Financial Exam Help 123

Category: Level I

  • FRAs

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    Bill Campbell
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    A forward rate agreement (FRA) is essentially an agreement to enter into two loans (one long, one short) in the future: a fixed-rate loan and a floating-rate loan.  (The difference between an FRA and an actual agreement to enter into these two loans is that the FRA will be settled at the beginning of the…

  • Is This Answer Reasonable?

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    Bill Campbell
    in

    In many of the topics in the Level I CFA curriculum you are required to calculate a numerical answer: You have to calculate an NPV in Quantitative Methods or Corporate Finance You have to calculate the yield of a bond in Fixed Income You have to calculate a forward interest rate in Fixed Income and…

  • Cash Conversion Cycle

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    Bill Campbell
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    The definition of the cash conversion cycle (CCC) is easiest to remember if you draw a timeline of events surrounding inventory and sales.  There are four events of interest: The day that you purchase the inventory; we’ll assume that you buy it on credit – creating accounts payable – and pay for it at a…

  • IS/LM: Deriving Aggregate Demand (Synopsis)

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    Bill Campbell
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    One of the more complicated ideas in economics is the development of the aggregate demand curve via two other curves: the IS (Investment-Savings) curve and the LM (Liquidity preference-Money supply) curve.  I’ll break it down into four articles: Synopsis (you are here) Part 1: the IS curve Part 2: the LM curve Part 3: combining…

  • IS/LM: Deriving Aggregate Demand (Part III: Combining the IS and LM Curves)

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    by

    Bill Campbell
    in

    There are four articles on IS/LM: Synopsis Part 1: the IS curve Part 2: the LM curve Part 3: combining the IS and LM curves (you are here) Combining the IS and LM Curves Because the IS curve and the LM curves each have real GDP (= real aggregate income) on the horizontal axis and…

  • IS/LM: Deriving Aggregate Demand (Part II: the LM Curve)

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    Bill Campbell
    in

    There are four articles on IS/LM: Synopsis Part 1: the IS curve Part 2: the LM curve (you are here) Part 3: combining the IS and LM curves The LM Curve The key to understanding the Liquidity preference-Money supply (LM) curve is realizing that the underlying assumption is that financial markets are in equilibrium: demand…

  • IS/LM: Deriving Aggregate Demand (Part I: the IS Curve)

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    by

    Bill Campbell
    in

    There are four articles on IS/LM: Synopsis Part 1: the IS curve (you are here) Part 2: the LM curve Part 3: combining the IS and LM curves The IS Curve There are several steps in creating the Investment-Savings (IS) curve, which has real aggregate income on the horizontal axis and real interest rate on…

  • Bond Equivalent Yield (BEY)

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    Bill Campbell
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    Because a large number of coupon-paying bonds make their coupon payments semiannually (e.g., US Treasury Notes and Bonds, and many corporate bonds), and each coupon payment is ½ of the annual coupon (i.e., each coupon is calculated as 0.5 × annual coupon rate × par), the default yield convention for bonds is that the annual…

  • Commodity Yields

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    by

    Bill Campbell
    in

    Most investors interested in commodity exposure do not get it through direct investments in commodities; they do not buy physical oil, or wheat, or gold, or pork bellies, or whatever.  Most investors (including mutual funds, ETFs, institutional investors, and individual investors) get commodity exposure through derivatives, specifically through commodity futures or forward contracts.  We’ll concentrate…

  • CAL vs. CML vs. SML

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    Bill Campbell
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    The Capital Allocation Line (CAL), Capital Market Line (CML), and Security Market Line (SML) can be confused easily, and for good reason: the graphs look virtually identical, the assumptions under which they are constructed are essentially the same, and their implications are similar.  We’ll characterize each one and try to eliminate the confusion. The assumptions…