Financial Exam Help 123

Author: Bill Campbell

  • Utility Theory: Indifference Curves (Economics)

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    Bill Campbell
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    When I was an undergraduate student in university, I was fortunate enough to have to have written only two term papers.  One was in the capstone business management class I took my last semester, and the other was in a class in mathematical modeling.  The term paper I wrote for the latter class was on…

  • Substitution Effect vs. Income Effect

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    Bill Campbell
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    When the price of a good changes, there are two effects on the demand for that good: The substitution effect, which is a relative effect (i.e., how the demand for that good, by itself, changes relative to the demand for other goods) The income effect, which is an absolute effect (i.e., how the demand for…

  • Tax Regimes

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    Bill Campbell
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    A few years ago CFA Institute added a new reading on tax regimes to the Level III curriculum, and it caused quite a stir: apparently they had a large question about taxes on that first year’s Level III exam, and few candidates were prepared for it. I want you to be prepared for it. And…

  • Benchmarks

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    Bill Campbell
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    I was recently writing a comparison of indices and benchmarks, and it occurred to me that an article on benchmarks might be useful, so here it is.  This is an easy one. The main points of interest to Level III CFA candidates are: How are benchmarks used? What characteristics should a benchmark have? What are…

  • Rebalancing Strategies: Buy-and-Hold vs. Constant-Mix vs. Constant-Proportion Portfolio Insurance (CPPI)

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    Bill Campbell
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    If you were to ask (a random sample of) 100 financial advisors what the term “rebalance” means, I wouldn’t be surprised if 95 of them described it as “returning the portfolio to its original weights in each asset class”, or something tantamount to that. In other words, the investing world overwhelmingly equates rebalancing with a…

  • Level III Proposed Articles

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    Bill Campbell
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    Here’s a list of the articles I have planned for Level III, but haven’t written and posted yet.  There’s some good stuff coming: Alpha/beta separation Analyst forecasts AO vs. ALM Asset Manager Code Behavioral factors Bounded rationality Cognitive errors Comparison of investor types Constraints Core-satellite portfolio Credit risk Currency hedging Currency risk Decision theory Efficient…

  • Level II Proposed Articles

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    Bill Campbell
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    Here’s a list of the articles I have planned for Level II, but haven’t written and posted yet.  There’s some good stuff coming: ABSs ANOVA tables Arbitrage Pricing Theory (APT) CDOs CMOs Consolidation (acquisition method) Credit derivatives Equity method Fischer F-statistic Goodwill H-model Multifactor models Multiple regression Mundell-Fleming OCI Option strategies Short box spread Short…

  • Level I Proposed Articles

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    Bill Campbell
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    Here’s a list of the articles I have planned for Level I, but haven’t written and posted yet.  There’s some good stuff coming: ABSs Bond amortization CDOs CFF CFI CMOs Depreciation Dividends DuPont Efficient frontier Forward discount/premium Income tax expense LIFO reserve OCI OPA Option payoffs Pictures (in Economics) Project evaluation Ratios Revenue recognition Risk…

  • Cross Hedge vs. Proxy Hedge

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    Bill Campbell
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    Level III candidates often confuse cross hedges and proxy hedges.  This isn’t their fault: one of the readings makes a distinction between these, while another claims that they’re the same (though it includes a footnote that says that they’re different). Sigh. Suppose that your domestic currency is the Canadian dollar (CAD), and that you have…

  • Linear Interpolation/Extrapolation

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    Bill Campbell
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    After reading a number of posts on AnalystForum in which candidates have had difficulty with linear interpolation or extrapolation, I figured it was time to write an article on the subject.  At Level I it applies to binomial trees for calculating the weights for equity options, and for combining risky portfolios with the risk-free asset…