quant review

i haven’t looked at free cash flows or residual income in a few weeks. my guess is i’d get destroyed right about now there also. last week or so has been mainly FSA for me. back to equities tomorrow. i sprinkle in some of the smaller stuff here and there but i really want to try to get my FSA and equity tightened up. apparently mr porter and i have a long way to go still before we’re friends.

banni i think i read somewhere that FCFF and FCFE didn’t show up last year. maybe prime candidates this year?

it will be there this year

i would bet anything we’ll get a FCFF/FCFE set this year. last year nada. residual income, yes. free cash flow, nothing.

Wavington Enterprises is headquartered in an emerging market nation that is expected to have 27% inflation over the next year. Charleston Johnson expects the local government to be successful in bringing inflation under control, and anticipates that it will fall to 20% in the second year and 10% in the third year, where he expects inflation to stabilize. Johnson asserts that the financial ratios of Wavington will be the same in both the real and nominal approaches. With regard to this statement, Johnson is: A) incorrect because cash flow forecasts in real terms are generally more accurate than cash flow forecasts in nominal terms. B) correct because the underlying operations of the firm are unaffected by valuation methodology. C) correct because the rate of inflation used in calculating the components of financial ratios is the same for all components.

A

B?

A is correct. If an investor had determined that an asset’s market price was too high, (implying that it will soon fall) the expected holding period return (HPR) would be: A) lower than the required return. B) equal to the required return. C) higher than the required return.

a

A?

HPR=(P1-P0+CF1)/P0 P0 is too high, P1 is going to fall. So HPR will be lower? A

A?

This goes to show that I am the only fool to have chosen C. Sigh…

nah man it happens on sat night

swaptiongamma Wrote: ------------------------------------------------------- > This goes to show that I am the only fool to have > chosen C. Sigh… naw. looks like a question that is unlikely come d-day.

so if you’re doing IFRS accounting and you’re in a hyperinflationary environment- how do you translate foreign currency statements (i.e. temporal, all current)? i bombed this on a CFAI question yesterday. i could see it coming up on the test- since the inner circle is up… let’s see who remembers.

translate non-monetary assets at beginning of period index. then translate EVERYTHING using current rates. figure inflation gain / loss. easier way would be to just do temporal method and figure the gain/loss that way. same result.

IFRS, hyperinflationary - you adjust the statements for inflation, then use all-current. US GAAP - do it using temporal.

IFRS and hyperInfl then adjust the financials using inflation index and then use All Current method.

IFRS … restate for inflation then use all current method. US GAAP uses temporal method…