(1) Required Return calculations – include taxes on regular income, ignore taxes on investment income. Reduce portfolio size by the PV of specific future obligations. Preserve purchasing power unless directed otherwise. (2) Memorizing risk adjusted return statistics – everything from M^2, Treynor, Roy’s Safety First, to old reliable Sharpe and Information Ratio. Always seem to miss these. (3) Partially integrated/segregated Emerging Markets risk, expected returns, covariance with eachother. (4) Components of Institutional IPS – DB plans not taxable, differences between life insurance and P&C insurance, what to include in unique circumstances, return objective of different segments of portfolios. (5) Behavioral stuff – when the answer is heuristic-driven or frame-dependant bias (as opposed to a more specific issue such as anchoring-and-adjustment or familiarity, etc), I am always looking for a specific “trap” to fit things in. Not familiar enough with the names of specific traps. Also applies to analyst biases from the capital markets expectations readings. (6) Performance attribution – sector allocation effect is (overweight%)*(sector outperformance to broad index). Within sector selection effect is (benchmark weight)*(port within sector outperformance). Interaction effect is (overweight%)*(port within sector outperformance). Is this right? I have frequently screwed up by not comparing allocation effect to the broad index, or by using port weight instead of benchmark weight for selection effect. (7) GIPS – just don’t know this well enough yet. Focusing on it today/tomorrow. (8) Individual ability to take risk – frequently ignore (annual spending)/(port size) ratio. What are some of your greatest weaknesses? Sharing them could help you by keeping them in the front of your mind (and thus ensuring you won’t just forget about them on test day), and if you’re having trouble with it odds are I or somebody else around here is having the same problem and may not even be aware of it yet. Give us the heads up on what has been fooling you.
intergration, you use Correlationa nd Segregation Correlation is 1 right? And its RP = Std Dev X Correlation X Mkt RP Is that right?? Something like that?
it’s something like that. I want to say you’re right, but don’t trust me on this topic.
(8) Individual ability to take risk – frequently ignore (annual spending)/(port size) ratio. you have to take it easy about this one. CFAI also doesnt really take this too much (i only saw 1 question that does) into consideration, you have to be careful not to classify some one average when they are above average
Intergration RP=correlation X std of mkt X sharpe ratio of world market. Segmenation RP=Std of mkt X Sharpe ratio of world market.
^DAMN!T That’s what I meant… Sharpe Ration not Risk Premium, stupid, stupid, stupid
No biggie, it is only the day after 3-day weekend…I am only on my first cup of coffee.
2nd cup almost complete…where’s my third…oh secretary… I mean Administrative Proefssional…
the way I remember those integration vs. segmentation formula 1) segmentation has correlation of 1 2) RP(i) = beta * RP(m) we know that beta = cov(i,m) / std(m)^2 cov(i,m) = correlation(i,m) * std(i) * std(m) / std(m)^2 now we can substitute cov(i,m) breakdown into beta formula, and put beta breakdown into (2) beta = correlation(i,m) * std(i) * std(m) / std(m)^2 after simplifying beta = correlation(i,m) *std(i) / std(m) and RP(i) = [correlation(i,m)*std(i) / std(m)] * RP(m) after rearranging RP(i) = correlation(i,m) * std(i) * RP(m) / std(m)
I get tripped up on the business cycle characteristics. I can never keep straight what is supposed to be happening in each one.
-currency: whether to be hedged/unhedged on investments -efficient frontier with CML, CAL, resampled efficient frontier…with corner portfolios… these are just very tough for me…
CML = uses Beta CAL = uses Std Deviation Right?
Is CML the same as SML? Just wanted to be clear…thanks
^No. CML is the line with teh Global Portfolio lies on I believe. SML line is more security specific vs Portfolio specific. If a Security lies Above the SML its Overvalued and if its below the SML is Undervalued…or it might be reversed But they are similar in that they both use Beta.
I consistently mess up the immunization calcs even though I have gone through it like 5 plus times, i.e. if immunization rate goes up to 15 what happens to your safety margin and should you immunize immediately?
bigwilly Wrote: ------------------------------------------------------- > ^No. CML is the line with teh Global Portfolio > lies on I believe. SML line is more security > specific vs Portfolio specific. If a Security > lies Above the SML its Overvalued and if its below > the SML is Undervalued…or it might be reversed > > > But they are similar in that they both use Beta. Got it. Thx
I don’t do as well on ethics as I should. In looking at some questions that I’ve missed in the practice exams, it seems I have a tendency to judge “violation” when it’s actually “non-violation.” So on test day, in any close call, I’ll lean toward “non-violation”.
I thought I read through the Emerging Finance reading from CFAI text last week, but I did not find these formuals … What am I missing ? Can someone please quote the page reference in the CFAI text ? Help please… I am sounding stupid… but I rather ask now than later… Thanks!! ws Wrote: ------------------------------------------------------- > Intergration > RP=correlation X std of mkt X sharpe ratio of > world market. > > Segmenation > RP=Std of mkt X Sharpe ratio of world market.
bigwilly Wrote: ------------------------------------------------------- > CML = uses Beta > CAL = uses Std Deviation > > Right? bigwilly, CAL, CML = uses Std SML = uses Beta