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How does best-subsets regression work and when is it feasible?
Best-subsets regression evaluates every possible combination of predictors and picks the best one by a chosen criterion. It's exhaustive rather than greedy.
What is stepwise regression and why has it fallen out of favor?
Stepwise regression iteratively adds or removes predictors based on p-values. It was standard practice for decades but modern statisticians identify serious problems.
Which financial ratios matter most in corporate credit analysis?
Credit ratios fall into three families: leverage (Debt/EBITDA <3x IG), coverage (EBITDA/Interest >3x IG), and cash flow (FFO/Debt >20% IG). Compare against peer median and 3-5 year trend. For Meridian Outdoor: 4.2x leverage + 15% FFO/Debt = BB consistent...
How does a calendar spread profit from time decay?
A calendar spread profits from differential time decay — the short near-term option decays faster than the long longer-dated option at the same strike.
Calendar rebalancing vs. percent-range rebalancing — pros, cons, and when to use each?
Calendar rebalancing trades on a fixed schedule (simple but inflexible), while percent-range rebalancing uses corridors around target weights (responsive but requires monitoring). Corridor width depends on transaction costs, volatility, correlation, and risk tolerance.
How does a butterfly spread work and when is it the right trade?
A butterfly spread profits maximally when the underlying pins at the middle strike, offering high reward-to-risk on a narrow price target.
When can financial liabilities be measured at amortized cost versus fair value?
IFRS 9 defaults liabilities to amortized cost using effective interest method. FVTPL applies for trading liabilities, inseparable embedded derivatives, or elected FVO. Modifications trigger 10% cash flow test.
What is Operational Due Diligence in PE fund selection?
ODD checks governance, back-office, compliance, service providers, and operational risk separately from investment merits.
What is blue ocean strategy and how do I value a company pursuing it?
Blue ocean strategy creates uncontested market space via the four actions: eliminate, reduce, raise, create. Valuation challenges include no comparable multiples, long education ramps, and uncertain TAM...
What are dynamic capabilities and how do they differ from static resources?
Dynamic capabilities extend RBV by emphasizing the ability to sense opportunities, seize them by mobilizing capital, and transform by reconfiguring assets. Measured by R&D intensity, pivot speed, and retraining depth...
What is CDS basis and how do positive vs negative basis trades work?
CDS-bond basis is the difference between CDS spread and cash bond Z-spread. In theory it should be zero; in practice deviations create arbitrage opportunities...
What is longevity insurance (deferred income annuity) and when is it optimal?
A deferred income annuity (DIA), often called longevity insurance, is purchased at one age with payments beginning at a later age.
Is factor timing a viable strategy?
Factor timing varies exposures to style factors based on predictive signals. Evidence is mixed — valuation spreads predict value factor returns, but most timing signals fail out-of-sample...
How is key rate PV01 computed and what does it tell me that duration doesn't?
KR01 measures dollar change for a 1bp shift at one key rate, holding others constant. Reveals curve-shape exposures that single-number duration hides.
How does importance sampling reduce variance in Monte Carlo?
Importance sampling replaces the original density with a proposal, then weights samples by p/q. Choose the proposal to put probability mass where the integrand matters most...
How do I decompose Operating Profit Margin for operational analysis?
Decompose OPM into GM, SG&A ratio, D&A, and mix effects. Driftwood's 400bps compression likely reflects arabica spike hitting GM 500bps, partially offset by SG&A leverage. Forecast margins line-by-line, not aggregate.
How do you manage a Friendly Follower client?
The Friendly Follower (FF) has moderate risk tolerance and cognitive biases — availability, recency, framing, hindsight. Example: Rodrigo Alarcón chases hot themes. Advisor approach: EDUCATE and use passive strategies — global index core, concentration caps, pre-committed rebalancing...
How is the host contract accounted for after bifurcating an embedded derivative?
After bifurcation, the host contract is accounted for as if it were a standalone instrument...
How do I bifurcate an embedded derivative from its host contract?
Bifurcation separates the embedded derivative from the host at inception...
How do you estimate cost and revenue synergies in M&A?
Cost synergies are more credible and quantifiable; revenue synergies are notoriously unreliable and should be discounted heavily.
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