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Category: Level III
Grinold-Kroner Model
The Grinold-Kroner model is an equation to estimate the return on a stock; although the components of the model are reasonable (once you think of them), they will require a bit of memorization at first, until you’ve worked with the model a bit and it’s become habitual. Here it is: \[\hat R_i\ =\ \frac{D_1}{P_0}\ +\…
Cobb-Douglas Production Function
The Cobb-Douglas production function is: \[Y\ =\ AK^{\alpha}L^{\beta}\] where: \(Y\): total real economic output (GDP) \(A\): total factor productivity (TFP), a measure of the level of technology \(K\): capital \(L\): labor \(\alpha\): the share of total output attributable to capital, known as the output elasticity of capital; note that \(0\ <\ \alpha\ <\ 1\) \(\beta\):…
Inflation in Required Rate of Return – to Tax, or Not to Tax?
A common question that plagues many Level III candidates is how to treat inflation when calculating a nominal, before-tax required rate of return for an individual investor: do you add inflation to the real after-tax return, then compute the before-tax return, or do you start with the real after-tax return, compute the before-tax return, then…
How to Approach the Level III CFA Exam
If you’ve never taken the Level III CFA exam, you’re in for a real treat. (If you’ve taken it before, you already know what I mean.) As with the Level I and Level II exams, this exam will be six hours – three in the morning, and three in the afternoon – and it will…