Remember that....

Remember that…, pls add some .


The claims valuation method calculates the value of the company(not the project) This is diffirent from the economic profit and residual income approaches, which calculate both project and company value. ================================= Remember that the payoff on the call value is the present value of the interest rate difference based on the rate realized at t = 2 because the payment is received at t = 3. ================================= the expected factor suprises and expected errors are all 0 by definition =================================== Fisher relation Exact methodology: (1 + r) = (1 + real r) × (1 + E(i)) Note that for the exact methodology, 1 must be added to each rate before they are multiplied. The relationship can also be approximated by adding real interest rates to expected inflation rates linear approximation r = real r + E(i) ========================================= paid-in capital (the portion of committed capital drawn down). ======================================== hypotheses with the “greater than” or “less than” symbol are used with “one-tailed tests”. ============================================ Remember that the forward premium or discount is always on the currency in the denominator of the quote. 1. If you are given bid-ask spot and forward quotts, ust tht bid-ask midpoints to calculatt tht forward premium/discount unless sptciftcally instructtd to do somtthing tlst. 2. If one currency is trading at a forward premium~ the other currency must be trading at a forward discount and vice vtrsa. ===================================== private equity owners (the limited partners) ================================= The SEE is the standard deviation of the error terms in the regression, and is an indicator of the strength of the relationship between the dependent and independent variables. The SEE will be low if the relationship is strong and conversely will be high if the relationship is weak. ========================================== Remember that the forward premium or discount is always on the currency in the denominator of the quote. ====================================== Uncovered interest rate parity expresses the relationship between interest rate differentials and the expected change in the spot exchange rate. The international Fisher effect expresses the relationship between inflation rate differentials and interest rate differentials. Covered interest rate parity expresses the relationship between the forward discount/premium and interest rate differentials. Relative PPP expresses the rate of change in the FX rate is a function of the inflation differentials between the two countries. ============================================== (Rd - Rf) < (F - S) / S ------Borrow Domestic (Rd - Rf) > (F - S) / S ------Borrow Foreign 1 + Rd < (1 + Rf × F) / S ------Borrow Domestic 1 + Rd > (1 + Rf × F) / S ------Borrow Foreign ==================================== Tax burden = NI/EBT or 1 - the effective tax rate. ================================ Equity risk premium = forecasted dividend yield + consensus long term earnings growth rate – long-term government bond yield. =================================== g = Retention Rate × Profit Margin × Sales/book value of equity ======================================== Economic income is not the same as economic profit. ================================================== (Remaindermen refers to the group that is to receive the remainder of the trust once its term is complete. Of course, some trusts never expire so not every trust has remaindermen =============================== The root mean squared error (RMSE) criterion is used to compare the accuracy of autoregressive models in forecasting out-of-sample values (not in-sample values). Out-of-sample forecast accuracy is important because the future is always out of sample, and therefore out-of-sample performance of a model is critical for evaluating real world performance. ==================================== beta drift, the tendency of beta to revert to 1.0 (or the industry average). ======================================= As a general rule for the temporal method, all revenues and operating expenses (excluding COGS) are translated using the average rate. ====================================== For the examination, “memorize” the financial impact of rising and falling prices for the two inventory methods ====================================== DW-test: procedure for “positive” serial correlation ======================================= leverage ratio that have assets or equity in the denominator =============================================== Recall that all pure income statements and balance sheet ratios are unaffected by translation under the “current rate method”. =========================================== The four C’s of credit are character, capacity, collateral, and covenants. ============================== A riskless portfolio is delta neutral; the delta is zero. =============================== Absolute PPP is an average version of the law of one price. Relative PPP depends on the growth rates of prices in two countries. It is the rate of inflation (i.e., the relative rate of change in prices) that is critical here. ================================== The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards. ===================== Under an imputation tax system, taxes are paid at the corporate level, but are attributed to the shareholder, so that all taxes are effectively paid at the shareholder rate. =================================== Because of the mark-to-market feature of futures contracts, American options on futures are more valuable than comparable European options. The value of American and European options on forwards are the same. ================================ “Book value” is usually positive, but not always. “Cash flow” is often negative. “sales”, which are positive in all but the rarest of instances. =============================== Even when there is a strong relationship between two variables, we cannot conclude that a causal relationship exists =================================== The standard error of the estimate is the unsystematic risk. ======================================= “Phantom stock” is similar to stock appreciation rights except the payoff is based on the performance of hypothetical stock instead of the firm’s actual shares. ===================================

Found this super useful. Now that a few weeks have passed, I thought I would bump it, so we can add to it.


-Comparable company analysis and comparable transaction analysis (from M&A) are two different processes. Know how the steps are different.

-A director is still independant even if she/he has stock holdings in the company they’re a director of.

-A question might refer to the residual dividend model or a long-term residual dividend model. The long-term residual dividend model smooths dividends on a year-on-year basis.

-Uncovered interest parity uses spot rates. Covered interest rate parity uses forward rates.

-Don’t get confused by SSE (sum of squared errors) and SEE (standard error of the estimate).

Bringing this up…should be useful.

The main differences between the new and old Prudent Investor rules are:

  1. new rule allows/encourages delegation

  2. new rule looks at total return not just income

For calculating

*residual income, begin with Net Income

*economic profit/EVA, begin with NOPAT

*economic Income, begin with Cash flow after tax

MVA and NPV are the same thing as claulated by Economic profit method!

5 days to go…bumping this up!

Synthetic CDOs have same credit risk as cash CDOs

Great topic.

soft dollar standard can be applied partially, that is not firm wide compliant

we can not use soft dollar of other clients to pay for services/ benefit client directed account

Could you please clarify this point, do you mean we can claim partial compliance, if not what does the firm gain by applying it partially?

I found out this from a mock exam , seem to be 2011 . That means they don’t have to apply it to every account they have. Pls check the explanation for further detail