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What are the Fundamentals of Compliance under GIPS?
GIPS Fundamentals of Compliance require defining the firm, identifying discretionary portfolios, building composites, and making required disclosures — all or nothing.
What are the responsibilities of CFA members under Standard VII?
Standard VII(A) protects CFA program integrity; VII(B) governs proper use of the designation — strict rules against exam disclosure, cheating, and credential misrepresentation.
What does the trade-off theory say about optimal capital structure?
Trade-off theory balances debt tax shields against distress and agency costs, predicting higher leverage for stable, tangible-asset firms and lower leverage for volatile intangible-intensive firms like biotech.
How do you forecast fixed-income returns using the building-blocks approach?
The building-blocks approach for fixed-income returns decomposes the expected return into additive risk premiums layered on top of the risk-free rate: real risk-free rate, inflation premium, term premium, credit premium, and liquidity premium.
Why is IRR used for private equity performance and what are its pitfalls?
IRR is standard in PE because GPs control capital call and distribution timing, making dollar-weighted returns the fair measure. But IRR has reinvestment and gaming pitfalls...
What's probit regression and how does it differ from logit?
Probit regression uses the inverse standard normal CDF as link function for binary outcomes, vs logit using log-odds. Predictions are nearly identical in most cases...
What is the Capital Allocation Line and how do I derive it?
The CAL shows risk-return combinations from mixing a risky portfolio with the risk-free asset. Slope equals the Sharpe ratio. Every risky portfolio generates its own CAL...
How does the mosaic theory let analysts use non-public information legitimately?
Mosaic theory permits an analyst to combine public information and non-material non-public information to reach a material conclusion, then trade or publish on that conclusion...
How do I isolate credit spread effect in fixed income attribution?
Spread effect = Active Weight x Spread Duration x -(Spread Change). Sapphire's +15% BBB overweight during 35bps tightening produced +34.1bps. Requires spread duration distinct from modified duration, plus sector decomposition.
What is a random walk and how does it relate to a unit root?
Random walk: x_t = x_{t-1} + epsilon_t, an AR(1) with phi=1 (unit root). Non-stationary with growing variance and permanent shocks. Differencing yields stationary returns.
What is an ARMA model and when is it appropriate?
ARMA(p,q) combines autoregressive and moving average terms. Use Box-Jenkins methodology: check stationarity, examine ACF/PACF, estimate, and select via AIC/BIC.
What does a bull flattener signal about the economy?
A bull flattener features long-end yields falling faster than short-end yields...
What are the macro implications of a bear steepener?
A bear steepener occurs when long-end yields rise sharply while short-end yields rise modestly...
How should flotation costs affect project NPV?
Flotation costs should be subtracted from initial cash flows (not added to WACC)—discount future CF at unadjusted WACC, treating issuance fees as a one-time upfront outflow.
How do taxes correctly enter capital budgeting cash flow analysis?
After-tax capital budgeting requires depreciation tax shields, working capital changes, and terminal value with tax on gain—critical for accurate NPV.
How is wealth inequality measured and why do estimates differ?
Wealth inequality estimates differ based on coverage of ultra-wealthy, pension inclusion, offshore holdings, and capitalization assumptions—top 1% share ranges 32-40%.
What is a real option and how does it differ from DCF?
A real option is managerial flexibility embedded in a physical investment that can be valued using option-pricing techniques...
How are crypto regulations evolving for payment systems, and what are the key differences between stablecoins and CBDCs from a regulatory perspective?
Stablecoins are evolving toward regulated payment instrument status with reserve requirements and redemption rights. CBDCs are sovereign currency extensions with programmable monetary policy capabilities. Both pose medium-to-long-term competitive threats to traditional card payment networks.
How do concurrent PIPE investments work in SPAC mergers, and what terms do institutional investors typically negotiate?
PIPE investors commit capital after seeing the identified SPAC target — a major informational advantage. They typically buy at $10 per share but cannot redeem. Their participation quality signals deal merit: oversubscribed vanilla PIPEs from top institutions predict outperformance.
What is the curse of dimensionality and why is it particularly problematic for financial models with many features?
The curse of dimensionality means data requirements grow exponentially with feature count. Financial models are especially vulnerable because time series are short while potential predictors are numerous. PCA, feature selection, and regularization help mitigate the problem.
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