Without the CSC/finance in post secondary I think I would be lost in these readings, they assume a certain level of knowledge
Significant overlap with the CSC
There is an excellent mid-chapter summary in the schweser notes on page 27, Table-F2
The CFA goes a step further on why these different types of securities are structured the way they are
I thought I read somewhere that duration was hard…..maybe I haven’t hit that yet…..
My highlighter death-toll is climbing
Bond rating classifications in the CSC helped with this section which is much less detailed
Nothing really complex here, lots of talk about general concepts of risk
Ginnie mae, fannie mae, freddie mac, sallie mae…….are you kidding me
The quality of a debt obligation depends not only on the borrowers ability to repay but also on the borrower’s desire or willingness to repay
As long as the required margin above the reference rate exactly compensates for the bond’s risk, the price of a floating rate security will return to par at each reset date
I think the reason that this was a little bit more difficult for me is because I haven’t read FRA yet
There are 4 different names for price/cash flow and any can show up on the exam
Differences between trailing and leading P/E’s are pretty subtle
An analyst can estimate normal earnings by using the firms average ROE over a cycle times the current value of shareholders’ equity as an estimate of normalized earnings
A descending earnings yield ranking will list companies with positive earnings in the same order as an ascending P/E ranking, while appropriately ranking companies with negative earnings lower than companies with positive earnings
EBITDA is a pretax, pre-interest measure that represents a flow to both equity and debt. Thus, it is better suited as an indicator of total company value than just equity value
Preamble before the 1st LOS tells me that this will be a difficult chapter….
The chapter itself is pretty long, and not because its a combination of two readings
The Dividend Discount Model is 7 pages alone
The DDM for a 1 year holding period is fairly simple, but applying it on a test could be brutal
THe good thing about the range of different DDM formulas is that they are all subtle alterations of the same format
It ultimately comes down to identifying the single word which tells you what variation of the DDM to use
LOS 56.e & 56.f were fairly tricky, I don’t think I got everything out of it that I should have…..meaning I will likely come back to it later
Operating free cash flow is typically calculated as operating cash flow minus the cash to fund the increases in working capital and fixed assets necessary to support the growth rate assumed for the firm
Top-down approach was pretty simple, not sure how they’d logically waste a question on it
A common mistake with supernormal growth problems is to calculate the future value and forget to discount it back to the present
If a rate is not specified as being a real rate on the exam, it is safe for you to assume that it is a nominal rate
