Repurchase yield for Grinold Kroner Model positive, equation, opposite, question, company

Chuckrox8

Clearly, this is a very easy concept. If a company repurchases its shares there is a positive yield and the yield is added in the Grinold Kroner model. What makes it confusing is when the question doesn't explicitly say if the company buys or sells shares.

The income return portion of the equation is D/P - (change in S).

In the 2009 morning exam on question 5 it gives the change in S as -0.5.

According to the equation this would be D/P - (-0.5).

But of course the answer is the opposite. The repurchase yield lowered the income return in this case. How do you know when to add or subtract the repurchase yield?

skycfa

The formula is d/p - (-repurchase)

Plugging in -0.5 ..... d/p. - ( - (-0.5))

HTH

Unforseen

Dude, read the question. They gave you share repurchase yield.

NO EXCUSES

strikethree

that's the whole point of my post. If you are supposed to subtract change in S, then you end up with

D/P - (change in S) --> 4 - -0.5

but the answer is

4 - 0.5 = 3.5



Edited 1 time(s). Last edit at Thursday, June 2, 2011 at 08:34PM by bucky6225.

justin88

JP_RL_CFA Wrote:
-------------------------------------------------------
> 2 bond hedge is not an LOS but I can see them
> asking questions about the process

There was a large EOC on it though.

dyga

2 bond hedge is not an LOS but I can see them asking questions about the process

mp3bu

Paraguay Wrote:
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> I think CFA already blew their trick on this too.
>
>
> Odds are not likely they will attempt the same
> thing again.

Knowing that candidates will be aware of the trick, they can use reverse psychology and just give us the actual change in shares.

NO EXCUSES

mik82

LobsterBoy Wrote:
-------------------------------------------------------
> bucky6225 Wrote:
> --------------------------------------------------
> -----
> > I understand what you guys are saying, but
> > sometimes it doesn't say whether the number of
> > shares outstanding increased or decreased. It
> > just gives change in S as -0.5. In that case,
> how
> > do you know whether the equation should be
> > either,
> >
> > D/P - (-0.5)
> >
> > or
> >
> > D/P - (0.5)
>
> If they give you change in S, you subtract it. If
> they give you repurchase yield, you add it.

Depending on the signs

NO EXCUSES

aidebaobao

bucky6225 Wrote:
-------------------------------------------------------
> I understand what you guys are saying, but
> sometimes it doesn't say whether the number of
> shares outstanding increased or decreased. It
> just gives change in S as -0.5. In that case, how
> do you know whether the equation should be
> either,
>
> D/P - (-0.5)
>
> or
>
> D/P - (0.5)

If they give you change in S, you subtract it. If they give you repurchase yield, you add it.

former

I'm with bucky6225 on this - these questions are always unclear. Concept simple - question unclear. Bad CFAI.