Entry 11 – Phase 4 complete and the start of (the final) Phase 5

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.

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.