managing time with the CFAI problems. I find that its really taking me a long time to get through some of the problems. For example, my goal for today was to finish reading PM (only had two readings left) and then review SS17 by doing CFAI problems, and in the late afternoon or early evening, review pensions. Well, I finished the PM readings and must have taken me 'bout 3hrs to do 5 freaking option problems (one-pd and two-pd binomials). I attempted to do swaps but decided to put it off. With that said, did not have time to do int rate derivatives nor pensions. Any thoughts or suggestions would be appreciated.
Clama, we must be on the same schedule cause I was stuck on those same option q’s today. Yeah, they took forever. Not sure why but I have a lot of trouble setting up delta hedges with puts (problem 5). It’s intuitive for calls but I always screw it up with puts. Anyhow, I’ve stopped doing all the CFAI probs cause it just takes too long. Now I usually do the odds plus any vignettes that they put at the end of the questions. I think the vignettes esp are useful and I plan to do every single set of those before test day. I don’t have q-bank, so feeling like I’m a bit light on questions, but who knows…
bannisja Wrote: ------------------------------------------------------- > a company that can’t pass on all of inflation > through will have a (higher/lower- pick one) P/E > ratio than a firm that can pass off inflation > fully. > > part 2: > > r = .12 > you can pass through 60% inflation > inflation = 5% > > what’s your P/E? Lower* 1/(.12+(1-.6)*.05) = 7.14.
jankynoname Wrote: ------------------------------------------------------- > Now I usually do > the odds plus any vignettes that they put at the > end of the questions. I think the vignettes esp > are useful and I plan to do every single set of > those before test day. I don’t have q-bank, so > feeling like I’m a bit light on questions, but who > knows… That’s an interesting approach. Thanks for the feedback.
^ do it for 100% pass through and then tell me higher or lower. this is one you need to drill into your head. it’s lower P/E if you can’t pass through all of the inflation.