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What must I disclose under Standard VI(A) — Disclosure of Conflicts, and how granular do I need to be?
Standard VI(A) requires full and fair disclosure of all matters that could impair independence and objectivity. You must disclose ownership of recommended securities, compensation conflicts, firm-level relationships, and board memberships, though exact dollar amounts are not required.
How does the Central Limit Theorem apply to portfolio return estimation, and what sample size is 'large enough'?
The Central Limit Theorem states that the sampling distribution of the sample mean approaches a normal distribution as n increases, regardless of the population shape. The conventional CFA Level I threshold is n ≥ 30, and the standard error shrinks as SE = σ/√n.
How does the 'riding the yield curve' strategy work, and when does it fail?
Riding the yield curve involves buying a bond with a longer maturity than your horizon and profiting as it rolls down to a lower yield over time. The strategy works when the yield curve is upward-sloping and remains unchanged, generating capital gains beyond coupon income. It fails if the curve flattens, shifts up, or if the expectations hypothesis holds.
Why is EV/EBITDA often preferred over P/E for comparing companies, and what are the major pitfalls?
EV/EBITDA is preferred over P/E because it is capital-structure-neutral, accounting-policy-neutral, and almost always produces a usable number. The biggest pitfall is that it ignores capex intensity, so two companies with the same EV/EBITDA can have vastly different free cash flow profiles.
What are the journal entries for the equity method of accounting for investments?
The equity method records the initial investment at cost, then adjusts the carrying value upward for the investor's share of income, downward for dividends received, and downward for amortization of excess purchase price allocated to identifiable assets. Goodwill embedded in the investment is not amortized but is tested for impairment.
How do you invest in commodities and what is roll yield? I keep seeing terms like contango and backwardation.
Commodity futures returns consist of spot return, roll yield, and collateral yield. Contango (futures above spot) creates negative roll yield, while backwardation (futures below spot) creates positive roll yield that enhances returns.
What are the '4 Vs' of big data and what challenges do they create for investment analysis?
The 4 Vs of big data — volume, velocity, variety, and veracity — describe both the characteristics and challenges of working with alternative data in investment analysis. Each V creates specific processing, integration, and reliability problems.
Why do companies choose share repurchases over dividends, and what signal does each send?
Share repurchases and dividends both return cash to shareholders, but buybacks offer greater tax efficiency, flexibility, and a stronger undervaluation signal. However, they can also be used to manipulate EPS and may not always create value.
What are the main types of exotic options and when would you use each one?
Exotic options modify one or more features of standard options to address specific hedging or speculative needs. The main types include barrier options, Asian options, lookback options, and digital options, each solving different practical problems.
How do you account for subsidiaries in hyperinflationary economies?
Hyperinflation occurs when cumulative three-year inflation approaches 100%. Under IFRS, subsidiaries in hyperinflationary economies first restate their statements for inflation (IAS 29), then translate at the current rate. Under US GAAP, the temporal method is used directly.
How should I analyze a balance sheet for current vs non-current classifications and off-balance-sheet items?
Balance sheet analysis requires understanding current vs non-current classification (based on the one-year or operating cycle rule) and identifying off-balance-sheet items like operating leases, SPEs, contingent liabilities, and purchase commitments.
What are the unique risks and opportunities in emerging market debt?
Emerging market debt offers higher yields but carries unique risks including sovereign default, currency depreciation, political instability, liquidity constraints, and contagion. Portfolio managers must choose between hard and local currency exposure based on risk budget and return objectives.
What are the key differences in pension expense reporting between IFRS and US GAAP?
The key differences lie in how each framework handles the return on plan assets and actuarial gains/losses. IFRS uses a single net interest rate, while US GAAP separates interest cost and expected return. Actuarial items never recycle from OCI under IFRS but are amortized via the corridor approach under US GAAP.
How do trend-following managed futures generate 'crisis alpha'?
Trend-following takes long/short futures across asset classes based on momentum. Generates crisis alpha during sustained bear markets. 5-15% typical allocation.
Why do companies do reverse stock splits and what does it signal?
Reverse splits consolidate shares to raise per-share price. Motivations include exchange listing compliance ($1 minimum), institutional accessibility ($5 penny stock rules), reduced short pressure, and pre-merger cleanup. Generally a negative signal — reverse-splitters underperform by 20-40% over 3 years...
What does the forward curve tell us about future rate expectations?
The forward curve is the market-implied future spot curve, assuming no-arbitrage. Under PEH, forward = expected future spot, but empirically there's a positive term premium (~0–100bps) so forwards overstate expected future rates.
What are the required disclosures in a GIPS-compliant presentation?
GIPS requires a specific compliance statement, firm/composite definitions, benchmark rationale, fees, 5-10 years of returns, dispersion, and ex-post standard deviation.
What internal controls does GIPS require for risk measurement?
GIPS internal controls require documented policies on composite inclusion, valuation, calculation, error correction, documentation retention, and ex-post risk measurement.
What is pecking order theory and why do firms prefer internal funds?
Pecking order: information asymmetry makes equity costly to issue, so firms prefer internal funds, then debt, then equity. Explains negative profitability-leverage relation and infrequent equity issuance.
What is PME (public market equivalent) and how does it measure PE manager skill?
PME compares PE returns against investing same cash flows in a public benchmark. KS-PME >1 means outperformance; accounts for timing and vintage effects...
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