Clearly, this is a very easy concept. If a company repurchases its shares there is a positive yield and the yield is added in the Grinold Kroner model. What makes it confusing is when the question doesn’t explicitly say if the company buys or sells shares. The income return portion of the equation is D/P - (change in S). In the 2009 morning exam on question 5 it gives the change in S as -0.5. According to the equation this would be D/P - (-0.5). But of course the answer is the opposite. The repurchase yield lowered the income return in this case. How do you know when to add or subtract the repurchase yield?
i just intuitively think if you’re decreasing shares outstanding, it’s usually seen as a good thing for share prices. so if they say decrease shrs outstanding or increase the repurchase yield, it’s a positive # (minus a negative). i hope the whole test is just one question after another- grinold kroner, taylor rule, repeat. eat it singer terhaar. and your fancy ERP.
The delta S is not the same as re-purchase yield. As bannisja correctly points out, decreasing shares outstanding would result in a positive re-purchase yield. Also, the answer explains that re-purchase yield is the negative of change in shares outstanding.
I understand what you guys are saying, but sometimes it doesn’t say whether the number of shares outstanding increased or decreased. It just gives change in S as -0.5. In that case, how do you know whether the equation should be either, D/P - (-0.5) or D/P - (0.5)
Hi. I took the negative repurchase as an increase to S
Anyone?
Bucky, I missed that one too when I did it and I just did not like it. If I see the same question verbatim in the AM come Saturday, I am going to do it exactly the way I did it. I will add the repurchase yield to the dividend yield. I have checked through the curriculum and stalla and they always added. If everybody went the same way, they will be forced to give it to us or just throw it out. Unless it is explicitly stated that the company issued more shares, I will always add the repurchase yield.
if change in S is negative, less shares, good thing… all in it’s a positive #.
I’m with bucky6225 on this - these questions are always unclear. Concept simple - question unclear. Bad CFAI.
bucky6225 Wrote: ------------------------------------------------------- > I understand what you guys are saying, but > sometimes it doesn’t say whether the number of > shares outstanding increased or decreased. It > just gives change in S as -0.5. In that case, how > do you know whether the equation should be > either, > > D/P - (-0.5) > > or > > D/P - (0.5) If they give you change in S, you subtract it. If they give you repurchase yield, you add it.
LobsterBoy Wrote: ------------------------------------------------------- > bucky6225 Wrote: > -------------------------------------------------- > ----- > > I understand what you guys are saying, but > > sometimes it doesn’t say whether the number of > > shares outstanding increased or decreased. It > > just gives change in S as -0.5. In that case, > how > > do you know whether the equation should be > > either, > > > > D/P - (-0.5) > > > > or > > > > D/P - (0.5) > > If they give you change in S, you subtract it. If > they give you repurchase yield, you add it. Depending on the signs
I think CFA already blew their trick on this too. Odds are not likely they will attempt the same thing again.
Paraguay Wrote: ------------------------------------------------------- > I think CFA already blew their trick on this too. > > > Odds are not likely they will attempt the same > thing again. Knowing that candidates will be aware of the trick, they can use reverse psychology and just give us the actual change in shares.
agree there. maybe 1 q PM side, but not going to be an AM. i could see a singer terhaar AM question with pretty easy calcs, just given the std devs, sharpe, etc… do the E®’s, the betas, and the covariances. not sure why i get this feeling, but i do. i also predict econ on top down vs bottom up hmm, what else? not sure. but i’m feeling singer terhaar in the equity AM for some reason. it was an EOC and in book but not on many samples/mocks. 2 bond hedge, bad. bannisja can do singer terhaar though. let’s see it, baby!
2 bond hedge is not an LOS but I can see them asking questions about the process
JP_RL_CFA Wrote: ------------------------------------------------------- > 2 bond hedge is not an LOS but I can see them > asking questions about the process There was a large EOC on it though.
that’s the whole point of my post. If you are supposed to subtract change in S, then you end up with D/P - (change in S) --> 4 - -0.5 but the answer is 4 - 0.5 = 3.5
Dude, read the question. They gave you share repurchase yield.
no, if the change in S is positive, you’d subtract it. more shares… bad. less shares, good. repurchase yield positive, good. repurchase yield negative, bad. if the change in S is positive, it’d be the 4 - 0.5.
The formula is d/p - (-repurchase) Plugging in -0.5 … d/p. - ( - (-0.5)) HTH