I feel as though I’m getting close to where I want to be for when my week off of work starts before the exam. I am booked in for the 7city Mock on Sunday 30th May and would like to have done all portal questions, hurdle tests, readings and workshops on all of the study sessions by then.
This weekend I finished the two hurdle tests and workshop associated with Phase 4, and finished the portal questions for Derivatives, which is the start of phase 5. That therefore means I have 2 evenings and a Saturday to do the portal questions for Economics, read the CFAI textbooks and do the associated CFAI questions for Ethics, do the 7city portal questions for Ethics, do the workshop for phase 5 and do the last remaining hurdles tests for phase 5.
I will now provide you with a quick overview of my weekend’s study (most of which was carried out outside to try and enjoy the terrifically hot weather).
Workshop #5 – Study sessions 13, 14, 3 & 12 (Equity, Quants and PM) = 83%
Pleasing score. Watching the workshop recording, I leant:
That a low Beta stock, or any beta stock for that matter, relates to systematic RISK, not RETURNS.
Whilst I’m very comfortable with Equity Valuation questions not to be arrogant so as to avoid a silly mistake
It would be worth going back to the wordy stuff I Study Session 13
Hurdle Test #7: Equity and Portfolio Theory (Study sessions 12, 13 & 14) = 84%
Pleasing score. From the 7city explanations, I leant:
That I could do with spending more time on Indices
HPR can appear anywhere!
It would be worth reading more about Free Cash Flow too…
It would be worth reading more about the results of the studies regarding EMH
Hurdle Test #8: Quants and Portfolio Theory (Study sessions 12, & 3) = 71%
Annoyingly, my internet crashed as I came close to finishing this, which skewed my result downwards. But I still learnt:
That I need to be reminded that when calculating Beta we use Variance of the Market, not standard deviation.
That I’m still a little confused as to what happens with the two risky asset portfolio standard deviation formula when one of the assets is the risk-free asset. A new way of thinking about normal distribution testing
Reading 67: Derivative Markets and Instruments, SS17 Qs = 66%
There were only 6 questions so the result is a little skewed, but from the two I got wrong, one was a silly mistake and the other was due to a lack of detailed reading in Schweser about the study conclusion why there has been a recent substantial growth in Derivatives contracts.
Reading 68: Forward Markets and Contracts, SS17 Qs = 60%
Again there were only 5 questions so the result was a little skewed. However It did raise that I was unclear about discounting at the end of a FRA calculation, and despite a question appearing a complex calculation don’t forget the result will be different for a forward than it would be for a future.
Reading 69: Futures Markets and Contracts, SS17 Qs = 75%
The main two things I was unsure of here were what is meant by ‘the futures price’ as I didn’t think that there was a cost to enter into a future, and specified quantity vs. standard quantity: I thought futures were different from forward in this sense in that they’re not bespoke, so must be standard.
Reading 70: Option Markets and Contracts, SS17 Qs = 94%
Fell very comfortable here. In silly mistake made by not reading the question properly.
Reading 71: Swap Markets and Contracts, SS17 Qs = 50%
Problem area. I think mainly caused by my inability to set up the mechanics correctly from the question. But I did learn that at termination in a currency swap the actual returns of principal are required, regardless of the exchange rate.
Reading 72: Risk Management Applications of Option Strategies, SS17 Qs = 90%
Similarly to the other Options reading I was happily sailing through questions and made 1 silly mistake. I like options.
Friday 28 May 2010
Entry 10 – Equity Explained, Portfolio Management and 2nd part of Quants attempted
As the exam is just over two weeks’ time, I feel I am a little behind. I have booked the whole week off work before the exam, and I’d like to be using that solely for Mock Exams. To do this effectively, I need to have finished the individual study session question practice before the 29th May, which I think is just about achievable…
Reading 56: An Introduction to Security Valuation – 91%
A pleasing score on an important area. Couple of queries resolved by the 7city helpdesk:
EPS in NOT a measure of dividend yield as dividends depend on the payout rate applied to EPS.
In terms of factors most likely to reduce the P/E ratio, increase on risk-free assets, where the market premium is constant, is true as (Rm – Rf) increases, thus increasing r in the DDM denominator, hence decreasing the P/E ratio. Investors willing to take on more risk, means the market premium (Rm – Rf) would be lower as they demand a lower premium to take on more risk. This decreases r in the denominator of the DDM, hence increasing P/E. Increase in dividend payout – no need to start getting complicated with g = RR x ROE as payout ratio becomes the numerator in the P/E adjusted DDM.
Reading 57: Industry Analysis – 80%
Pretty straightforward reading
Reading 58: Company Analysis and Stock Valuation – 87%
Company signalling is not to be overlooked. Share price plays a part in choosing to finance projects by debt or equity.
Reading 59: Introduction to Price Multiples – 100%
Pretty straightforward reading.
Reading 52: Organisation and Functioning of Securities Markets – 77%
This is an important wordy section where I think I’ll see some questions in the exam. The helpdesk helped me categorise the different features.
Reading 53: Security-Marketing Indexes – 40%
There were only 5 portal questions on this so the percentage score isn’t as disastrous as it may seem. There’s a couple of wordy questions that the helpdesk clarified for me.
Reading 54: Efficient Capital Markets – 44%
This is a little more alarming. I think the main thing the helpdesk gave me was not to overcomplicate matters. EMH is all about information.
Reading 55: Market Efficiency and Anomalies – 100%
Pretty straightforward reading.
Reading 09: Common Probability and Distributions – 100%
Concerned that there were only 3 questions on this reading. I was expecting to be better tested on Binomial.
Reading 10: Sampling and Estimation – 60%
I’m looking forward to using the 7city helpdesk to gain a better understanding of the t-distribution. I don’t think it’s properly covered and I can anticipate questions on it.
Reading 11: Hypothesis Testing – 64%
If you’ve done any applied stats courses at University I think you have to take some stuff with a pinch of salt in this reading, e.g. accept that the null hypothesis is what you’re trying to disprove. I’m unsure as to whether I need to learn the formula for the Chi-Squared test statistic. I also struggled with when to use the probabilities in the table and when to calculate the test statistic.
Reading 12: Technical Analysis – 86%
I found it difficult to match up ‘support level’, ‘break-even level’ and ‘resistance level’ to the graph explaining the time series of information pricing.
Reading 49 – The Asset Allocation Decision – 71%
I think some of the questions here are not representative of what I’ll see in the exam, which city admits, but the long-winded nature of the questions allow the coverage of several points. I am concerned that in the exam it’ll be too subjective for MCQs.
Reading 50 – An Introduction to Portfolio Management – 81%
The first ‘standard deviation of a 2 risky asset portfolio’ question I had made me realise I didn’t quite remember the formula. I had Cov(x,y) instead of r(x,y) which I’ll now never forget. Only things to think of is are we looking at portfolio standard deviation or variance, and if there’s a risk-free asset two of the terms will cancel to zero. I also need to seek help from the helpdesk to fully understand the concept of a zero variance portfolio.
Reading 51: - An Introduction to Asset Pricing Modules – 100%
I think once you understandCAPM and the relationship between the CML and SML you’re away here.
Reading 56: An Introduction to Security Valuation – 91%
A pleasing score on an important area. Couple of queries resolved by the 7city helpdesk:
EPS in NOT a measure of dividend yield as dividends depend on the payout rate applied to EPS.
In terms of factors most likely to reduce the P/E ratio, increase on risk-free assets, where the market premium is constant, is true as (Rm – Rf) increases, thus increasing r in the DDM denominator, hence decreasing the P/E ratio. Investors willing to take on more risk, means the market premium (Rm – Rf) would be lower as they demand a lower premium to take on more risk. This decreases r in the denominator of the DDM, hence increasing P/E. Increase in dividend payout – no need to start getting complicated with g = RR x ROE as payout ratio becomes the numerator in the P/E adjusted DDM.
Reading 57: Industry Analysis – 80%
Pretty straightforward reading
Reading 58: Company Analysis and Stock Valuation – 87%
Company signalling is not to be overlooked. Share price plays a part in choosing to finance projects by debt or equity.
Reading 59: Introduction to Price Multiples – 100%
Pretty straightforward reading.
Reading 52: Organisation and Functioning of Securities Markets – 77%
This is an important wordy section where I think I’ll see some questions in the exam. The helpdesk helped me categorise the different features.
Reading 53: Security-Marketing Indexes – 40%
There were only 5 portal questions on this so the percentage score isn’t as disastrous as it may seem. There’s a couple of wordy questions that the helpdesk clarified for me.
Reading 54: Efficient Capital Markets – 44%
This is a little more alarming. I think the main thing the helpdesk gave me was not to overcomplicate matters. EMH is all about information.
Reading 55: Market Efficiency and Anomalies – 100%
Pretty straightforward reading.
Reading 09: Common Probability and Distributions – 100%
Concerned that there were only 3 questions on this reading. I was expecting to be better tested on Binomial.
Reading 10: Sampling and Estimation – 60%
I’m looking forward to using the 7city helpdesk to gain a better understanding of the t-distribution. I don’t think it’s properly covered and I can anticipate questions on it.
Reading 11: Hypothesis Testing – 64%
If you’ve done any applied stats courses at University I think you have to take some stuff with a pinch of salt in this reading, e.g. accept that the null hypothesis is what you’re trying to disprove. I’m unsure as to whether I need to learn the formula for the Chi-Squared test statistic. I also struggled with when to use the probabilities in the table and when to calculate the test statistic.
Reading 12: Technical Analysis – 86%
I found it difficult to match up ‘support level’, ‘break-even level’ and ‘resistance level’ to the graph explaining the time series of information pricing.
Reading 49 – The Asset Allocation Decision – 71%
I think some of the questions here are not representative of what I’ll see in the exam, which city admits, but the long-winded nature of the questions allow the coverage of several points. I am concerned that in the exam it’ll be too subjective for MCQs.
Reading 50 – An Introduction to Portfolio Management – 81%
The first ‘standard deviation of a 2 risky asset portfolio’ question I had made me realise I didn’t quite remember the formula. I had Cov(x,y) instead of r(x,y) which I’ll now never forget. Only things to think of is are we looking at portfolio standard deviation or variance, and if there’s a risk-free asset two of the terms will cancel to zero. I also need to seek help from the helpdesk to fully understand the concept of a zero variance portfolio.
Reading 51: - An Introduction to Asset Pricing Modules – 100%
I think once you understandCAPM and the relationship between the CML and SML you’re away here.
Monday 26 April 2010
Entry 8 – Last small part of FR&A cleared up, Corporate Finance explained and Hurdle Tests
In this post I will cover some of the tutor help received for study session 10, the first two Readings of Corporate Finance and my attempt at the Phase 3 Hurdle Tests.
Reading 40: Financial Reporting Quality: Red Flags and Accounting Warning Signs – 60%
I realised the importance of not getting ahead of yourself here and writing out the basic accounting equation of A = L + E before trying to answer the question. Artificially boosting income increased E. So we’re then looking for an answer that has increases in A or decreases in L.
Reading 41: Accounting Shenanigans on the Cash Flow Statement – 80%
Better identification required on which Financial Statement we’re examining.
Reading 42: Financial Statement Analysis Applications – 100%
Despite the perfect score I was a little confused about the importance of different risks to Credit Analysts. The tutor helpdesk aided allowed me to see the predictive requirements of credit analysts, so survivorship bias would be of least interest, whilst business risk and financial risk would be of great(er) concern.
Reading 43: International Standards Convergence – 100%
My hesitancy from one of the questions arose from my difficulty in remembering revaluations and reversals, and categorising them correctly under their allowance under US GAAP and IFRS. Through tutor help I was able to construct an effective summary arrow diagram to first put reversals and revaluations into perspective, then add in the differences between the two accounting practices.
A couple of the above points lead into mistakes in the 3rd Workshop covering Study Sessions 8, 9 and 10. But I can see now how it’d have been better off writing out the Accounting Equation and drawing my Reversals and Revaluations arrow diagram.
Reading 44: Capital Budgeting – 53%
The tutor helpdesk provided me with the formula to help correctly calculate weightings from the Debt:Equity ratio. A flow diagram of the project though process helped put into perspective opportunity costs and repair costs.
Reading 45: Cost of Capital – 90%
The tutor helpdesk explained the thought process of taking earnings to retained equity to work out break points.
Workshop #4 – Corp Finance, Alt Investments and Fixed Income (SSs 11, 18, 15 and 16) – 88%
I was quite pleased with this score as it was a tough workshop. The recording I watched of it after attempting it made me realise that Macaulay Duration is just not sticking, maybe due to the uncertainty of it being tested in the exam.
Hurdle Test #5 – SSs 15 and 16 – 75%
I felt this was a tough hurdle test. They do tend to be tougher than the portal questions, in my opinion. Couple of silly mistakes but it helped bring out my lack of understanding regarding Cash Flow yields and spreads.
Hurdle Test #6 – SSs 11 and 18 – 60%
Again, I thought this was a tough hurdle test, but wisely so as I think it would be quite exam standard. It highlighted my confusion about the rate at which Cash Flows are reinvested. Another clear problem highlighted was not writing out the equation Nominal = Real + Inflation as part of the process of establishing if the WACC is over or understated. It also demonstrated some of the areas I hadn’t read in Schweser, such as overseas equity premium and stages of venture capital raising.
Reading 40: Financial Reporting Quality: Red Flags and Accounting Warning Signs – 60%
I realised the importance of not getting ahead of yourself here and writing out the basic accounting equation of A = L + E before trying to answer the question. Artificially boosting income increased E. So we’re then looking for an answer that has increases in A or decreases in L.
Reading 41: Accounting Shenanigans on the Cash Flow Statement – 80%
Better identification required on which Financial Statement we’re examining.
Reading 42: Financial Statement Analysis Applications – 100%
Despite the perfect score I was a little confused about the importance of different risks to Credit Analysts. The tutor helpdesk aided allowed me to see the predictive requirements of credit analysts, so survivorship bias would be of least interest, whilst business risk and financial risk would be of great(er) concern.
Reading 43: International Standards Convergence – 100%
My hesitancy from one of the questions arose from my difficulty in remembering revaluations and reversals, and categorising them correctly under their allowance under US GAAP and IFRS. Through tutor help I was able to construct an effective summary arrow diagram to first put reversals and revaluations into perspective, then add in the differences between the two accounting practices.
A couple of the above points lead into mistakes in the 3rd Workshop covering Study Sessions 8, 9 and 10. But I can see now how it’d have been better off writing out the Accounting Equation and drawing my Reversals and Revaluations arrow diagram.
Reading 44: Capital Budgeting – 53%
The tutor helpdesk provided me with the formula to help correctly calculate weightings from the Debt:Equity ratio. A flow diagram of the project though process helped put into perspective opportunity costs and repair costs.
Reading 45: Cost of Capital – 90%
The tutor helpdesk explained the thought process of taking earnings to retained equity to work out break points.
Workshop #4 – Corp Finance, Alt Investments and Fixed Income (SSs 11, 18, 15 and 16) – 88%
I was quite pleased with this score as it was a tough workshop. The recording I watched of it after attempting it made me realise that Macaulay Duration is just not sticking, maybe due to the uncertainty of it being tested in the exam.
Hurdle Test #5 – SSs 15 and 16 – 75%
I felt this was a tough hurdle test. They do tend to be tougher than the portal questions, in my opinion. Couple of silly mistakes but it helped bring out my lack of understanding regarding Cash Flow yields and spreads.
Hurdle Test #6 – SSs 11 and 18 – 60%
Again, I thought this was a tough hurdle test, but wisely so as I think it would be quite exam standard. It highlighted my confusion about the rate at which Cash Flows are reinvested. Another clear problem highlighted was not writing out the equation Nominal = Real + Inflation as part of the process of establishing if the WACC is over or understated. It also demonstrated some of the areas I hadn’t read in Schweser, such as overseas equity premium and stages of venture capital raising.
Entry 7 – Fixed Income clarified and Capital Budgeting challenges
Hello all,
Since the last post I have been through the problems I encountered in the wordy stuff in fixed income with the tutor helpdesk, finished portal questions on Corporate Finance, and got a to a nice situation where I’m slightly ahead in the classroom recordings by now being up to Alternative Investments, compared to my question attempting.
However this is slight reflection on the lack of achievement this weekend in terms of workload. I’d hoped to quickly finish off Corporate Governance (the particularly wordy section in Corporate Finance), study session 14 Alternative Investments, attempt associated hurdle tests, attempt the associated workshop, and sit the 2 hour 7city Progress Test (a Mock exam on every topic covered so far up to and including Alternative Investments).
Sadly, I didn’t even start the portal questions on Alternatives due to quite the watchable weekend of football.
Following tutor helpdesk review on SS15:
Reading 66: Introduction to the Measurement of Interest Rate Risk – 81%
I don’t know how likely it will be that I’ll be examined on Floating Rate Notes, hence getting the question wrong, but it’s important to realise that its duration is simply equal to the time until it’s next coupon payment, expressed as a fraction of a year. So if coupon payments are semi-annual then it’s 0.5.
Macaulay’s duration came up. I don’t think it’s likely to be tested but given the formula’s simplicity, it’s probably worth learning just I case. [Modified Duration = Macaulay duration / (1 + (yield / k)), where k = number of coupon paying periods].
Reading 60: Features of Debt Securities – 100%
Clarified that if a bond is in default, it means they don’t pay a coupon (break a positive covenant).
Reading 62: Overview of Bond Sectors and Instruments – 62%
As discussed last post, the value add from the tutor helpdesk and getting through the classroom recordings is gaining as much logic to help distinguish between the different features that categorise the various debt instruments. Starting with Mortgage Passthrough securities as a ‘simple’ instrument helps when asking well when does that become a more complex CMO.
Reading 63: Understanding Yield Spreads – 90%
Important to see the logic through the investor’s eyes when asking about ‘biased’ expectation theory. Liquidity as they’ll want some more return for longer dated bonds, despite interest rate expectations, and they’ll want some extra return for investing outside their comfort zoneof ‘preferred habitat’.
First attempt at portal questions for SS11
Reading 44: Capital Budgeting – 53%
It’s very important to use a debt:equity RATIO properly in terms of your WACC weightings. 33.33% for every $1 of debt there is $3 of equity, hence debt weighting = ¼ and equity weighting = ¾.
Correct application is required of opportunity costs and repair costs. Average Accounting Rate of Return wasn’t covered in Schweser, but was eventually in the classroom recordings. I didn’t understand the implications of cash flow direction before the classroom recording and how that related to the IRR for non-mutually exclusive projects. Had to go back into Schweser to check how NPVs of projects affect the stock price.
Reading 45: Cost of Capital – 90%
Pretty solid here due to previous study of the DDM and the CAPM, however struggled on Break Points.
Reading 46: Working Capital Management – 92%
Nice, comfortable repetition of liquidity ratios from FR&A. Couple of complications in Money Market Yield calculations based on previous understanding in SS2 (quants).
Reading 47: Financial Statement Analysis – 88%
Some confusion here about the various compositions of the DuPont model, such as the ‘two step’ model. But apart from that another nice repetition of FR&A.
Reading 48: The Corporate Governance of Listed Companies: A Manual for Investors – 86%
This is quite a wordy section but I think game for a fair few questions. I adopted a question based approach, whereby I must admit, I wasn’t sure of quite a lot of the answer, which resulted in quite a purposeful reading of the Schweser text.
Since the last post I have been through the problems I encountered in the wordy stuff in fixed income with the tutor helpdesk, finished portal questions on Corporate Finance, and got a to a nice situation where I’m slightly ahead in the classroom recordings by now being up to Alternative Investments, compared to my question attempting.
However this is slight reflection on the lack of achievement this weekend in terms of workload. I’d hoped to quickly finish off Corporate Governance (the particularly wordy section in Corporate Finance), study session 14 Alternative Investments, attempt associated hurdle tests, attempt the associated workshop, and sit the 2 hour 7city Progress Test (a Mock exam on every topic covered so far up to and including Alternative Investments).
Sadly, I didn’t even start the portal questions on Alternatives due to quite the watchable weekend of football.
Following tutor helpdesk review on SS15:
Reading 66: Introduction to the Measurement of Interest Rate Risk – 81%
I don’t know how likely it will be that I’ll be examined on Floating Rate Notes, hence getting the question wrong, but it’s important to realise that its duration is simply equal to the time until it’s next coupon payment, expressed as a fraction of a year. So if coupon payments are semi-annual then it’s 0.5.
Macaulay’s duration came up. I don’t think it’s likely to be tested but given the formula’s simplicity, it’s probably worth learning just I case. [Modified Duration = Macaulay duration / (1 + (yield / k)), where k = number of coupon paying periods].
Reading 60: Features of Debt Securities – 100%
Clarified that if a bond is in default, it means they don’t pay a coupon (break a positive covenant).
Reading 62: Overview of Bond Sectors and Instruments – 62%
As discussed last post, the value add from the tutor helpdesk and getting through the classroom recordings is gaining as much logic to help distinguish between the different features that categorise the various debt instruments. Starting with Mortgage Passthrough securities as a ‘simple’ instrument helps when asking well when does that become a more complex CMO.
Reading 63: Understanding Yield Spreads – 90%
Important to see the logic through the investor’s eyes when asking about ‘biased’ expectation theory. Liquidity as they’ll want some more return for longer dated bonds, despite interest rate expectations, and they’ll want some extra return for investing outside their comfort zoneof ‘preferred habitat’.
First attempt at portal questions for SS11
Reading 44: Capital Budgeting – 53%
It’s very important to use a debt:equity RATIO properly in terms of your WACC weightings. 33.33% for every $1 of debt there is $3 of equity, hence debt weighting = ¼ and equity weighting = ¾.
Correct application is required of opportunity costs and repair costs. Average Accounting Rate of Return wasn’t covered in Schweser, but was eventually in the classroom recordings. I didn’t understand the implications of cash flow direction before the classroom recording and how that related to the IRR for non-mutually exclusive projects. Had to go back into Schweser to check how NPVs of projects affect the stock price.
Reading 45: Cost of Capital – 90%
Pretty solid here due to previous study of the DDM and the CAPM, however struggled on Break Points.
Reading 46: Working Capital Management – 92%
Nice, comfortable repetition of liquidity ratios from FR&A. Couple of complications in Money Market Yield calculations based on previous understanding in SS2 (quants).
Reading 47: Financial Statement Analysis – 88%
Some confusion here about the various compositions of the DuPont model, such as the ‘two step’ model. But apart from that another nice repetition of FR&A.
Reading 48: The Corporate Governance of Listed Companies: A Manual for Investors – 86%
This is quite a wordy section but I think game for a fair few questions. I adopted a question based approach, whereby I must admit, I wasn’t sure of quite a lot of the answer, which resulted in quite a purposeful reading of the Schweser text.
Monday 12 April 2010
Entry 6 - Fixed Income: Technical components explained and don’t discount the wordy section
Hello CFA lovers,
I think from where we left off, I’ve since not been through much new material, but have been through some of the earlier fixed income material with the 7city tutor faculty and realised a coupe of important conceptual points.
Reading 64: Introduction to the Valuation of Debt Securities
There was an interesting portal question that concerned ending wealth as opposed to pricing a bond. I now see how this had to be viewed a little differently from ‘lets plug in an I/Y, FV, N and PMT and press CPT PV’. End wealth is what you get at par plus an annuity of coupons + Interest on Coupons.
Reading 65: Yield Measures, Spot Rates, and Forward Rates
I think spot and forward rates is a tricky concept. I found it essential to draw a time line of when say 8% is being achieved and when 9% is being achieved. That helps you to see intuitively what the forward rate might have to be to bring the geometric average up.
Another interesting concept thrown up by the portal questions was how the realised compound yield might be adjusted. This can be better seen by categorising the bond into:
1. Coupons received
2. Ability to reinvest coupons at the YTM
3. Assurance of making a capita gain/loss
In the particular question YTM was 12% but then interest payments would only be invested at 10%. So one of the 3 components above came under threat meaning the realised compound yield would only adjust downwards by a small amount.
Calculating the yield of a zero coupon bond as a HPR was a helpful skill explained and how the HPR formula is broken down into End/Start – Start/Start
In terms of new questions attempted I went quite quickly through Study Session 15, which is the wordy section of fixed income. I think this is game for quite a few questions in the exam but I decided to go straight into the portal questions:
Reading 60: Features of Debt Securities – 100%
This is quite intuitive following the technical coverage in SS16. Only query was that trading at full = dirty price.
Reading 61: Risks Associated with Investing in Bonds – 100%
There are a lot of different risks but pretty intuitive here.
Reading 62: Overview of Bond Sectors and Instruments – 62%
This was a good wake-up call and a reason to go back into the textbook. There are a lot of different types of instruments and knowing the subtle differences between them requires some reading greatly aided by logical explanations and example from the 7city classroom recordings.
Reading 63: Understanding Yield Spreads – 90%
This again is quite intuitive and helpful if you’ve studies economics and can remember the differences between TSIRs.
As a big picture update, I feel I’m a little behind where I need to be with 5th June in mind. I had earmarked an extended Easter break to dedicate a lot of study time to, however I got landed with a particularly large work project and deadline that unfortunately had to take priority. I managed to finished the fixed income questions and do an FR&A workshop that I’d somehow missed, which was good.
By the end of the weekend 17th / 18th April I’d have like to have completed the Alternatives, Corporate finance, all associated hurdle tests and workshops and having completed the Progress test. (The progress test is a 2 hour Mock exam set by 7city on the first 3 (out of 5) phases of material).
A next longer term goal is to have completed all study sessions questions, etc. by the end of April, which would leave the month of May to do Mock exams and more questions from the CFAI Assigned Readings.
I think from where we left off, I’ve since not been through much new material, but have been through some of the earlier fixed income material with the 7city tutor faculty and realised a coupe of important conceptual points.
Reading 64: Introduction to the Valuation of Debt Securities
There was an interesting portal question that concerned ending wealth as opposed to pricing a bond. I now see how this had to be viewed a little differently from ‘lets plug in an I/Y, FV, N and PMT and press CPT PV’. End wealth is what you get at par plus an annuity of coupons + Interest on Coupons.
Reading 65: Yield Measures, Spot Rates, and Forward Rates
I think spot and forward rates is a tricky concept. I found it essential to draw a time line of when say 8% is being achieved and when 9% is being achieved. That helps you to see intuitively what the forward rate might have to be to bring the geometric average up.
Another interesting concept thrown up by the portal questions was how the realised compound yield might be adjusted. This can be better seen by categorising the bond into:
1. Coupons received
2. Ability to reinvest coupons at the YTM
3. Assurance of making a capita gain/loss
In the particular question YTM was 12% but then interest payments would only be invested at 10%. So one of the 3 components above came under threat meaning the realised compound yield would only adjust downwards by a small amount.
Calculating the yield of a zero coupon bond as a HPR was a helpful skill explained and how the HPR formula is broken down into End/Start – Start/Start
In terms of new questions attempted I went quite quickly through Study Session 15, which is the wordy section of fixed income. I think this is game for quite a few questions in the exam but I decided to go straight into the portal questions:
Reading 60: Features of Debt Securities – 100%
This is quite intuitive following the technical coverage in SS16. Only query was that trading at full = dirty price.
Reading 61: Risks Associated with Investing in Bonds – 100%
There are a lot of different risks but pretty intuitive here.
Reading 62: Overview of Bond Sectors and Instruments – 62%
This was a good wake-up call and a reason to go back into the textbook. There are a lot of different types of instruments and knowing the subtle differences between them requires some reading greatly aided by logical explanations and example from the 7city classroom recordings.
Reading 63: Understanding Yield Spreads – 90%
This again is quite intuitive and helpful if you’ve studies economics and can remember the differences between TSIRs.
As a big picture update, I feel I’m a little behind where I need to be with 5th June in mind. I had earmarked an extended Easter break to dedicate a lot of study time to, however I got landed with a particularly large work project and deadline that unfortunately had to take priority. I managed to finished the fixed income questions and do an FR&A workshop that I’d somehow missed, which was good.
By the end of the weekend 17th / 18th April I’d have like to have completed the Alternatives, Corporate finance, all associated hurdle tests and workshops and having completed the Progress test. (The progress test is a 2 hour Mock exam set by 7city on the first 3 (out of 5) phases of material).
A next longer term goal is to have completed all study sessions questions, etc. by the end of April, which would leave the month of May to do Mock exams and more questions from the CFAI Assigned Readings.
Monday 29 March 2010
Entry 5 - Reading 64 & 65
Reading 64 – Introduction to the Valuation of Debt Securities = 57%
Although there weren’t many questions in this reading it was a good wake up call that you can’t think just being able to plug a FV, PMT, I/Y, N and CPT PV is good enough to get through this reading.
E.g. Future value = Par + Coupons + Interest on Coupons.
E.g. Use of individual spot rates to calculate the price of a bond manually.
Reading 65 – Yield Measures, Spot Rates, and Forward Rates = 71%
Again, despite previous knowledge in Fixed Income this required constant review in my Schweser materials, e.g. calculating current yield, cash flow yield, yield to call, yield to put, yield to worse, etc. It was also a good reminder not to get too excited when calculating YTM from a semi-annual bond where a BEY is required, and make no mistake that the answer before x2 will be their as a potential answer.
To make up for a disappointing weekend I have planned to use the forthcoming
Easter break to get some serious study under my belt + I’ve added on Tuesday and Wednesday next week from my annual leave to give myself a good 6 days worth of study.
Although there weren’t many questions in this reading it was a good wake up call that you can’t think just being able to plug a FV, PMT, I/Y, N and CPT PV is good enough to get through this reading.
E.g. Future value = Par + Coupons + Interest on Coupons.
E.g. Use of individual spot rates to calculate the price of a bond manually.
Reading 65 – Yield Measures, Spot Rates, and Forward Rates = 71%
Again, despite previous knowledge in Fixed Income this required constant review in my Schweser materials, e.g. calculating current yield, cash flow yield, yield to call, yield to put, yield to worse, etc. It was also a good reminder not to get too excited when calculating YTM from a semi-annual bond where a BEY is required, and make no mistake that the answer before x2 will be their as a potential answer.
To make up for a disappointing weekend I have planned to use the forthcoming
Easter break to get some serious study under my belt + I’ve added on Tuesday and Wednesday next week from my annual leave to give myself a good 6 days worth of study.
Entry 4 – The time constraints of studying for CFA®
Over the past week I have almost finished watching the Study Session 16 (Fixed Income Analysis and Valuation) classroom recordings on my iPhone. I haven’t had the most impressive week of CFA study to be honest, which I think nicely highlights the challenges in time management that need to be overcome on a consistent basis in order to pass the exam.
I had squash matches in the evening last week on Monday, Tuesday and Friday (unfortunately) so I diarised Wednesday and Thursday nights to stay at work from 6pm – 8pm.
Wednesday for some reason I felt knackered so naively thought I’d go home and do some question practice on my laptop in front of the TV hoping Spurs would lose. I was wrong on both accounts.
Thursday was meant to be much more fruitful and I planned to stay studying until 8pm. However, I found out earlier that day that I’d been given a large project at work so spent until gone 7pm discussing that. More lost study hours!
The weekend also proved a struggle and I found it difficult to fit my allocated study in around various social items and family commitments. Things started well on Saturday morning but then deteriorated throughout the afternoon – however I did manage to get in 30 minutes before playing squash that evening. This combined with losing an hour from the clocks going forward on Sunday meant that I didn’t spend as much time studying as I had hoped. I think this highlights how difficult it can be sometimes to prioritise and incorporate study into your every day life and re affirms just how committed you have to be to undertake this qualification.
I had squash matches in the evening last week on Monday, Tuesday and Friday (unfortunately) so I diarised Wednesday and Thursday nights to stay at work from 6pm – 8pm.
Wednesday for some reason I felt knackered so naively thought I’d go home and do some question practice on my laptop in front of the TV hoping Spurs would lose. I was wrong on both accounts.
Thursday was meant to be much more fruitful and I planned to stay studying until 8pm. However, I found out earlier that day that I’d been given a large project at work so spent until gone 7pm discussing that. More lost study hours!
The weekend also proved a struggle and I found it difficult to fit my allocated study in around various social items and family commitments. Things started well on Saturday morning but then deteriorated throughout the afternoon – however I did manage to get in 30 minutes before playing squash that evening. This combined with losing an hour from the clocks going forward on Sunday meant that I didn’t spend as much time studying as I had hoped. I think this highlights how difficult it can be sometimes to prioritise and incorporate study into your every day life and re affirms just how committed you have to be to undertake this qualification.
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