discount factor for lack of control: =(1-1/(1+control premium)) I don’t get why we need to put one minus here? Thanks.
yeah i dont get this either…
You can look at this way. It’s a *discount* of the lack of control so this discounting process will make the lack of control number smaller. Since you had to add +1 as in (1+ control premium) you have to reverse that out and -1 it to get back to where you were at the end of the process.
Discount factor = 1/(1+control premium) DLOC = 1- discount factor
it doesn’t really matter why, just find the DLOC, and then you can solve the problem: risk adjusted r = investor’s r x [(1 - DLOC)(1 - DLOM)] that formula is just me going from memory, but I feel like it’s right. been a while since I looked at Private Equity tho.
thanks guys
this wont be on the test, skip the private company valuation
^ lol it seemed like every second question on last year’s exam had something to do with a leveraged buyout tho
wake2000 Wrote: ------------------------------------------------------- > this wont be on the test, skip the private company > valuation I know you mean well but this is bad advice. Private company valuation was added to last year’s curriculum and it was tested on the 2010 exam. They like to test new material. Calculating the DLOC is part of the EOC questions, which means it could be on the exam and was on the 2010 exam though if you calculated it on the exam you missed it b/c they pulled a fast one as there was no need to adjust for a control interest in that question. Guess who missed that question and made the calculation and found the matching multiple choice answer to bubble in? Skip NOTHING, even the boring stuff in FI! CFAI is very good at helping you go down the wrong path. They know all the common errors for every problem n use it all against you in very good distractors and problem set up.
^ actually, i’m pretty sure he was just making a joke : /
I hope so…fresh L2ers won’t know the difference. This exam has knocked the funny out of me. Can’t even crack a smile anymore. Need a good joke [defined as: not racist, sexist or stupid].
^ hmmmm… I dunno about that, a lot of the best comedy is racist and sexist. Google daniel tosh and tell me after watching some of that guy that you don’t agree 
Maybe at a bar or comedy club with a bunch of drunk people it would be funny but when I read these types of joke on the CFA analyst board, where future CFA Charterholders are made, where they will carry the gold standard for investment professionals, by which the future of the financial markets depends, racist/sexist jokes makes me pewk. There are enough aas-holes in finance, CFAI should not help breed more animals to create lawsuit liabilities. The charter pool quality gets discounted for every poor-taste joke by a candidate, it makes me rather sad. Some people don’t care b/c they can hide behind a screen name, but I think it reflects badly on the group. Since it takes about 4yrs on average for a person to get a charter, hopefully people mature and grow up by the the exit point. I’m just saying lets try to keep the funnies funny and still respectful to the large population of candidates who read all the good/bad crapp people permanently post on here. God knows we all need a good laugh to keep from going insane.
Case to point today: Aflac Fires Comedian Gottfried for Japan Tweets http://www.cnbc.com/id/42077569 Humor comes at a cost in business.
8==D