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CFA Updated
When is an inventory build a bullish signal versus a warning?
An inventory build signals confidence only when paired with forward demand indicators. Without them, a buildup is a future writedown waiting to happen.
How do I value net operating loss (NOL) carryforwards and assess the valuation allowance?
NOLs create DTAs equal to NOL × tax rate. Crestvale's $840M NOL × 21% = $176M gross DTA, offset by $210M valuation allowance. For valuation, discount expected tax savings from NOL utilization against forecast income...
How does an OIS work and why has it replaced LIBOR swaps?
An OIS swaps fixed against compounded overnight SOFR and now serves as the risk-free benchmark for swap discounting.
What is contingent immunization and how does the cushion spread work?
Contingent immunization runs active management while cushion (portfolio minus PV of target at current rates) is positive. Triggers immediate immunization at zero cushion, locking in the target.
How are step-up coupon bonds accounted for on the issuer's books?
Step-up bonds use the effective interest method with a single YTM applied to accreting carrying value. Early periods accrete, later periods amortize.
How does covered interest parity work and when does it break down?
CIP forward to spot ratio equals interest rate ratio. Held tightly pre-2008 but now deviates persistently due to Basel III balance sheet costs.
What's the accounting difference between qualified and non-qualified ESPPs?
Qualified ESPPs (Section 423) are non-compensatory only if discount ≤5% and no look-back. Halcyon Labs Plan A (look-back) is compensatory at $10/share fair value.
What is a credit-duration swap and how is it used?
Credit-duration swap isolates spread exposure by hedging rate risk with Treasury futures or using CDX indices. Wesbourne AM earns $750K on 20bp spread tightening in $50M IG position...
How do I measure the tax benefit for an uncertain tax position using the cumulative probability approach?
Rank possible outcomes from highest to lowest benefit and accumulate probabilities — recognize the largest amount whose cumulative probability exceeds 50%.
How do I use the Jarque-Bera test to check residual normality?
The Jarque-Bera test evaluates whether a sample comes from a normal distribution by jointly examining its skewness and kurtosis.
How often must indefinite-lived intangibles be tested for impairment?
Indefinite-lived intangibles tested annually plus triggering events. Compare carrying to fair value; impairment equals excess.
What does it mean when receivables grow faster than sales?
Receivables up 28% vs sales up 9% signals revenue acceleration, loose credit, or channel stuffing. Check DSO, allowance coverage, and peer benchmarks.
What are explicit vs implicit trading costs and how do they affect portfolio performance?
Trading costs are one of the most underappreciated drags on portfolio performance. The CFA Level III curriculum divides them into explicit (visible) and implicit (hidden) categories, and for institutional investors, implicit costs typically dwarf explicit ones.
How does the color Greek describe gamma decay?
Color is the derivative of gamma with respect to time, describing how gamma itself ripens or decays as expiration approaches.
Which metrics best show that inventory management is improving?
Credible inventory improvement leaves a fingerprint across four metrics: DIO, gross margin, obsolescence reserves, and cash conversion cycle.
How should I analyze uncertain tax positions (UTPs) under ASC 740?
Uncertain tax positions are tax benefits claimed on returns but not recognized on financials because the more-likely-than-not threshold isn't met. Brindall's $186M UTB is accrued as a liability...
What is a quanto swap and when would a corporate use one?
A quanto swap pays foreign rates in domestic currency with no FX exchange but requires a correlation-based adjustment.
How does immunization work when I have multiple liabilities at different dates?
Multi-liability immunization uses aggregate duration, duration plus convexity, or key-rate duration matching. Combination matching (cash-flow for near term, duration for far term) is often best.
How do I account for increasing-rate preferred stock where the dividend escalates over time?
Use a constant effective yield to spread IRPS dividends. The difference between effective and cash dividends accretes carrying value and reduces EPS for common shareholders.
Why does uncovered interest parity fail empirically?
UIP fails because risk premia, peso problems, and expectational errors mean high-rate currencies tend to appreciate rather than depreciate as theory predicts.
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