sample exam 3

Just took sample exam 3 from cfa. For grinold kroner I thought if shares outstanding declined then you have two negatives becoming a postive so you add it. So for ques 30 shouldn’t it be 8.35 not 6.35

Think of it logically and don’t worry about the “repurchase yield” that they describe. When shares decline, there are more profits for each shareholder, so you have to add the change in shares to the end result.

Just want to make sure my english is OK, If repurchase yield is -2 (negative 2), it mean company issued share, right? If repurchase yield is 2 (positive 2), it means company bought back share, right? Thanks…just checking my English reading ability…thanks.

Sorry, I think you’re correct. I think they made a mistake in the answer key, but they still gave credit for the correct answer.

I don’t think there’s a negative repurchase yield, since it’s a yield, it has to be positive. We add a repurchase yield. However, when shares outstanding increase, we subtract it, in other words, we subtract the positive increase in shares outstanding. If shares are bought back, there is a decrease in shares outstanding and it becomes a “repurchase yield” (positive number), that we add. By the way, the correct answer is 8.35, I think it’s a misprint. When I selected that answer it have me a “green”. Do you agree? (shares declined 1% - so it is a repurchase yield of +1%)

Sa is correct, the right answer was 8.35% the term delta S is negative for net positive share repurchase (decline in shares outstanding), so in GK it becomes - (- delta S) = + delta S delta S is positive for net negative share repurchase (i.e., issuance of new shares), it is - (+ delta S) = - delta S

ws Wrote: ------------------------------------------------------- > Just want to make sure my english is OK, > > If repurchase yield is -2 (negative 2), it mean > company issued share, right? I don’t think so. I remember the text saying it’s either -(delta S) or +(repurchase yield). So if the repurchase yield is -2, then it is stock issue. > If repurchase yield is 2 (positive 2), it means > company bought back share, right? > > Thanks…just checking my English reading > ability…thanks. I think that’s correct.

This formula is to estimate the forward growth (i.e total return) of a co share price. So logically, a higher share price appreciation is expected if there is a higher inflation rate, higher real GDP growth, higher dividend yield (based on forward dividend vs current share price), lower shares os due to buyback (% reduction in the shares os) and positive repricing of the PE (it is % change) (i.e higher PE due to economic boom).

Don’t knwo if this was answered but: -If the company repurchased 1% of shares = -1%, this is a +1% added to return -If the company issued +1% of shares = +1%, this is a -1% added to return.

bigwilly Wrote: ------------------------------------------------------- > Don’t knwo if this was answered but: > > -If the company repurchased 1% of shares = -1%, > this is a +1% added to return > -If the company issued +1% of shares = +1%, this > is a -1% added to return. Right…the logic is when the co repurchased its share, its EPS will improved The opposite will be true, ceteris paribus (meaning you assume the additional capital received is not earnings accretive as yet…so EPS will fall when you issue new shares).