Inflation Pass Through

CFA Level II
#1

Did anyone else adjust the required rate of return for the inflation to = the real rate required rate of return?

#2

yeah. real = 17.1% - 4% = 13.1%

#3

Yes I think i did something like 1 / (r+ {1-infl flowthru}) but still had diffculty since I didnt have any answers matching.

#4

I changed this answer THREE times. R=17.1, inflation was 4% inflation-flow through 75%. So it is 1/ real required rate of return + (.25*4). What was the real required rate of return though?

#5

I think I added back 1% (being the residual of 75% of 4%)

#6

yeah, the only way to get a matching answer was to adjust it using the approximate method which is a simple subtraction. i did the division thing first

#7

Slash Wrote: ------------------------------------------------------- > yeah. real = 17.1% - 4% = 13.1% how come you can take all 4% out you pass 75% which means effectively you retain 1% and yes I changed my answer from ^^ to 17.1% - (4% * 25%) => 17.1 - 1% = 16.1 but didnt see anythign closer

#8

I think I got 7 something for my answer. Was there an answer choice of 6 something?

#9

there’s a formula for this: the P/E = 1/[real r +(1-passthrough rate) x inflation] schweser book 4 page 66, right at the bottom

#10

the formula was 1/ req return + (1 - inflation pass through X inflation rate) i thought but the answerds were off from calculation. i got somethihng around 7 also i think

#11

i found this one very frustrating because i had the formula nailed so i thought i’d be golden. but for the life of me i could not find the real rate for the denominator. i think i tried to back into it, but had to move on due to time constraints. ended up just picking the biggest answer. prob -1

#12

-1 for me here :frowning:

#13

I forgot what I guessed!! I remembered the formula but freaked about trying to find the real r. So close yet so far on so many of these…

#14

so is anyone positive what the answer was here? 13.1 or 7?

#15

7 positive

#16

7 was correct.

#17

i hope so…

#18

I took the exam in Singapore, we didn’t have this question

#19

7.09 which is 7.1 or 7…Extremely positive on this one! (very few times, I get to say this)…

#20

that because the question is about finding the PE, not rate…