Community Q&A
Expert-verified answers to your financial certification questions. Ask, learn, and connect with fellow candidates.
Updated
What's the practical difference between regulatory and economic capital?
Regulatory capital is a Basel-prescribed floor; economic capital is internal, covers more risks, and allows diversification...
What is the speed Greek and when does gamma slip?
Speed is the third derivative of option price with respect to spot, describing how gamma itself shifts as the underlying moves.
How does an irrevocable trust reduce estate taxes and what does the grantor give up?
Irrevocable trusts remove asset appreciation from the grantor's taxable estate at the cost of control, income access, and basis step-up at death.
My target company's inventory is declining. Is that bullish or bearish?
Declining inventory is ambiguous. The interpretation depends on whether sales are accelerating, flat, or declining alongside the drop.
How do permanent differences differ from temporary differences in tax accounting?
Temporary differences reverse over time (create DTA/DTL); permanent differences never reverse (only affect current ETR). For Okuma Solar, $84M accelerated depreciation is temporary while $4M muni interest is permanent...
What makes a Constant Maturity Swap different from a vanilla swap?
A CMS resets against a long-tenor swap rate each period, requiring convexity adjustment to price correctly.
How do I duration-match for a single future liability?
Duration-match a single liability by setting portfolio Macaulay duration equal to horizon, ensuring PV sufficient and convexity at least as high as liability. Rebalance quarterly or when duration drifts.
Why is mandatorily redeemable preferred classified as a liability rather than equity?
Mandatorily redeemable preferred is a liability because the issuer has an unconditional obligation to deliver cash. Dividends become interest expense.
What is the international Fisher effect and does it hold empirically?
IFE predicts high-rate currencies depreciate by the interest differential. Empirically the forward premium puzzle shows the opposite in short to medium run.
How do I account for a rights issue that increases share capital?
Rights issues debit cash, credit share capital + APIC. Vermillion Resources 1-for-5 at $18 example, with TERP of $23.83 and EPS bonus-element adjustment.
Should I fully hedge foreign currency exposure in an international equity portfolio?
Currency hedging depends on correlation with assets and hedge cost. Threadington Pension hedges Europe 50%, Japan 0%, EM 30% via proxy — reduces vol 14% to 13.4% at -60bp cost...
How do I analyze a company with large NOL carryforwards and the associated valuation allowance?
NOL DTAs with valuation allowances signal past losses; releases create one-time earnings boosts but cash taxes remain low until NOLs are consumed.
When should I use the Breusch-Godfrey test instead of Durbin-Watson?
The Breusch-Godfrey test, also called the Lagrange multiplier test for serial correlation, addresses two major Durbin-Watson shortcomings.
How is fair value of a reporting unit estimated?
Fair value combines income approach (DCF), market approach (multiples), and rarely cost approach, reconciled to market cap.
How does Sloan's accruals decomposition identify low-quality earnings?
Sloan's ratio = (NI - CFO) / avg assets. Top decile firms (above 10%) underperform by 8-10% annually for three years.
How does the Singer-Terhaar model work for setting international capital market expectations?
The Singer-Terhaar model is a practical approach for estimating risk premiums across global asset classes. It recognizes that real-world capital markets are neither fully integrated nor fully segmented. The truth lies in between.
What information appears on a credit bureau report and how do lenders use it?
Bureau reports contain identifiers, trade lines, public records, inquiries, and collections. Lenders use both the composite score and derived attributes for application scoring.
What is a commercial credit risk model (KRM) score and when should I use it?
Commercial scores like RiskCalc, PAYDEX, SBSS, and Intelliscore use financial statements and trade data rather than consumer bureau files, and typically output PDs directly.
What are the lower bounds on European call and put prices?
Lower bound: c >= max(S - K*e^(-rT), 0) for calls, derived via replicating portfolios...
How do I construct a synthetic call from a put?
Synthetic call = long put + long stock + short bond (borrow PV of K)...
Want unlimited access?
You've browsed several pages. Sign in to save your spot, bookmark questions, and unlock all 4,665 community questions plus expert-verified study materials.
Have a Question? Ask Our Experts
Register to ask questions, get expert-verified answers, and connect with fellow certification candidates preparing for CFA, FRM, CIA, CPA, and EA exams.