Guys just some things that caught my attention, need help clarifying… 1. Multicollinearity-does it affect coefficients? i thought only inflated standard errors but somewhere in qbank i saw an answers that says otherwise. 2.Purchase and Pooling Methods-do we have to know how to account for the paid in capital and capital stock seperately? when we combine the two, cuz the example in FSA CFAI is sure hell confusing. 3. how is Beta involved in active selection other can computing systematic risk in trayner black? Last yr in level 1 i stuck with the text after using schweser halfway through and it worked great for me. Now level 2 with the amount of depth i decided to continue with schweser all the way up to this date, im a fast reader so i mustve gone thru it atleast 7 times but still the guilt of not reading through the text atleast once is still there if you know wat i mean? there are alot of tiny details here are there that are likely to be tested that have no reference whatsoever to in schweez especially in statement correct/incorrect questions. Ive read summaries and done end of chapter but still if i could do it all again i would strictly stick with the text. ive done all mocks and questions up to this point and have no option but to re read schweser to keep it fresh in my head until the exam, it would be too niave to even start hitting text at this point right?
in TB, you weight more securities with systematic risks and alpha
what cfaboston28 said because with increasing systematic risk, there is less diversification benefits from holding a smaller portion of that portfolio, so we therefore we increase our objective in looking for alpha
- Yes multicollinearity affects both the estimates and errors of the coefficients. 2. I think (and hope) not. But in principle they shouldn’t be too difficult. 3. Do you mean the beta’s of the individual risky assets? Or the beta of the overall risky portfolio? The former is used to compute the latter, and the latter is used in computing the optimal proportion of the risky portfolio in the active portfolio. (The larger the risky portfolio beta, the larger the optimal proportion.) NB: There is also a beta for the whole portfolio (active + passive portions), which is used to compute the makeup of the complete portfolio (passive index, active risky assets and active risk free assets). I don’t think Schweser covers this beta but it is in CFAI text. At this point, you probably shouldn’t hit the text unless you know exactly what you are looking for. SchweserNotes by itself has a lot of tiny details that you need to dig up, so you could spend the remaining time on them. P.S. I left some notes on T-B below. You may want to take a look. http://www.analystforum.com/phorums/read.php?12,949600
Purchase- cash paid is reduced from cash balance of acquirer consolidate acquirers cash balance less cash paid to Target plus cash of the target Pooling just relocate purchase price subtract cash from cash balance and create a new line below of investment in target with the cash paid