I am really, really confused. Which assumption is least appropriate? B. Residual income is positive year after year. D. Growth rate of RI delcines over time and reaches zero in the end. Isn’t B and D the same. I choose B but the answer is D.
I’m confused…How could they be the same? B says it’s positive year after year, and D says it declines to zero. Am I missing something?
I got tripped up by this question to. If B stated “and will continue indefinitely” I think it would be wrong. But to assume the growth rate has to decline to zero wouldn’t be an assumption.
just missed this q for the 2nd time.
I believe in Schweser practice exam 2 am, there are lots of stupid errors. This is a perfect example. To Smarshy: notice that D talks about growth rate.
Also answer to No. 39 is also wrong. To some extent, answer to No. 42 is wrong too. We can have a tracking portfolio to track the perform of oil and gas related stocks, like XLE. We can also have a factor portfolio with a specific set of sensitivities to the R2000. This is hard, but can be achieved through reverse-engineering.
> To some extent, answer to No. 42 is wrong too. We > can have a tracking portfolio to track the perform > of oil and gas related stocks, like XLE. Yes, you could have a tracking portfolio for oil/gas stocks but the point is that the analyst wanted to speculate on oil prices - not invest in oil and gas firms. The factor portfolio could isolate sensitivity to oil prices alone and achieve the speculation purpose. Does RI have to be positive year after year? Can’t it be negative…will have to revise to see. Actually I got slammed by this section, just couldn’t remember the RI model formulas. more study required.
Yes, I asked Jodi (schweser) about this question, she said this question might be re-considered. (She admit it wasn’t a very good question) Was this from the Qbank? I can’t remember. Anyhow, just move on.
I just took this test and my two bits Residual Income grwoth rate when declines to zero the Residual Income would remain constant and not go down to zero