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Is dollar-weighted return the same as money-weighted return?
Dollar-weighted and money-weighted returns are the same concept — both are the IRR of portfolio cash flows. Terms are used interchangeably in CFA materials...
What are generalized linear models (GLMs) and when are they used in finance?
GLMs extend OLS regression to handle non-normal response distributions using a random component, linear predictor, and link function...
What is the financial value of delaying Social Security claiming to age 70?
Social Security benefits grow from the full retirement age by roughly 8% per year of delay until age 70.
What is the two-fund theorem in portfolio theory?
The two-fund theorem states any efficient portfolio can be built from a linear combination of two other efficient portfolios. All mean-variance investors hold combinations of these two funds...
What counts as material non-public information under CFA standards?
Standard II(A) prohibits acting on or causing others to act on material nonpublic information. Two tests must be met: materiality and non-public status...
How do I compute the duration effect in fixed income attribution?
Duration effect = -(Port Dur - Bench Dur) x Yield Change. Halcyon's +0.4yr bet against -40bps rally produced +16bps. Must be combined with curve, spread, currency, and selection effects for complete attribution.
What is a Napoleon option?
Napoleon option pays coupon plus the worst monthly return in a year, floored at zero. Extreme negative vol-of-vol exposure; notorious for bank losses in 2008.
How does a cliquet option work and what is the ratchet feature?
Cliquet options are chained forward-start options that lock in periodic gains and reset the strike. Often capped and floored; expensive due to vol-of-vol exposure.
What is the difference between parallel and non-parallel yield curve shifts?
A parallel shift moves every point on the yield curve by the same number of basis points...
How do I use key rate durations to position for yield curve twists?
Key rate duration measures a portfolio's price sensitivity to a change in yield at a specific maturity...
What are the GIPS private equity provisions?
Private equity GIPS provisions require IRR, fair value valuations, TVPI/DPI/RVPI multiples, vintage year composites, and sub-line disclosures.
How do I compute after-tax yield and compare municipal bonds to taxables?
After-tax yield = pre-tax × (1 − marginal rate). Taxable-equivalent yield of muni = muni yield / (1 − marginal rate). Include state taxes, AMT, and surtaxes for the effective marginal rate.
What's the difference between nominal yield and real yield, and how do I convert?
Nominal yield includes expected inflation; real yield is purchasing-power return. Fisher: (1 + nominal) = (1 + real)(1 + inflation). Breakeven = market-priced inflation. Match real with real, nominal with nominal.
How does a Qualified Charitable Distribution (QCD) work and who benefits?
A QCD directs up to $105,000 per year from an IRA directly to charity, satisfying RMDs while excluded from gross income entirely...
How do I construct the return-seeking portfolio to complement the LDI sleeve?
RS portfolio generates excess return above liability growth. Target return depends on funded status and LDI yield. Typical mix: 40% developed equity, 15% EM, 15% PE, 10% private credit, 10% infrastructure, 10% hedge funds. Cap illiquids at 25-50% based on liquidity needs.
What is the synthetic control method for causal analysis?
Synthetic control constructs a weighted combination of donor units to match pre-treatment trajectories, with post-treatment divergence attributed to the intervention.
How does regression discontinuity identify causal effects?
RDD exploits treatment assignment based on a cutoff in a continuous running variable, estimating local causal effects from the jump at the threshold.
How does difference-in-differences identify causal effects?
DiD compares outcome changes between treated and control groups before and after intervention, identifying causal effects under the parallel trends assumption.
How does two-stage least squares solve endogeneity?
2SLS solves endogeneity by predicting the endogenous regressor from exogenous instruments in stage 1, then using predictions in stage 2—requires relevance and exclusion.
How do I set up a Monte Carlo simulation for a capital project?
Monte Carlo simulation draws input variables from assumed distributions, recomputes NPV thousands of times, and delivers a full output distribution...
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