Ques. on FFM where long term and short term rates are given This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium. While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf). InRead more
This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium.
While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf).
In CAPM eqn: ERP is used – and in soln to Ex 5 you’ll find, “Consistent with the definition of the equity risk premium, a long-bond yield is used in the CAPM”. This indicates that in CAPM long term risk free rates are to be used.
In FFM eqn: RMRF is used – in section 4.1, as a bullet point you’ll find, “◾RMRF, standing for RM – RF, the return on a market value-weighted equity index in excess of the one-month T-bill rate—this is one way the equity risk premium can be represented and is the factor shared with the CAPM.” This indicates that we have to use short term risk free rate here.
My personal opinion – We go through core and update our notes in terms of the use of “ERP” and “RMRF” by the author for all the models in the reading.
This whole confusion is arising because we have used the term "Equity Risk Premium", i.e., ERP in all the models for the purpose of representing equity risk premium. While in the core, the author has used 2 terms; ERP and RMRF(Rm - Rf). In CAPM eqn: ERP is used - and in soln to Ex 5 you'll find, "CoRead more
This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium.
While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf).
In CAPM eqn: ERP is used – and in soln to Ex 5 you’ll find, “Consistent with the definition of the equity risk premium, a long-bond yield is used in the CAPM”. This indicates that in CAPM long term risk free rates are to be used.
In FFM eqn: RMRF is used – in section 4.1, as a bullet point you’ll find, “◾RMRF, standing for RM – RF, the return on a market value-weighted equity index in excess of the one-month T-bill rate—this is one way the equity risk premium can be represented and is the factor shared with the CAPM.” This indicates that we have to use short term risk free rate here.
My personal opinion – We go through core and update our notes in terms of the use of “ERP” and “RMRF” by the author for all the models in the reading.
If you refer section 3.1.1 of the core, there they have indicated that beta of an avg systematic risk security is found to be 1.0 on an avg. Also, market has a unit senstivity to itself , i.e, beta of market is 1.0, and market represents on an avg risk and return, so they've used this logic in my opRead more
If you refer section 3.1.1 of the core, there they have indicated that beta of an avg systematic risk security is found to be 1.0 on an avg. Also, market has a unit senstivity to itself , i.e, beta of market is 1.0, and market represents on an avg risk and return, so they’ve used this logic in my opinion.
So here, the ques is whether the systematic risk is below avg or above avg.
Accordingly, we will calculate R(e) using beta 1.0 and then compare with what we have previously calculated.
Core text for your reference
3.1.1. Beta Estimation for a Public Company
The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta.
Front running is the illegal practice of purchasing a security based on advance non-public information regarding an expected large transaction that will affect the price of a security. Front running is considered as a form of market manipulation and insider trading because a person who commits a froRead more
Front running is the illegal practice of purchasing a security based on advance non-public information regarding an expected large transaction that will affect the price of a security. Front running is considered as a form of market manipulation and insider trading because a person who commits a front running activity expects security’s price movements based on the non-public information. However, some forms of the front running, such as index front running, are not illegal.
In this link there is also a pictorial explanation, look at that you will understand better.
E.g. Suppose the client gives the firm an order to buy 250,000 shares of ITC. So the employee first buys some shares for himself before placing the client’s order, as he knows that the sudden purchase of such a large qty is going to drive the share prices upwards in the short term. And as a result of that he would gain because he bought the shares, at a lower price, before buying on client’s order.
Similar example can also be taken for the sell the order situation.
There are 5-6 building block classes on SSEI YouTube channel. Watch them first, you will be comfortable with calculator stuff then. And do watch the classes simultaneously, as the topics are interrelated, you will understand them better. Like 1-2 class of one topic then another, as mentioned by sirRead more
There are 5-6 building block classes on SSEI YouTube channel. Watch them first, you will be comfortable with calculator stuff then.
And do watch the classes simultaneously, as the topics are interrelated, you will understand them better. Like 1-2 class of one topic then another, as mentioned by sir in orientation video.
Also another benefit would be, if you might face technical difficulty in one class then by the time that gets resolved you can continue with other topics, your studies do not get hampered.
Doing multiple topics simultaneously would be beneficial, you will realise that maybe when you’re halfway through the classes.
P.S. I’m also a L1 candidate and did classes of multiple topics simultaneously.
Jean is using statistical data in his reports. Statistical data are the facts collected by these big agencies, like GDP growth rate, unemployment rate, return on Index etc. (Hope you got the context) It is not the intellectual data/analysis of the agency. So he can use such statistical data in his rRead more
Jean is using statistical data in his reports.
Statistical data are the facts collected by these big agencies, like GDP growth rate, unemployment rate, return on Index etc. (Hope you got the context)
It is not the intellectual data/analysis of the agency.
So he can use such statistical data in his reports without mentioning or giving credit to the source, freely. (It does not account for plagiarism)
Accordingly he has not misrepresented his report.
However in the question it is mentioned that he is not keeping any records of his analysis that he did to make his report.
Accordingly he has violated record retention.
And as he is not maintaining proper records so he will not be able to present his performance in an acceptable manner.
Accordingly performance presentation is violated.
Hence, misrepresentation is not violated and that would be the answer.
P.S. I’m not so confident about my explanation of option C, but as option B is clearly not violated so that’s how that should be the answer.
Risk free rate in Re models and ERP models
Ques. on FFM where long term and short term rates are given This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium. While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf). InRead more
Ques. on FFM where long term and short term rates are given
This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium.
While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf).
In CAPM eqn: ERP is used – and in soln to Ex 5 you’ll find, “Consistent with the definition of the equity risk premium, a long-bond yield is used in the CAPM”. This indicates that in CAPM long term risk free rates are to be used.
In FFM eqn: RMRF is used – in section 4.1, as a bullet point you’ll find, “◾RMRF, standing for RM – RF, the return on a market value-weighted equity index in excess of the one-month T-bill rate—this is one way the equity risk premium can be represented and is the factor shared with the CAPM.” This indicates that we have to use short term risk free rate here.
My personal opinion – We go through core and update our notes in terms of the use of “ERP” and “RMRF” by the author for all the models in the reading.
See lessThe French Fama 3 Factor Model
This whole confusion is arising because we have used the term "Equity Risk Premium", i.e., ERP in all the models for the purpose of representing equity risk premium. While in the core, the author has used 2 terms; ERP and RMRF(Rm - Rf). In CAPM eqn: ERP is used - and in soln to Ex 5 you'll find, "CoRead more
This whole confusion is arising because we have used the term “Equity Risk Premium”, i.e., ERP in all the models for the purpose of representing equity risk premium.
While in the core, the author has used 2 terms; ERP and RMRF(Rm – Rf).
In CAPM eqn: ERP is used – and in soln to Ex 5 you’ll find, “Consistent with the definition of the equity risk premium, a long-bond yield is used in the CAPM”. This indicates that in CAPM long term risk free rates are to be used.
In FFM eqn: RMRF is used – in section 4.1, as a bullet point you’ll find, “◾RMRF, standing for RM – RF, the return on a market value-weighted equity index in excess of the one-month T-bill rate—this is one way the equity risk premium can be represented and is the factor shared with the CAPM.” This indicates that we have to use short term risk free rate here.
My personal opinion – We go through core and update our notes in terms of the use of “ERP” and “RMRF” by the author for all the models in the reading.
See lessQuery in “Return Concepts” reading
If you refer section 3.1.1 of the core, there they have indicated that beta of an avg systematic risk security is found to be 1.0 on an avg. Also, market has a unit senstivity to itself , i.e, beta of market is 1.0, and market represents on an avg risk and return, so they've used this logic in my opRead more
If you refer section 3.1.1 of the core, there they have indicated that beta of an avg systematic risk security is found to be 1.0 on an avg. Also, market has a unit senstivity to itself , i.e, beta of market is 1.0, and market represents on an avg risk and return, so they’ve used this logic in my opinion.
So here, the ques is whether the systematic risk is below avg or above avg.
Accordingly, we will calculate R(e) using beta 1.0 and then compare with what we have previously calculated.
Core text for your reference
3.1.1. Beta Estimation for a Public Company
The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta.
See lessReal Estate Valuation- DCF
Okay, thank you
Okay, thank you
See lessCFA Institute University Affiliation Program
Okay sir
Okay sir
See lessEthics
Front running is the illegal practice of purchasing a security based on advance non-public information regarding an expected large transaction that will affect the price of a security. Front running is considered as a form of market manipulation and insider trading because a person who commits a froRead more
Front running is the illegal practice of purchasing a security based on advance non-public information regarding an expected large transaction that will affect the price of a security. Front running is considered as a form of market manipulation and insider trading because a person who commits a front running activity expects security’s price movements based on the non-public information. However, some forms of the front running, such as index front running, are not illegal.
Source: https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/front-running/
In this link there is also a pictorial explanation, look at that you will understand better.
E.g. Suppose the client gives the firm an order to buy 250,000 shares of ITC. So the employee first buys some shares for himself before placing the client’s order, as he knows that the sudden purchase of such a large qty is going to drive the share prices upwards in the short term. And as a result of that he would gain because he bought the shares, at a lower price, before buying on client’s order.
Similar example can also be taken for the sell the order situation.
See lessSequence of classes
There are 5-6 building block classes on SSEI YouTube channel. Watch them first, you will be comfortable with calculator stuff then. And do watch the classes simultaneously, as the topics are interrelated, you will understand them better. Like 1-2 class of one topic then another, as mentioned by sirRead more
There are 5-6 building block classes on SSEI YouTube channel. Watch them first, you will be comfortable with calculator stuff then.
And do watch the classes simultaneously, as the topics are interrelated, you will understand them better. Like 1-2 class of one topic then another, as mentioned by sir in orientation video.
Also another benefit would be, if you might face technical difficulty in one class then by the time that gets resolved you can continue with other topics, your studies do not get hampered.
Doing multiple topics simultaneously would be beneficial, you will realise that maybe when you’re halfway through the classes.
P.S. I’m also a L1 candidate and did classes of multiple topics simultaneously.
See lessEthics CFA L1
Jean is using statistical data in his reports. Statistical data are the facts collected by these big agencies, like GDP growth rate, unemployment rate, return on Index etc. (Hope you got the context) It is not the intellectual data/analysis of the agency. So he can use such statistical data in his rRead more
Jean is using statistical data in his reports.
Statistical data are the facts collected by these big agencies, like GDP growth rate, unemployment rate, return on Index etc. (Hope you got the context)
It is not the intellectual data/analysis of the agency.
So he can use such statistical data in his reports without mentioning or giving credit to the source, freely. (It does not account for plagiarism)
Accordingly he has not misrepresented his report.
However in the question it is mentioned that he is not keeping any records of his analysis that he did to make his report.
Accordingly he has violated record retention.
And as he is not maintaining proper records so he will not be able to present his performance in an acceptable manner.
Accordingly performance presentation is violated.
Hence, misrepresentation is not violated and that would be the answer.
P.S. I’m not so confident about my explanation of option C, but as option B is clearly not violated so that’s how that should be the answer.
See lessMacroeconomics – Reading 14
Yes, that seems to be the most likely explanation.
Yes, that seems to be the most likely explanation.
See lessEthics
Thank You. I understood it.
Thank You. I understood it.
See less