Financial & Economic Blog

From Schweser: ” Don’t hurry here, these concepts and techniques are the foundation material and will turn up repeatedly at all three levels of the CFA Curriculum”.

Lessons Learnt:

• Theory of NPV is actually pretty interesting
• Gave me a small taste of capital budgeting, need more!!
• The prominence of footnotes in disecting the itty bitty parts of the reading
• Schweser truly made this chapter painless
• The time weighted calculations were a tad funky
• Discount rate < IRR = =NPV
• Discount Rate > IRR = -NPV
• NPV v IRR Rule (subtle differences)
• Choose NPV over IRR if they conflict
• The IRR rules uses the opportunity cost of capital as a hurdle rate, or rate that a projects IRR must exceed for the project to be accepted
• Holding Period + Cash Flows = Total Return
• MWR v TWR
• TW-ROR is a better measure of a managers ability (isolates price distortions)
• HPY v EAY
• Apply the reciprocal of the exponent to convert dates between yield calculations

At the height of the real estate boom, people were advising to buy my own condo. I had the wisdom to say “No”. I stated that housing prices would decline and this would result in a bib.

After reading this article , I guess that I was correct. According to the article, the average rate of decline was 19%.

However, I lived in Southern California where where the prices decline by 40%. My little prediction came true. What I did not expect near-collapse of the entire US economy.   In conclusion, my foreknowledge saved me from fiscal disaster and not buying property at the height of real estate frenzy.