标题: Grinold and Kroner [打印本页] 作者: Howd 时间: 2011-7-11 19:50 标题: Grinold and Kroner
Despite discussions on the treatment for the change in outstanding shares, there remains some doubt on the correct approach. The answer to a question in the Schweser exam kit Vol 2 Exam 2 Afternoon session 22.1 shown that a negative change must be added which is keeping with the -S. However in the CFA exams where the change is negative it is deducted. Which is correct or are both correct depending on who you respond to?作者: lcai 时间: 2011-7-11 19:50
It makes sense to remember what the term is. Companies return capital to shareholders directly in one of two ways :
1. By making dividend payments, which usually come out of earnings
2. By buying back shares of stock , thus reducing capital employed
Since the act of reducing shareholding makes the company more valuable to the remaining shareholders ( because their interests in future profits are increased , given lower number of shares) , we treat a change in shares to the negative as a good thing.
while a change to the positive i.e. a net issuance of additional shares ( representing a dilution of the current shareholders interest) as a bad thing.
So delta S is simply the period to period change in shares ( signed ) ,while the meaning to the shareholder is attributed with a negative sign in GK's formula.
+ve delta S ( net increase of shares) = bad thing i.e. has an effect of -( delta S)
-ve delta S ( net reduction of shares) = god thing i.e. has an effect of -( delta S)
where the term in parenthesis is a negatively signed quantity作者: canadiananalyst 时间: 2011-7-11 19:50
my fellow analist ........no matter how it is presented just ask urself how it affects the stock price......................share buyback = share appreication so contribs positively to E(R) for作者: Unforseen 时间: 2011-7-11 19:50
Share purchases do not change the shareholder share of the company. But what has changed is that the company transfers cash to the shareholder. Transferring cash to the shareholder is the same as a dividend payout. Thus, share purchases is *equivalent to a dividend distribution. Thus, the % reduction of shares outstanding has a positive effect to the expected return just as the dividend yield has the positive effect on the expected return.
*This is L2 material.作者: mik82 时间: 2011-7-11 19:50
If the question gives the equity repurchase yeild as negative.5% should that be added or taken away from the Dividend yield?作者: ohai 时间: 2011-7-11 19:50
cfahead , sure you're in the right thread? This is about GK and shares , but you're asking about credit risk? Answer is zero credit risk as the option is out-of-the-money作者: PalacioHill 时间: 2011-7-11 19:50
janakisri Wrote:
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> cfahead , sure you're in the right thread? This is
> about GK and shares , but you're asking about
> credit risk? Answer is zero credit risk as the
> option is out-of-the-money
He is asking of the potential credit risk, not at the current moment. He mentioned in his question that it is six month European option.
Btw, why would you say that it is out of money now. It is a JPY put making the option in-the-money right now. The convention he quoted is JPY/CAD not CAD/JPY.
Please let me know.作者: nannan66 时间: 2011-7-11 19:50
you're right , sucker me. Not thinking clearly
JPY put is in the money if the JPY depreciates . So the company faces credit risk if it is a non-exchange option作者: wake2000 时间: 2011-7-11 19:50
Different question,should have been separate. My apologies. Trying to work and do this at the same time does provide a fair amout of challenge.作者: NakedPuts2011 时间: 2011-7-11 19:50
Just to add my two cents to this seemingly closed topic.
The CFA problem states that the Equity Repurchase Yield was -0.5%. So the company didn't buy back anything, it issued 0.5% more resulting in a lower income return because of dilution.作者: cityboy 时间: 2011-7-11 19:50
cfahead Wrote:
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> If the question gives the equity repurchase yeild
> as negative.5% should that be added or taken away
> from the Dividend yield?
With regard to the confusion over whether what to do with the variable when the words 'repurchase yield' appear again, I just want to say that the meaning of repurchase yield is demonstrated on the CFAI text example below. I have started re-reading through all the examples provided by the text in the final week running up to the actual exam. This 'confusion' is a classic example of the importance of reading through all the examples in the text. The examples in the text are NOT written by the original authors of the books but inserted by CFAI themselves. So these examples are extremely important.
"The forecast dividend yield was 1.75 percent (somewhat above the then-current yield of 1.4 percent but below the historical mean of over 4 percent for 1926–2001). The repurchase yield was forecast to be 0.5 percent, down from the 1–2 percent rate of the 1990s, which was viewed as an unusual period. The expected income return was there- fore 1.75% + 0.5% = 2.25%."
(Level III Volume 3 Capital Market Expectations, Market Valuation, and Asset Allocation, 4th Edition. Pearson Learning Solutions p. 36).作者: NakedPuts00 时间: 2011-7-11 19:50
if a repurchase yield is positive than (repurchases/outstanding) is positive. company repurchased shares = accretion = good for shareholders = higher returns.
If the repurcahse yield is negative then repurchaes are negative. A "negative repurchase" is an issuing of stock = dilution = bad for shareholder = lower returns.
Its a tricky word play.
I just think to add it if its good and subtract it if bad.作者: Windjammer 时间: 2011-7-11 19:50
Repurchase yield = positive correlation with expected return.
Change in outstanding stock = negative correlation with expected return.
