This will help you pass....

CFA Level III
#61

Vicky, while I appreciate the added content, please don’t add questions to this thread. It will get overwhelming and confusing to follow.

#62

The answer to Question 5 (output gap) is C.

Sachin’s explanation above is exactly correct.

#63

postive output gap being related to the economy being in a negative state is such a CFAi mind-F. There’s testing difficult concepts then theres testing concepts difficutly.

#64

Question 6 (3 points)

Exhibit 1

Expected dividend yield: 3.2%

Repurchase yield: 2.1%

Inflation: 2.1%

Nominal earnings growth rate: 3.8%

Repricing return: 1.5%

Rf rate: 2.5%

Based on the Grinold-Kroner Model, what is the expected annual return:

a. 6.4%

b. 10.6%

c. 12.7%

Show your calculations.

#65

B . Income retur. ( div yield + repurchase yield) + nominal growth of GDP + repricing return.

#66

A. 6.4

Income retur. ( div yield - repurchase yield) + nominal growth of GDP + repricing return

#67

B. 10.6%

#68

It’s div yield - change in shares outstanding. If shares outstanding declines, repurchase yield goes up. Repurchase yield goes up when shares are repurchased, a return of capital to investors. Hence, div yield - ( - change in shares outstanding) = div yield + repurchase yield.

#69

yeah i think you are right here Would You Look …

#70

B

#71

Correct answer is B.

You add the repurchase yield (and subtract when there is a positive change in “shares outstanding”). Conceptually, a good way to remember this: if a company buys back stock (positive repurchase yield), it will increase the expected equity return (so add), and if there is a positive change/increase in shares outstanding, it will decrease the expected equity return (so subtract). Keep in mind though, if there is a DECREASE in “shares outstanding,” that is the same as a positive repurchase yield, so you would add.

#72

Question 6:

Active currency management can be least likely based on:

a. Economic Fundamentals

b. Discretionary hedging

c. the Carry Trade

#73

EDIT:

I think you changed the answers.

Changing mine to B

#74

I’m gong to say C. My understanding is that the carry trade involves taking an indepenedent FX position (shorting the currency of a low interest rate country to buy the currency of a country with higher rates). Currency management, however is managing the FX risks of a portfolio. Active management is taking a discretionary approach to managing FX exposures based on perceived mispricings to generate additional return (relative to additional risk). Economic fundamentals may lead a manager to conclude that a currency may appreciate / depreciate at a rate different to that implied by FX forward rates. Discretionoary hedging I take as synonymous with active currency management. Either way this is a tricky one…

#75

i did from the original post, yes. the answer choice b was originally confusing.

i’ll post the answer and explanation after more ppl reply w/ an answer (probably tomorrow)

#76

C . choice b is you have discretion to hedge or make active decision

#77

B

But I prefer D (All are likely)

#78

B.

#79

correct answer is B.

ACTIVE currency management can be based on: economical fundamentals, technical analysis, carry trade, or volatility. Discretionary hedging is a strategic currency management approach where the target is the benchmark, but the mgr is permitted some discretion (ie 5% stray from the benchmark). It is not an approach in which Active currency management is based on.

#80

Question 7… an easier one for a beautiful Tuesday in the northeast (us).

Mr. Jones is a US resident who owns securities in Europe. A year ago, the EUR/USD was trading at 0.89. Today, it is trading at 0.91. His advisor will most likely explain to him that the EUR:

a. depreciated vs the USD

b. appreciated vs the USD

c. depends on the forward rates 1 yr ago