In the middle of my review of Fixed Income 2 and I get to the part that always gives me trouble and that's the calculation of forward rates given spot rates and vice versa. Found a good video on YouTube that helps. YouTube is a great source to find quick explanation of various financial concepts that may help synthesize the material better than simply reading it in the books. I hope they help and I'll post more as I go thru my review.



Implied forward rate under continuous compounding

Here's another good one on Duration.



Bond duration (introduction)

I mentioned in a previous post that I was ordering the TI BAII Plus Professional. I got a good deal on Ebay for it for $54 shipped and the guy threw in brand new Schweser LOS cards.

These are different from the Stalla flashcards. They do not have explanations on the back already filled in. They are designed for you to create your own notes for each LOS which is supposed to help you retain the knowledge.You have space on the front and back to make use of.  I will make use of these for sure during my review session. I'll probably drill in on the key LOS's in each Reading and put my own notes down and then carry with me to review key points.

- Capital Budgeting
This section was pretty easy for me
as I've seen this in some detail in my MSF courses as well as in the
Quant section. My goal here was to see how fast I could work the
calculator on these problems. I discovered that the TI BAII Plus
Professional has the Payback Period and Discounted Payback Period
features built in which makes it faster to solve those types of
problems. I have just the plus so I'll probably buy the professional
and sell my 2 calculators on Ebay to cover the cost. One tip for this
section is if you get rounded amounts, say 100K investment, 80K cash
flow year 1, 40K year 2, etc, strip off the zeroes to save time when
inputting into the calculator. For IRR calcs the % will be the same and
for NPV calcs just multiply by 1000 to get the right amount.  That last
step is usually unnecessary as the answer will be obvious from the
choices.

The only mistakes I made in this section when
quizzing was to not pay attention to whether they wanted payback or
discounted payback. I would blow thru the question and usually choose
the payback period answer when they asked for discounted payback.

Some new concepts to me:
 - I did not get exposure to the Accounting Rate of Return formula before. Easy stuff though.
 -
For mutually exclusive projects, where IRR and NPV both produce the
decision to accept, the crossover rate in the net present value profile
diagram is the rate below which the project with the lower IRR has the
higher net present value.

- Working Capital Management
It
should be noted that study session 47 which covers Dupont analysis was
covered by Stalla as part of FSA where it flows better. This section is all about calculating the various components that make up the WACC. Marginal cost of capital was a new topic to me but not hard to work thru. I did well on the quizzing part of this topic.


- Corporate Governance

This
stuff is pure trivial pursuit material and mostly common sense if
you've been following the markets. Most people could probably answer
these questions without even reading the material although I wouldn't
advise it as I expect the questions to get into the nuances just like
Ethics. There will be a lot of questions that have multiple answers
that seem right but only one is the best answer. This is a section to
review right before the exam so its fresh, it's easy points.

A couple of points to remember here:
-
If a board member doesn't have experience or knowledge of the industry
the firm is in, he is more likely to be influenced by other board
members and will accept management strategies.
- Independent board members should have a lead member and meet without mgmt present
-
Audit committee must be independent and have ability to hire outside
auditor with oversight. Shareholders should have approval rights over
external auditor selection however.
- I noticed that the CFAI
material had no questions for this section. I dont know what that means
but maybe they won't ask more than 1 or 2 basic questions on it.


All in all I feel good about this topic and it'll probably be one of the sections I go to first on the exam to build up easy points and gain confidence. I dont plan on spending too much time reviewing the topics, just do some problems and re-read the corp governance stuff right before the exam.

This covers CFAI Readings 56-61. Stalla covers the Basic Valuation Models together from Reading 56, 60 and 61 it flows better to me. Not sure why CFAI broke up the material the way they did. Schweser covers everything in the order CFAI does from what I can tell FYI.

Basic Valuation Models

I've covered this stuff before in my Securities Analysis class so none of this was really new, I just needed to practice some more to get the hang of it again. I kept making dumb mistakes like not taking the current dividend and calculating the value for the next period. It's important to know the multiples approaches and the reasons why you would use each one vs the other(definitely something to review right before exam). Lots of practice is key here

Market and Industry Analysis

This covers readings 57-59. Nothing too difficult here, if you've taken any strategy course you can probably answer at least half of these questions using common sense.

Reading 57 - This is real brief and you just need to know the difference between the different factors that cause economic changes such as demographics, technology, lifestyles and politics.

Reading 58 - This covers the business cycle and knowing what stage a company may be in by analyzing various properties. It reviews Porter's 5 forces which any decent strategy course should go into. Must know how to calculate the Herfindahl index and firm concentration ratio which help tell you how much competition is in an industry

Reading 59 - I found this section interesting. Goes into how to differentiate between a growth company and a growth stock, same for defensive, cyclical , speculative and value as well. It's funny how you'll hear all these recommendations on CNBC to invest in such and such company based on factors discussed here that make them a growth company, but not a growth stock. There is a difference and knowing it is supposed to help you make better investment decisions. The 2nd part of this Reading goes into how to forecast EPS and the earnings multiplier and then make decisions from there. Once you have the Valuation models down, this is really easy. Again, I question why in the CFAI material this comes before you actually get into the models, it really should come in at the end.

Overall, I did well when quizzing on this section although some more practice with the valuation models wouldn't hurt. The analysis stuff is pretty easy and I'll most likely review right before exam to keep the details fresh.

Got a decent deal on Ebay for $54 shipped and the guy is throwing in the Schweser LOS cards which are basically flashcards with the back blank so you can write your own notes. I have the Stalla ones so I'll use a combination when I go thru my final review. I now have 2 BAII Plus regular calc's plus the one I just ordered. I'll probably sell one of the regular BAII plus ones and keep one as a backup for test day then sell that one once it's over and keep the professional version.

The reason I did this was because it had the discounted and regular payback period features built in which will cut down on calculation time during the test.

If anyone is interested, please email me at jamesmorales@gmail.com and we can work out a deal.

Although I don't have a post up for Corporate Finance I did cover that section but due to my trip last week I didn't get a chance to do a full review so I wanted to knock this part out first and then come back and post the Corporate Finance review.

This is about 8% of the exam 18-20 questions can be expected on it.

Reading 52 - Securities Markets

This is material mostly covered in any Capital Markets course. The structure material most people can probably answer if you follow the markets at all or had any undergrad exposure to this. The hardest part here is the calculation of margin requirements, trigger prices for margin calls, knowing the difference when it's a short sale vs a regular sale. I had seen this material in my Securities Analysis class so it was mostly a refresher. I was able to get most of the questions right, but I did make some dumb mistakes initially. A second go round thru the PassMaster and Schweser Concept Checker was good enough to really drill it home and I made notes on some gotchas:

- Know how to calculate Net Profit on margin trading when its a short sale vs a long sale. The difference is simply how you treat Dividends if any. They get subtracted from the short sale equation since you have to pass those to the owner.
- When calculating Rate of Return, if there are trading costs, include them in the initial investment calculation since they are part of your initial outlay to enter into the position.

Reading 53 - Security Market Indices

Basic material here, again also covered in most Capital Markets classes. Must know how to calculate each index, the % change in each index, the biases that each index has, how stock splits do or do not affect the index and some examples of each. Also know what indexes are good benchmarks for a portfolio based on how the portfolio is composed. For example, if you own 200 shares of each stock in your portfolio, you probably want to use a price weighted, if equal $$ amount, use unweighted.

Reading 54 and 55 - Efficient Capital Markets and Anomalies

These sections go hand in hand and cover the EMH(Efficient Market Hypothesis). You have to know the 3 forms well and how a certain scenario would be a violation or confirmation of each form. A quick summary

Weak form - security prices reflect all information about price and trading behavior in the market. So using Price Trends or Tech Analysis to gain a profit would be a violation of it. Trying to use those and failing confirms it.
Semistrong form - any public news is quickly assimilated into the stock price. Technical and fundamental analysis should both be useless. A profit resulting from using public information is a violation, trying to and failing confirms it.
Strong form - any public or private information is quickly assimilated into the stock price. Similar to the other 2 when determining a violation/confirmation.

This section takes some practice to get the hang of it. Read it thru more than once and do the questions and it'll start to make sense. I also went back and read some of the handouts the professor gave us for our Securities Analysis class which helped synthesize it a little better than the readings.

This section falls into the trivial pursuit category that is best read right before the exam so the little nuances are fresh in your mind.

I'll be updating the Corporate Finance stuff probably later on tonight after I do a full review. This will put me back on track and I can get back to my Study Plan. So far the studying is going well, I've been able to keep up with the Stalla schedule. The only thing I have messed up on is taking a Progress Test to see how much of the older material I have retained. Right now Econ and FSA are the major sections I need to review with the emphasis being on FSA. I plan on going thru that section at least 2 more times top to bottom. I may use the Schweser material to read it a different way and see if it helps me synthesize it better than with Stalla.

I thought I would post a non-CFA topic today. I'm currently scheduled to attend the NSHMBA(National Society of Hispanic MBA) conference in Atlanta last week. I didn't plan on getting serious about the job search until after the exam in December but I thought it would be good to attend this conference for a few reasons.

#1 - Start seeing what the market is looking like for this potential career change I'm trying. I figure I can at least bounce my resume off the various banks and other financial firms to see what kind of feedback I get. This will help me when I get serious down the road. Obviously I'd like to get a job out of this trip, but I really dont want to start a new gig until after the exam in December. 
#2 - Networking with other hispanic grad students.

I updated the resume and created some personal business cards with some of my career highlights.  Overall it was a good trip,  the convention was put together very well, my hat's off to NSHMBA for throwing a great event. There were a lot of companies there including all of the big banks, some smaller finance shops I hadn't heard of before and the major consulting firms. What was weird to me was that there were a lot of business schools in the career fair that had booths. Since most of the attendees were already in B-school or just out like me, I wasn't sure exactly what they were attempting to do there.

I made some good connections, met some fellow CFA candidates, including some that have already passed Level's 1 and 2. I got some interest from Accenture and Deloitte, mostly for my IT background, I interviewed with ExxonMobil for a finance position too. Microsoft was surprisingly interested in me since they had a hybrid IT/Finance role. That's really interesting to me.

My studies unfortunately went on hiatus for a few days there and I'm now catching up with the Corp Finance stuff. Ive seen this before so it's like riding a bike again but there's some new material I need to cover. I'll use this weekend to really catch up and get back on track.

It's been a long 4 weeks and what I heard was correct, FSA is the heaviest portion of the exam. Even if you have an accounting background, don't sleep on how much material is in this section. FSA 10 is a good wrapup section that builds on the earlier material so you should feel very comfortable with those sections before beginning this one.

Some key points to remember
- Reading 41 has lots of ratio formulas to remember here. The major ones should be easy to remember, so only focus on the more obscure formulas not widely seen. Some of the problems also require you to back into solutions so knowing how to use the formulas to work backwards is key here.
- I was able to answer most of the questions just fine, I think my previous exposure to the material helped.
- When given a certain ratio, say current ratio of 2.5 to 1, a equal dollar increase in both the denominator and numerator will cause ratio to decrease.
- Remember to use averages when given BS amounts that span 2 or more years. Made a few mistakes not using the average and of course there will be a choice assuming you calculated it wrong.
- ROE not affected by change in payout ratio, only growth rate.
- The segment reporting requirements under IFRS and U.S. GAAP are similar. However, one notable difference is that firms reporting under U.S. GAAP are not required to disclose liabilities by (business or geographic) segment. As a result, an analyst will typically not have enough information to calculate the debt ratio (segment liabilities / segment assets).
- Reading 42 goes into
- Reading 43 focuses on IFRS and GAAP differences. This is just memorization material here, nothing too hard if you remember the rules but there are a lot of little nuances to keep track of. I'll probably review this section using flashcards from time to time to keep it fresh and definitely review it last minute before the exam. This is perfect material for flashcards or to have someone quiz you on.
- The ratio formulas are also good flashcard material and for quizzing with someone else.

Overall I feel comfortable with FSA although I do need to review it at least 2x more to get it really down. I haven't been able to take a progress test in a while and now would probably be a good time to do so. I'll shoot to take one this week for everything covered up to now to see where I stand. The remaining material I expect to do well in since it is directly from my grad coursework so hopefully I can focus more on the material in the first half of the curriculum during my review period in November.