[Rohan KumarParticipant]

1. Consider a bond that has two years remaining to maturity, a coupon of 4% paid semiannually, and a yield-to-maturity of 4.60%. Assuming it is 63 days into the first coupon period and a 30/36

1. Consider a bond that has two years remaining to maturity, a coupon of 4% paid semiannually, and a yield-to-maturity of 4.60%. Assuming it is 63 days into the first coupon period and a 30/360 basis, the bond’s annualized Ma-caulay duration is closest to:

A. 0.9419 years.

 

B. 1.7666 years.

C. 1.9416 years.

More...

Less...

[Ashish Kumar SharmaParticipant]

Sir i have a doubt regarding calculation by antidilutive securities in the question they have given pref dividends sir so why we are not subtracting the pref dividends for dilutive eps rather we are s

Sir i have a doubt regarding calculation by antidilutive securities in the question they have given pref dividends sir so why we are not subtracting the pref dividends for dilutive eps rather we are subracting for basic eps?

Question from :- FSA LM 2 Example 15

More...

Less...

[Madhusudan Chandarasekaran, CFA, FRMKeymaster]

Good question.

For Basic EPS, preferred dividends are subtracted because Basic EPS

Good question.

For Basic EPS, preferred dividends are subtracted because Basic EPS measures earnings available to common shareholders only:

Basic EPS = (Net Income − Preferred Dividends) / Weighted Average Common Shares

For Diluted EPS, if the preferred shares are convertible preferred shares and are assumed to be converted under the if-converted method, those preferred dividends would no longer be paid. Therefore, we add back the preferred dividends to the numerator rather than subtract them.

So:

• Basic EPS → subtract preferred dividends.
• Diluted EPS (assuming conversion) → add back preferred dividends because the preferred shares are assumed to have become common shares.

The key idea is consistency: if you assume conversion and increase the denominator by adding common shares, you must also adjust the numerator by removing the preferred dividend deduction.

Check Example 15 carefully to see whether the preferred shares are being treated as convertible under the if-converted method. That is usually the reason for the difference.

More...

Less...

[Madhusudan Chandarasekaran, CFA, FRMKeymaster]

Good question.

For Basic EPS, preferred dividends are subtracted because Basic EPS

Good question.

For Basic EPS, preferred dividends are subtracted because Basic EPS measures earnings available to common shareholders only:

Basic EPS = (Net Income − Preferred Dividends) / Weighted Average Common Shares

For Diluted EPS, if the preferred shares are convertible preferred shares and are assumed to be converted under the if-converted method, those preferred dividends would no longer be paid. Therefore, we add back the preferred dividends to the numerator rather than subtract them.

So:

• Basic EPS → subtract preferred dividends.
• Diluted EPS (assuming conversion) → add back preferred dividends because the preferred shares are assumed to have become common shares.

The key idea is consistency: if you assume conversion and increase the denominator by adding common shares, you must also adjust the numerator by removing the preferred dividend deduction.

Check Example 15 carefully to see whether the preferred shares are being treated as convertible under the if-converted method. That is usually the reason for the difference.

More...

Less...

[Madhusudan Chandarasekaran, CFA, FRMKeymaster]

Hi Rohan, As you know these kinds of questions, just calculate modified duration and then multiply by (1+ YTM)

[Author]

Posts