Questions galore coming this weekend…

I’m ready, post up your most difficult and obscure questions.

Ok try this one bpdulog, because when I read the answered on the Mock exam, I was really stumped. If Canada has Rf = 4.0% and Inflation = 2.0% and USA has Rf = 4.0% and Infaltion = 1.5%, please comment on the following statement: “You should invest in Canada over US because it offers higher real rate of return” True or false. According to CFAI Mock, that statement is true because you should invest in the country that offers the higher real rate of return sp that statement is justified. It doesn’t matter how much I study, if the test is filled with question like this I will fail.

is this question 43 on the afternoon session? If so, there is an erratum posted which says “Answer is B”.

Canada Risk Free = 4% and Inflation = 2%. Real Rate of Return = approx. 2% US Risk Free = 4% and Inflation = 1.5%. Real Rate of Return = approx. 3.5% This is a ridiculous question.

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Damil - US Real Risk free s/b approx. 2.5 not 3.5, correct? The way you calc this is: (1+nominal) = (1+real) * (1+ Infl.) right? so (1+real) = (1+nominal) / (1+ Infl.) or 1.04/1.015 = 2.46%, right - I’m only asking b/c I’m still a little fuzzy on this.

cpk: where are errata posted for the samples and mocks?

rCAN 1.04 = (1+rr)(1.02) rr = .0196 rUS 1.04 = (1+rr)(1.015) rr = .0246

I just looked at the errata the only comment for Level 2 is “Question 43 on Afternoon is B.” The answer was already B on the PDF I looked at. Still didn’t fix the one or two retarded questions they had.

FinNinja Wrote: ------------------------------------------------------- > Damil - > > US Real Risk free s/b approx. 2.5 not 3.5, > correct? > > The way you calc this is: > (1+nominal) = (1+real) * (1+ Infl.) right? > > so (1+real) = (1+nominal) / (1+ Infl.) or > 1.04/1.015 = 2.46%, right - I’m only asking b/c > I’m still a little fuzzy on this. I see a lot of different equations used for the relation between real and nominal rates and inflation. 1) (1+real) = (1+nominal) / (1+ Infl.) 2) real = nominal - inflation One for growth… but I can’t remember that one (if it is any different) What is the difference between those two above? Is the real = nominal - inflation more of an approximation of the first one?

so how exactly is this question figured out?

joseph213 Wrote: ------------------------------------------------------- > FinNinja Wrote: > -------------------------------------------------- > ----- > > Damil - > > > > US Real Risk free s/b approx. 2.5 not 3.5, > > correct? > > > > The way you calc this is: > > (1+nominal) = (1+real) * (1+ Infl.) right? > > > > so (1+real) = (1+nominal) / (1+ Infl.) or > > 1.04/1.015 = 2.46%, right - I’m only asking b/c > > I’m still a little fuzzy on this. > > I see a lot of different equations used for the > relation between real and nominal rates and > inflation. > > 1) (1+real) = (1+nominal) / (1+ Infl.) > 2) real = nominal - inflation > > One for growth… but I can’t remember that one (if > it is any different) > > What is the difference between those two above? Is > the real = nominal - inflation more of an > approximation of the first one? Yes it is more of an approx.