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.