HomeCFACFA Level 3CFA Level 3 | Private Wealth Management: Prepaid Variable Forwards (PVFs)

CFA Level 3 | Private Wealth Management: Prepaid Variable Forwards (PVFs)

  • April 24, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 3
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CFA Level 3

Topic: Private Wealth Management (PWM)

Reading: Concentrated Single Asset Positions

 

A prepaid variable forward (PVF) contract allows the investor to take out a margin loan today, with the payoff of the loan dependent on the share price at the expiration of the loan/collar. It allows business owners to monetize the value of their shares without having to liquidate the shares (and hence, triggering a tax liability).

This section is under the Reading “Concentrated Single-Asset Positions” in the CFA Level 3 syllabus.

In the video below, see how the payoff of the PVF varies at different share prices.

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