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# Errors Found in Study Materials P1.T1. Foundations

#### Nicole Seaman

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R1-P1-T1 Page 34
View attachment 2201
"it should it..." Is it a redundant "it" in this sentence? If not, please forgive my poor grammar...
Hello @tattoo

Yes, this is a small typo error in the notes. The sentence should read, "it should monitor those limits to make sure they are followed"

#### tattoo

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R9.P1.T1 Page 8:
In the Notes of the 2nd row, IR should be residual return ÷ residual risk, not "residual risk [aka, alpha] ÷ residual return"

#### David Harper CFA FRM

##### David Harper CFA FRM
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Yes, absolutely true. My typo. Thank you @tattoo !

#### tattoo

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R10-P1-T1 Page 5 First bullet point:
So, we revise the stock’s expected rate of return downwards from 10% to 9.2% 8.8%

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#### David Harper CFA FRM

##### David Harper CFA FRM
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HI @tattoo Yes totally correct about both typos. Thank you! @Nicole Seaman I highlighted these fixes in red below (page 5): Staff member
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#### David Harper CFA FRM

##### David Harper CFA FRM
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Thank you @Nicole Seaman good find! To your point, I think the note is correct as it is @FRMNinjaLeonardo I think the confusion is that the last term (second bullet) contains σ(M) divisor, but this is the result of taking Jensen's alpha:

E(Rp) - Rf = α + β*[E(Rm) - Rf] where β = ρ*σ(p)/σ(m)
... but we assume ρ = 1 such that β is approximated by β ≈ σ(p)/σ(m) and Jensen's alpha:
E(Rp) - Rf = α + σ(p)/σ(m)*[E(Rm) - Rf] and then we can divide each side by σ(p):
(E(Rp) - Rf)/σ(p) = α/σ(p) + (σ(p)/σ(m)*[E(Rm) - Rf])/σ(p) but in the last term it cancels:
(E(Rp) - Rf)/σ(p) = α/σ(p) + (σ(p)/σ(m)*[E(Rm) - Rf])/σ(p) giving that final result:
(E(Rp) - Rf)/σ(p) = α/σ(p) + [E(Rm) - Rf])/σ(m)

Please note that we do not normally or necessarily assume ρ = 1. This is as assumption made by Amenc for purposes of this simplification where he invokes a certain definition of "well diversified." I would not want folks to think that "diversified" necessarily implies ρ(p, M) = 1.0, although we do have a definition of diversification as imperfect correlation.

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