The post Practice Question on Disinflation appeared first on SeeWhy Learning Blog.

]]>If you’ve added the e-learning video lessons to your account, you’ll find one there called ‘Inflation and Real Return’. We have a pretty in-depth explanation on this concept and in the study guide as well. At this point, I’m going to assume that you have a pretty good handle on inflation. If you don’t that’s okay. Go back and watch that video. Give the study guide another quick read through, and then come back and finish this coaches hangout video response for now.

Let me just run through a quick summary of inflation. A second ago I said that inflation measures how much prices increase from one period to another. But do you think that the government, or more specifically – statistics, Canada actually tracks the price of every single good and service in the country? Of course not. That would be virtually impossible. So instead the government tracks the price of what we call a ‘basket of goods’.

Now this all ties into something called the ‘consumer price index or CPI’. That’s an acronym you might’ve seen before now. The ‘goods in the basket’ are a fair representation of what most Canadians buy on a regular basis. It includes things like gas and milk and haircuts and appliances and smartphones … that sort of stuff. It doesn’t include things like rare manuscripts and private jets and NHL season tickets. That’s just basic day-to-day stuff. But don’t worry, you don’t need to know all of the products that make up the CPI for your exam. You just have to get that if the price of this ‘basket of goods’ increases, by say 3%, from one period to the next, we would say that inflation has been 3% over that period. All right. So that’s the basic technical definition of inflation, but let me demonstrate for you.

Let’s say that a balloon is the consumer price index. So let’s blow up the balloon and introduce a little inflation into the economy. It’s getting bigger, right? Prices are getting higher. That’s obviously inflation. But if we let a little air out, what do we call that? Obviously ‘deflation’ which is just the opposite of inflation and is when prices are actually falling.

With this in mind, let’s take a peek at the answers in the video. We see the Answer A, “A reduction in prices from year to year” is essentially definition of Deflation NOT Disinflation, like this question is asking about, but deflation. So let’s go ahead and eliminate Answer A. A side note, while we’re talking about deflation, what would you say if I asked you, “Do you think deflation is a good thing?”. Your first instinct would probably be to answer, “Heck yeah, who doesn’t like lower prices!”. But in reality, deflation is actually really bad for the economy.

Just like on letting the air out of the balloon deflation represents, might as well stay with the analogy, is like letting air out of the economy. For example, if you needed a brand new car, but you knew cars were going to be cheaper, two, three, four, or six months from now, you’d likely push off your purchase until later. If everybody did that for all of the goods that are in that basket, the things that Canadians buy on a regular basis, sales would fall off a cliff, profits would really fall and people would end up without work. It’s not a good thing. So that’s deflation.

What about Disinflation? Well, a lot of people think that Deflation and Disinflation are the same thing. They sound so close. And, in fact, many students jump right on Answer A and this question, because it sounds right. That’s not the case. In fact, Disinflation is actually a form of Inflation. Let me show you.

Blowing the ballon a little bit, that’s Inflation. Blowing it up a bit more, so is that. Then blowing it up a bit more, so is that! But you’ll notice that I wasn’t inflating the balloon as quickly. It still got bigger, but not at the same rate as it was before. That’s ‘Disinflation’. It’s a reduction in the rate of ‘Inflation’. For example, if inflation was 3%, but the next time it is only 2% more, it would be called Disinflation. We still have Inflation, just not as high as it was before. In other words, prices are still increasing, just not as fast. If we look at the answers shown in the video, we see an Answer B: “A reduction in inflation from year to year”. That looks good. So let’s go ahead and pick that for now. We still have inflation – it is just less inflation. Answer B, and that’s the right answer. Cool. Okay.

So let’s look at the other answers. Answer C: “See a reduction in deflation from year to year”. Well, that may be an indication that there could be some light at the end of the tunnel. If we were in some pretty tough times with an extended period of deflation, but that’s not Disinflation; again, disinflation is still inflation. It’s just less inflation.

And finally, Answer D: we completely made this up – it’s just a distractor.

Actually. Let me tie this back now to those exam tips that I was talking about before. One of the things that we addressed there is that sometimes on the exam, if you come across one of these really wordy answers, when all of the other ones are shorter, it could very well be a red herring. Again, we addressed that in the ‘Top 10 Trainer Tips’, another one of our videos that you’ll find on our YouTube Channel. All right, thanks everybody. I really appreciate you dropping into the coaches hangout. Keep those submissions coming. Good luck on your exam.

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]]>The post Mutual Fund Distribution appeared first on SeeWhy Learning Blog.

]]>CSC® & IFC®/CIFC® Distribution and NAVPU

I just got off the phone with one of our students. He was asking me a question about Mutual Fund Distributions and the explanation really helped him. So I figured, “Why not record a quick video for the benefit of all our students?” If you look at the video you will see the question.

All else being equal, what would happen if a Mutual Fund made a Distribution and unit holder Harris decided to reinvest the Distribution he received back into the Fund? The nuts and bolts of each answer is “How would it impact the NAVPU and the number of units Harris would own?”.

Let’s first start with the Distribution. In our Study Guide we described a Mutual Fund as a huge portfolio to which many investors contribute. But for this question, forget about that for a moment. That’s way too confusing. Let’s pretend it is 100% your own portfolio.

What would happen if you took money out of that portfolio to pay yourself a Distribution, or whatever the heck you want to call it? Obviously, the value of the portfolio would go down, right? You are taking money out. The same holds true for a Mutual Fund. When they make a Distribution, the NAVPU falls by the amount of the Distribution paid for each unit. Now with this in mind, that’s not to know that ‘Answer A’ must be the right answer because it is the only one that says the NAVPU would decrease. The next part of ‘Answer A’ is quite logical too. If Harris uses a Distribution to buy more units then he obviously receives and owns more units.

I hope you found this video lesson helpful and good luck on your upcoming exams.

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]]>The post WIN a $250 Prize Pack and … appeared first on SeeWhy Learning Blog.

]]>Now here’s your guidance from me. The clip must be 12 seconds or less. Feel free to adjust the wording. It’s a spirit of the message that matters. Be creative, serious, funny, nervous, or whatever you like. Just keep it tasteful and entertaining.

Entries must be received by October 15th. Please send your video using email in the description below. Our study coaches will review all submissions and select their favorite one as a winner. So be sure to send us your best.

Send your entry to training@seewhylearning.com by October 15th

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]]>The post Dividend Discount Model (DDM) appeared first on SeeWhy Learning Blog.

]]>If you take a look at the first question, that you can view in the video, if the required rate of return were to increase, “How would it impact the intrinsic value of the stock?”. This question is even more challenging because, I promise you, you will not find a line in the text book that specifically says if the required rate of return increases you would expect the intrinsic value of this stock to fall – all else being equal. Instead, in order to answer this question right, you need to know which formula to use. You’re going to use the Dividend Discount Model and then you need to understand how one change in a variable would impact the intrinsic value of the stock.

If I were to ask you, “Why would you buy a share in a company? And why would you buy a common share?” Your response may be something like this. “If you’re looking for income, maybe you’re hoping to receive an annual dividend, you’re hoping that dividend increases with time, and that, overall, your return adequately compensates you for the level of risk that you’re assuming.” If you in the video you will see the Dividend Discount Model, which is “Div1”, which stands for dividend one year from now, over R, which is the required rate of return minus G, which is the growth rate. You want to pay attention to this formula because if you are asked to calculate intrinsic value of the stock the Div1 piece often confuses students and that is where they go wrong. Remember, you need the dividend one year from now.

You have to pay very special attention to the wording and the question. If they say today’s dividend is a dollar, for example, well then you’re going to have to increase it by the growth rate to find out what it will be a year from now. But if on the other hand if they say, “The dividend will be a dollar five” it is as though they are talking about next year. Then you would not have to increase it. So this is something you want to be aware of and pay special attention to on the exam.

Now, with all this in mind, let’s circle back and tackle that challenging question we looked at at the top of the video. The easiest way to tackle this question is simply to make up some numbers, calculate the intrinsic value, then increase the required rate of return, and calculate again to see how it would impact the answer.

Let’s assume that today’s dividend is a dollar, it is expected to grow by 2% per year, and the required rate of return for an investment of this risk level is 6%. Let’s start with the dividend one year from now. If it is $1.00 today and we expect it to grow by 2%, next year it will be a $1.02. So we divide a $1.02 into 4%, which is the required rate of return 6% minus the 2% growth rate, and then we calculate that all out. We get an intrinsic value of $25.50. Now let’s do what the question suggests and increase the required rate of return to 7%. We take $1.00 to the same dividend one year from now, except now we’re divided by 7% minus 2%. Once we calculate that all out, we get an intrinsic value of $20.40.

As you can see, if the required rate of return goes up, the intrinsic value of the stock would go down, all else being equal. So let’s go ahead and select answer B, and of course we are correct. To recap, here are the two learning points from this lesson (video). Number 1, if you are asked to calculate the intrinsic value of a dividend paying stock, that’s code word for use the Dividend Discount Model. Number 2, if you’re asked what would happen if one variable were to change, simply make up some numbers, calculate the answer, change that one variable, recalculate the answer, and you will see exactly what would happen. Thanks everybody. And since you stuck with me to the end of this video, it’s time for me to get paid with some likes. If you’re finding this content helpful, please let us know. So we can keep the content coming, subscribe to our YouTube channel and if you’re enjoying a video smash that like button.

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]]>The post Accrued Interest Mini-Lesson appeared first on SeeWhy Learning Blog.

]]>You are being asked “Upon the sale of the bond, what is true of accrued interest?”. When you look at the answers the nuts and bolts of it is “Who pays the Accrued Interest to who?”. Does Fred pay it to Jackie, does Jackie pay it to Fred, does the issuer pay it to Jackie or to Fred? “What is the case here?”. The actual answer may give you, and then we’ll talk through it a little bit, because like I said, it’s a little counter-intuitive. The actual answer is ‘B’ – “The Accrued Interest is paid by Jackie who is buying the bond to Fred who is selling the bond”. As you can imagine, that might confuse Jackie, she might say, “Well, what do you mean here? I am buying a bond so that I can earn interest and then the very next thing I’m hearing is I have to pay accrued interest?”.

That doesn’t make a lot of sense, initially. Let’s talk through it because it does make a lot of sense once you understand it. First of all, you want to know this for the exam. Unless a scenario says otherwise you want to assume that a bond pays interest semi-annually, which is every six months. Let’s make a couple of assumptions so we can talk through this concept a little bit. Let’s assume that the next interest payment date is July 1st and Fred has owned the bond for the first five months of the year and then he sold it to Jackie who has only owned it for about a month come July 1st. What is going to happen on July 1st is that the issuer is going to pay six months of interest to Jackie because she is now the owner of the bond.

Well, that’s not too fair to Fred, right? He’s going to say, “Well, wait, I owned the bond for five months, Jackie has only owned it for a month and she’s going to get a full six months interest payment from the issuer. That’s not fair!” Of course, Fred is right. So that’s why we calculate the Accrued Interest. Jackie would basically have to pay that amount to Fred. It would be added to the purchase price of the bond. But Jackie will know, in about a month, she’s going to get a full six months of interest, which would be the one month interest that she really earned, plus the five months that she’s already compensated Fred for. So the answer would be “C”. Accrued Interest is paid by Jackie to Fred. Now on the exam, you could be required to actually calculate the Accrued Interest, and this would require to figure out the number of accrued days.

One learning point that you want to know is the accrual period goes from the day after the last interest payment date up to, and including, the settlement date … and you may have to do that math on the exam, which means counting out the number of days, which takes practice. But don’t worry. You’ll get lots of practice with that when working with the SeeWhy exam preparation tools. I’m not going to cover actually calculating the number of days in the video. We certainly will if we got a request for it but we do do a great job of covering that in the study guide. Again, you are going to get lots of practice with it with the exam preparation tools, but let’s assume we’ve done that. We figured out that the number of accrued days is 150 days. Let’s do the math because a lot of times when people see another form, in the course, are like, “Oh my gosh, another form that I got to memorize”. Sometimes, they get a little nervous.

This, to me, isn’t really much of a formula. It actually makes a lot of sense. It is intuitive. So, how do we calculate the accrued interest if we’ve already done it? The hard part, which was figuring out the number of accrued days … let’s say being 150, what we do is take a $100,000, which is the face value of the bond. Now we use the face value, not the market value. Remember, the issuer will only pay interest on the face value, which is the amount that they borrowed. We’re going to take $100,000, which is the face value. We then are going to multiply it by 5% and we’re going to get the annual interest payment – as you can see is $5,000. Next let’s divide by 365 days to get the daily interest. I’m getting $13.69 or $13.70 if you want to round up.

Then we just multiplied by 150 days, and we would get an amount of $2,054.79. We’d round up to 80 cents in this case. That is the amount of the accrued interest that Jackie would pay to Fred. I’m assuming it is 150 days. Then, in about another month, she’s going to get the full six months payment. Now, this is a concept that takes a little bit of practice. It is really hard to learn by reading it in a book or a study guide. It is still hard to learn even by video. It’s a concept that you want to get a little practice with and, and when you do, and you do a few of these, it becomes much easier. Thanks everybody. I hope you enjoyed this video lesson. I hope you found it helpful. Keep up the great work and good luck on your upcoming exams.

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]]>The post First time home buyer appeared first on SeeWhy Learning Blog.

]]>The lack of affordable housing in much of Canada has been a hot topic for many years. It seems whether you’re in the market to buy or rent the costs keep going up at an alarming rate. Governments are trying to solve this issue, but it’s a really tough nut to crack. There’s a figurative tug of war between people who want housing prices to fall, like those trying to get into the market, and those that don’t – like people who already own real estate. I’m going to discuss the government’s new “first-time home-buyer incentive program”. Whenever I come across an article on this program it tends to focus on the interest-free loan aspect, which is great, but there’s another side of the coin that doesn’t get too much attention. So we’re going to discuss both.

To help people get into the real estate market the government has introduced the first-time home-buyer incentive. Under this plan, the government will lend money interest-free to a qualified first-time home-buyer, which increases the total down payment. This lowers the amount that has to be financed through a lending institution which ultimately results in a lower monthly payment.

Let’s look at an example together. Paul is purchasing a home for $100,000. Now you’re probably thinking, where can I buy a home for a hundred grand? I get that, but I want to use simple, easy to understand numbers. Paul saved hard and has a 5% down payment. Let’s assume he pays a CMHC fee in cash, so that it’s not added to the mortgage, and we’ll take a look at his mortgage payment into scenarios. If he is putting just the 5% down that he has of his own money and another scenario where he’s putting 5% of his own money down, plus a 5% interest free equity loan from the government.

Let’s look at scenario number one, where he’s putting down a down payment of only 5%. A 5% down payment on a hundred thousand dollars means he’s putting $5,000 down. Therefore his mortgage will be for $95,000. Again, assuming he pays a CMHC premium in cash. Now assuming a 3% interest rate and 25 year amortization, his payment would be $449.58. Remember that number.

Now, scenario number two. A 10% down payment made up of his own 5% plus the 5% interest rate equity loan under the first-time home-buyer incentive program. Again, he has a 5% down payment, which is $5,000 and the government is also lending him $5,000 interest free. Therefore, his total down payment would be $10,000. This means his mortgage will be for $90,000. Again, assuming he pays a CMHC premium in cash, assuming a 3% interest rate and 25 year amortization as we did before, his payment would be $425.92.

So under the shared equity mortgage Paul’s monthly payment would be reduced by $23 and 66 cents. As you can imagine, the payment difference becomes much larger when we talk about bigger, more realistic, morgages. Sounds great so far, right? Especially if Paul wouldn’t have been able to buy the home at all without the help offered by the program. But there is a downside the buyers need to carefully consider. The government loan is interest free, which is awesome. But at what cost? In exchange for the interest free loan, the government takes an ownership stake in the home. Also known as an equity position and you have to pay the government back its fair share when you sell the home, or in 25 years, whichever comes first. When that happens, it’s based on the fair market value, not what the house was worth when you bought it.

So in our scenario, the government would have taken a 5% equity stake in Paul’s home. Let’s assume that Paul sells his home 20 years later for $200,000. The government has a 5% equity stake. So he’d have to repay $10,000 calculated as follows: $200,000 times 5% equals $10,000. And you’ll notice this is twice what he borrowed. The requirements to repay the government could become a real problem for Paul. For example, if he wants to upgrade to a larger home, he’ll likely have to pay thousands in realtor fees and repay the government $10,000 which will obviously reduce the equity that he liked to apply to his new purchase. Yes, of course the reverse is also true. If the home declines in value, the government would get less than it loan, but it’s highly unlikely that home prices will fall over the long term.

Finally, I want to remind you, this program is not available to everyone. Keep in mind, its purpose is to help someone get into the housing market. Therefore to participate the buyer must qualify as a first-time home-buyer and have a minimum of 5% down from their own resources. The government will then loan up to 5% for purchases of a resale home or 10% for new construction. Take note of one more thing – this results in a first mortgage with the primary lender and a second mortgage with the government, both of which are registered against the property. This could increase the home buyer’s legal fees upon closing.

Thanks SeeWhy, that really helped … and here’s my ride.

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]]>The post Survivorship Bias – WME® appeared first on SeeWhy Learning Blog.

]]>Consider the following analogy. In high school, Isaiah was the best basketball player his community had ever seen. In fact, he was so good that his coach would only play him half of the game in an attempt to avoid embarrassing the other team. It never worked though as Isaiah would drain so many buckets in the first half that the opposing team had no chance of coming back. Each season he was the highest scoring player in the province by a wide margin. After high school most of the players in his graduating class retired from the game and only the very best moved on to play college ball. Those who did were generally the star of their respective high school team so Isaiah had a harder time standing out. But nonetheless, he worked hard and was voted an all American in his conference. Fortunately, he managed to grab the attention of Scouts and was drafted into the NBA in the second round. When he got there, he found that the talent level was so high that he was never able to crack the starting lineup and never made an all star team. However, he still enjoyed a six year career in the pros. So how did Isaiah go from being the very best player in the province, a true phenom, to one of the better players in college to a role player in the NBA? Well, it wasn’t due to a deterioration of his skills. It was just that over time, many of the lesser players fell to the wayside and by the end, he was being compared to the very best of the best in the entire world. This is referred to as “Survivorship Bias”.

Bias can also occur when comparing the performance of a mutual fund to that of its peers. Over time, you end up comparing the funds return to funds that are successful enough to have continued operating. Consider mutual funds, A through D, which are quite similar in terms of objective risk profile, et cetera, but have realized different returns since their inception, which in all cases is more than 10 years ago.

In the video you can see that Fund A has a historical return of 15%. Fund B has been 13%. Fund C has been 8%, and Fund D which lags behind the group has only had a historical return of 6%. Well, past performance is not necessarily indicative of future results. There just hasn’t been much demand for Fund B, and since it wasn’t attracting much in the way of new investment dollars, the fund company decided to dissolve the fund. Now notice that while Fund C’s return has remained unchanged, it’s now the worst performer of the remaining funds. This is due to Survivorship Bias.

With this in mind let me ask you a question. “What impact does Survivorship Bias have on the return of the comparison group?” A, it artificially increases the return. B, it artificially decreases the return or C, it has no impact. Well, the answer is “A” artificially increases the return. The average return of Fund A through D was 10.5%. But when Fund B folded and dropped from the group, the average return increased to 12%.

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]]>The post Starting Your Exam Right appeared first on SeeWhy Learning Blog.

]]>Because I only have your attention for a few minutes, I thought it would be appropriate to focus this blog post on the most critical phase of your exam: the beginning. To start off on the right foot, we recommend doing a two-minute brain dump and then creating a road map.

Have you ever known something like the back of your hand, but when you were put on the spot and asked about it, you froze, and your mind went blank?

The next time that you’re at a dinner party, ask one of your married friends when their anniversaries are, and you’ll see what I mean. Even if they remember, for a split second you’ll see that deer-in-the-headlights look, especially if their spouse is paying close attention. Not only must they answer correctly, but they must also answer quickly. Temporary amnesia can happen in other situations as well. I was once asked for my parents’ phone number, which hasn’t changed in more than twenty years, and my mind went blank. I simply couldn’t remember it despite the fact that I had dialed it hundreds of times before. Of course, when I looked at the dial pad on my phone, the numbers came rushing back. But when it comes to an exam, you usually aren’t allowed to consult your textbook to jog your memory.

For this reason, we recommend doing a two-minute brain dump the moment your exam begins. In other words, create a list that includes formulas, acronyms, memory aids, or other facts that you have learned recently—anything that you’re worried about forgetting. This isn’t a list that you should randomly develop on exam day. It should be a living, breathing document that you update throughout your studies. If you follow this tip and practice, you will be amazed at how much you can remember and how much information you can jot down in only a few minutes.

This strategy is so effective, it may feel like cheating. But it isn’t! It is part of writing a smart exam. However, this strategy comes with an important warning: be sure to write your brain dump on paper that the exam proctor has provided or on the back of the exam so that you can easily prove that you didn’t bring it into the exam with you.

After completing your brain dump, the next step is to create a road map.

In a stressful exam environment, it’s easy to lose track of time. I bet at least once in your academic career, the exam invigilator called out something like “time is half up,” and you looked down at your exam and realized you were way behind. To help prevent this from happening, create a road map. You wouldn’t hop in your car and drive to a destination like Florida without mapping out your route ahead of time, and you shouldn’t write an exam without doing so either.

Let’s assume you are writing an exam that starts at 6:00 p.m., consists of 100 questions, and you are allotted 2 hours to complete it. This means that you need to answer an average of twenty-five questions every thirty minutes. Map out your route by immediately going to Question 25 and writing 6:30 beside it. Then go to Question 50 and write 7:00, and finally go to Question 75 and write 7:30.

I expect most students to fall behind initially because they are too careful at the beginning of the exam. For example, nobody wants to start off “0 for 1” or “0 for 2.” If they don’t know the answer, they keep staring at the question as though the answer is going to magically pop into their head. On the other hand, if they think they know the answer, they often keep thinking and thinking about it. Either way, students can waste valuable time contemplating the first few exam questions. For this reason, consider mapping your exam route in even further detail. Continuing with our example, let’s add an earlier pit stop and write 6:15 beside Question 12. At this point, you should have completed 12 or 13 questions. Even if we account for your two-minute brain dump at the beginning of the exam, there’s still plenty of time left to finish.

When you reach each of these checkpoints, it will almost force you to look at your watch and gauge your progress. It’s as though your trainer is tapping you on the shoulder and saying, “You were supposed to be here by 6:15. How are you doing?” If you’re behind, this will be your wake-up call to stop second-guessing yourself and hold yourself more accountable to time. Put your foot on the figurative gas pedal, and try to hit your next checkpoint on time.

I hope you’ve enjoyed this series, but keep in mind there is only so much I can cover in a short weekly blog. For more great content, check out our social media platforms and SeeWhyLearning.com. With Labour Day come and gone and the kids back in school, perhaps it’s time you think about taking a course with us. We have recently launched a ninety-minute video series titled Investment Fundamentals. If you are considering a career in financial services or want to learn more about this topic, you can try this series for an introductory price of only $14.99. It’s an easy way to get started!

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]]>The post The Efficient Frontier – WME® appeared first on SeeWhy Learning Blog.

]]>Mike is a conservative investor who invested his entire portfolio in Bonds. Recall that interest rates and Bond values have an inverse relationship. If interest rates go up, it puts downward pressure on the market value of existing Bonds. For example, all else being equal, if an existing Bond has a 3% coupon rate while newer Bonds are being issued with a higher coupon rate of say 4%, the existing Bonds would be considered inferior and their market value would fall. Mikey was complaining to his friend, Josh, that since interest rates have steadily increased, his Bond portfolio is down in value.

Josh responded by saying that his portfolio isn’t doing that great either, but fortunately 10% of his portfolio is invested in Stocks and those investments are doing quite well. An economist by the name of Harry Markowitz defined an efficient portfolio as one that has the highest expected return for a given level of risk. He argued that by choosing investments from various asset classes investors can create an efficient portfolio which maximizes the return for their desired level of risk. The portfolio that has the highest expected return for a certain level of risk lies on what Markowitz called the Efficient Frontier. Let’s look at a question together which will help us illustrate this concept.

You’ll now see, in the video, information pertaining to four different stocks and you’re being asked, “Which one would definitely not fall on the Efficient Frontier?”. Recall that Markowitz defined an efficient portfolio as the one that has the highest expected return for a certain level of risk.

So to answer this question, we need to focus on two things. Number one, the expected return and number two, the standard deviation, which is the measurement of risk. First, let’s get rid of all the distracting stuff by removing the columns that have information. We don’t need to answer this question. Next, let’s put the investments in order from lowest risk to highest risk based on the standard deviation. From there, it’s pretty straightforward as the standard deviation increases, in other words, as the risk increases, the expected return should increase too. If it doesn’t, why on earth would you accept the added risk? Alright, let’s take a closer look at each investment.

Stock A has the lowest standard deviation of 4.2% and lowest expected return of 7%.

Stock C represents more risk with its higher standard deviation of 4.5%.

In exchange for accepting more risks, notice the investor is rewarded with a higher expected return of 8.25% – make sense so far.

Stock B represents even more risk as it has a higher standard deviation of 4.8%. But wait a minute, it has a lower expected return and Stock C, well, that’s not very efficient at all. An investor would be foolish to accept more risk for a lower expected return. Therefore, we can definitely conclude that Stock B would not fall on the Efficient Frontier.

To be sure let’s take a look at Stock D. It has the highest standard deviation and the highest expected return, so that checks out.

To be clear … we cannot say for sure that stocks A, C, and D are the most efficient portfolios at each risk level, but it is possible. However, when it comes to Stock B, we can definitely say that it would not fall on the Efficient Frontier.

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]]>The post Your Value Proposition appeared first on SeeWhy Learning Blog.

]]>Let’s not sugar-coat things, times are tough.

The reality is that some businesses will fail, others will survive, but some will THRIVE. Ask yourself, “What am I doing to shift my business’ value proposition during COVID-19 and beyond?” In this short article I explore this a little further. You may get some good ideas.

Next weekend I was supposed to be in Mexico celebrating my 50th birthday with loved ones. Now what? If five decades on this planet has taught me anything, it’s things change, and that’s just part of life. Usually not so fast and furious, but you still have to roll with the punches.

As an entrepreneur, I’ve been watching and learning. I’ve been fascinated by businesses that have shifted their value proposition and are thriving in this environment. I’ve also been trying to support small and medium-sized businesses by using their services wherever feasible. My favourite restaurant is closed, my loved ones are spread out in different homes, and ordering take-out doesn’t have the same cache for a milestone birthday.

Fortunately, Chef Manny, who usually caters in your home–and even cleans up afterwards–has shifted his business. He can still bring the fine-dining experience right to your doorstep (literally), satisfying your culinary desires. On my birthday, my family will be in different homes, but we will share the same delicious food, chat online, and raise a glass to better times ahead. Did I mention that we get to drink our own wine? If you’re located in the GTA and want to find out more about Chef Manny, visit http://ChefManny.ca, or even private message me directly. I’ve used his services many times before and am always a very satisfied client.

On another note, are you looking for ways to communicate your new value proposition? If so, check out https://Twenty20MultimediaDesign.com, which is another small business who is adapting to these challenging times. Twenty20 is operated by my daughter and her business partner, and they know that during difficult times, it’s even more important to stay in front of your clients. Twenty20 can help you with affordable customized memes, slide advertisements, or even engaging video using your own smartphone video clips, sliced-and-diced into a polished finished product.

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