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Equity
In the Residual Income Model, The Interest cost is taken in to account as interest expenses as recorded in accounting, as you are aware interest cost as per IFRS/ us GAAP is taken as effective interest ie the ytm as on the date of issue but the ytm does not remain constant, it changes as per the marRead more
In the Residual Income Model, The Interest cost is taken in to account as interest expenses as recorded in accounting, as you are aware interest cost as per IFRS/ us GAAP is taken as effective interest ie the ytm as on the date of issue but the ytm does not remain constant, it changes as per the market conditions (yield changes) but accounting does not consider it, in finance, we are concerned with the marginal cost of debt i.e. what is the cost of raising additional debt, suppose we are doing equity valuation so the first thing we are concerned with is what is the yied (if we follow yield + Risk premium Method ) or generally otherwise also we are concerned with the yield which is existing currently in the market and not on the yield at the time of issue but Accounting Standards does not consider it and as the RI model is based on Accounting Fundamentals, it is the drawback of the RI model.
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See lessFixed Income
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See lessRiding the yield curve
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See lessAnalysis of F.I- Capital Adequacy (CAMELS)
It will not be counted in Common Equity Tier 1. It may qualify for other Tier 1. Relevant text from the core is reproduced below : Common Equity Tier 1 Capital includes common stock, issuance surplus related to common stock, retained earnings, accumulated other comprehensive income, and certain adjuRead more
It will not be counted in Common Equity Tier 1. It may qualify for other Tier 1. Relevant text from the core is reproduced below :
Common Equity Tier 1 Capital includes common stock, issuance surplus related
See lessto common stock, retained earnings, accumulated other comprehensive income, and
certain adjustments including the deduction of intangible assets and deferred tax assets.
Other Tier 1 Capital includes other types of instruments issued by the bank that meet
certain criteria. The criteria require, for example, that the instruments be subordinate
to such obligations as deposits and other debt obligations, not have a fixed maturity,
and not have any type of payment of dividends or interest that is not totally at the
discretion of the bank. Tier 2 Capital includes instruments that are subordinate to
depositors and to general creditors of the bank, have an original minimum maturity
of five years, and meet certain other requirements
Portfolio management
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See lessEquity CFA L2
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See lessFixed Income
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See lessDoubt
Regret aversion bias is an emotional bias in which people tend to avoid making decisions out of fear that the decision will turn out poorly. Regret is more intense when the unfavourable outcomes are the result of an action taken versus the result of action not taken. Thus, no action becomes the defaRead more
Regret aversion bias is an emotional bias in which people tend to avoid making decisions out of fear that the decision will turn out poorly.
Regret is more intense when the unfavourable outcomes are the result of an action taken versus the result of action not taken. Thus, no action becomes the default decision.
This is the language given in the core readings. So according to the same, regret aversion is related to status quo.
Now the point that you are talking about is the consequence of regret aversion: people engage in herding behaviour. They feel safer in popular investments in order to limit future regret.
Also, in confirmation bias, you are only acting on the news that favours your thought process. So you’re not maintaining status quo. You’re just acting on some news and ignoring others.
Hope this helps!
See lessFixed Income
Audio replied by Sanjay Sir earlier. Please look up in CFA Level 2 Fixed Income Category, from the last page.
Audio replied by Sanjay Sir earlier. Please look up in CFA Level 2 Fixed Income Category, from the last page.
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