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- Topic: Common Mistakes and Acronyms
| Author | Topic: Common Mistakes and Acronyms |
|---|---|
| njlevel1 @2019-05-20 18:22:40 |
Some items I included and posted by someone else and was useful when I took lv1 good luck everyone.. Though a list of common mistakes could help others. - Forgetting to take the calculator out of BGN mode - Computing a zero-coupon bond without semi-annual compounding - Forgetting to double the yield after calculating a semi-annual coupon bond when they clearly ask for annual yield - Getting number of discounting periods wrong! e.g. using 5 years instead of 4 because of question regarding beginning/end of period payments - Answering the question based on variance and not standard deviation!! - Being careless about questions that already give you the market premium? so you do not need to subtract the risk free rate. - Automatically assuming a distribution is normally distributed when the questions doesn?t say that at all!! - Forgetting about certain synonymous terms. e.g. coupon rate = nominal rate. Market maker = specialist. - Not being careful about whether the question provides a sample of data or a full population of data. - Getting overvalued/undervalued confused. Over/under term refers to position of SML relative to expected return. - Thinking that if one covariance is greater than another? that this automatically means there is a stronger relationship? when in fact you need to find the correlation to compare on standardized terms. - Forgetting that you must pay tax on implicit interest on a zero-coupon bond. (bit more specific, but important). - FAILING TO RECOGNIZE THAT SOME QUESTIONS THAT APPEAR TO REQUIRE COMPLEX MATH CAN BE SOLVED LOGICALLY IN 2 SECONDS. e.g? remember than the realized rate of return must fall between the YTM and the Reinvestment Rate. - Forgetting that in an FRA, the long position wants interest rates to rise! - Forgetting that swap payments are paid in arrears? i.e. you use the rate from the beginning of the period, not the end. - Equity margin = borrowing. Future margin = posting cash. - CFA considers anything related to real-estate to be real estate investing.. e.g. MBS/CMOs - Market value of real estate does not equal investment value of real estate. Investment value with factor in user specific details such as plans for use and individual tax rates. - The cost of failure of a venture capital project is not 0. You still have all those costs to date to deal with! - Economic depreciation and accounting depreciation are VERY different. Economic deprecation is about value. Accounting depreciation is about allocation. - Duties to employers go out the window if you are protecting clients/capital markets. - Non-renewable resources have elastic supply (this still feels counter intuitive). - Land is not depreciated. - Do not confused the effects of capitalizing costs with capitalized leases! - Working capital is higher under an operating lease. In a capital lease, current liability will increase by the current portion of the lease obligation without an increase in current assets. - Market risk = systematic risk = non-diversifiable risk = risk you are compensated for. - Sinking fund provision is an OBLIGATION not a right to pay-down debt. - If OAS - The tax expense less DTL = Tax payable less DTA - Under GIPs: definition of firm asset should include all fee paying and non fee paying, discretionary and non-discretionary accounts. - Under GIPs: composite must include all fee-paying discretionary accounts. non-fee paying can be added if disclosed. non-discretionary cannot be added. - Fed primarily uses open market operations as their primary tool to obtain price stability as their primary goal. - Efficient frontier plots return v stddev. CML plots against total risk. CML plots against systematic risk measured by beta. - Beta is covariance of asset with market divided by market variance. This is NOT THE CORRELATION OF AS ASSET WITH THE MARKET. - Components of risk are CLEF-B. Country, liquidity, exchange rate, financial, and business. - TIPs have PRINCIPAL AND NOT COUPON that change with inflation. ...... |
CFA Discussion Topic: Common Mistakes and Acronyms
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
