Archives

All posts by Bill Campbell III, CFA

The first thing I’d like to say about Chebyshev’s inequality is that it’s a good thing for most CFA candidates that these exams are written, not oral.  If they were oral, most would fail simply because they cannot pronounce “Chebyshev” (or, for that matter, at Level II, “Modigliani” or “heteroskedasticity”).  The first part is pronounced […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership

This will give you access to this and all other articles at that membership level.

There are two applications of delta hedging presented in the CFA curriculum: You have an existing position in the underlying security and you want to hedge that position with options. You have an existing position in options and you want to hedge that position either with the underlying security or with options. I’ll cover both […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

I recently wrote a question for a mock exam about implementation shortfall, and it occurred to me that an article on the subject was long overdue. Implementation shortfall has been the bane of Level III CFA candidates for a few decades now, and for good reason: in the curriculum, there isn’t a straightforward, comprehensive example […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

Occasionally, you will need to know how to compute free cash flow to equity (FCFE) given free cash flow to the firm (FCFF), or how to compute FCFF given FCFE.  The formulae are relatively easy, but for sake of completeness I thought that I’d write a short article on them Recall that the formula for […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

The idea of interest rate parity (IRP) is pretty simple.  In a nutshell, it says that if you hold a particular currency – say, GBP – and you want to to make a risk-free investment of that currency, you should earn the risk-free interest rate for that currency for the length of time of your […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

The idea of roll yield – or roll return, same thing – is relatively straightforward: it’s part of the increase or decrease in the value of your portfolio that arises specifically when you roll over an expiring futures or forward contract into a new contract.  The other part of that increase or decrease is the […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

Defined benefit pension cost and pension expense – not the same as each other, by the way – are two topics that traditionally vex Level II candidates, and with good reason: They’re fairly complicated They’re usually explained poorly I cannot make them less complicated than they are, but I can do two things: I can make sure not […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

As a mathematician, I’ve been trained to write and speak (and, consequently, to think) using precise, accurate terminology.  There are, of course, occasions when even mathematicians abbreviate the things that they write or say, but on those occasions: We know that we’re abbreviating, and All mathematicians have agreed to the abbreviations used. As an educator, […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Membership, CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.