exam learning

ROE=

ROA*Financial leverage =NI/A*A/E

who is the IBRD

Closely affiliated with The World Bank Group, the International Bank for Reconstruction and Development (IBRD) provides low or no-interest loans and grants to developing countries that have unfavorable or no access to international credit markets.

price deflator eqn

= nominal GDP/real GDP =real GDP is current volumes with base prices

paasche index

=Constant current price nominal/real (same as deflator) =(Pc*Qc)/ (Pb*Qc)

lasperyers

=constant basket (Q) but varies price =Qb*Pc / Qb*Pb

What is the operating breakeven point

=fixed costs/contribution margin

what is the equation for portfolio std deviation?

=root of whole equation =includes Cov not Cor

Manuel Tacqueria, CFA, is a sole proprietor investment adviser managing accounts for a diversified group of clients. Tacqueria obtains his investment research through a subscription service with Alpha Services, a large financial services organization. Tacqueria notes that the research reports are sound because they are extremely detailed and comprehensive. As a result, Tacqueria feels comfortable relying solely on this research when making recommendations to clients. Tacqueria should most likely do which of the following in order to conform to the CFA Institute Standards of Professional Conduct? Conduct additional due diligence on Alpha Services Undertake and add his own research to the existing reports Use additional sources of third-party research

A Tacqueria is in violation of Standard V(A)-Diligence and Reasonable Basis because he is required to undertake due diligence efforts on the third-party research provider on a regular basis in order to ensure that the quality of this research continues to meet his necessary standards.

Tamlorn Mager, CFA, is an analyst at Pyallup Portfolio Management. CFA Institute recently notified Mager that his CFA Institute membership was suspended for a year because he violated the CFA Institute Code of Ethics. A hearing panel also came to the same conclusion. Mager subsequently notified CFA Institute that he does not accept the sanction or the hearing panel's conclusion. Which of the following actions by Mager would be most consistent with the CFA Institute Professional Conduct Program? Using his CFA designation upon expiration of the suspension period Presenting himself to the public as a CFA charterholder Providing evidence for his position to an outside arbitration panel

A The Designated Officer may impose a summary suspension on a member or candidate that may be rejected or accepted by the member or candidate. If the member or candidate does not accept the proposed sanction, the matter is referred to a hearing panel composed of Disciplinary Review Committee (DRC) members and CFA Institute member volunteers affiliated with the DRC. In this case, the hearing panel also affirmed the suspension decision by the Designated Officer, and therefore, the member loses the right to use his designation for a one-year period. Upon expiration of the suspension period, the analyst would be able to use his CFA designation.

1. Bailey Watson, CFA manages 25 emerging market pension funds. He recently had the opportunity to buy 100,000 shares in a publicly listed company whose prospects are considered "above industry norm" by most analysts. The company's shares rarely trade because most managers take a "buy and hold" strategy because of the company's small free float. Before placing the order with his dealer, Watson allocated the shares to be purchased according to the weighted value of each of his clients' portfolios. When it came time to execute the trades, the dealer was only able to purchase 50,000 shares. To prevent violating Standard III (B) Fair Dealing, it would be most appropriate for Watson to reallocate the 50,000 shares purchased by: A. reducing each pension fund's allocation proportionately. B. distributing them equally amongst all the pension fund portfolios. C. allocating randomly but giving funds left out priority on the next similar type trade.

A is correct because Standard III (B) Fair Dealing requires members and candidates to deal fairly and objectively with all clients. Certain clients cannot be favored over other clients when their investment objectives and circumstances are similar. Therefore, the most appropriate way to handle the reallocation of an illiquid share is to reduce each client's proportion on a pro rata, or weighted basis.

Rodney Rodrigues, CFA, is responsible for identifying professionals to manage specific asset classes for his firm. In selecting external advisers or sub advisers, Rodrigues reviews the adviser's investment process, established code of ethics, the quality of the published return information, and the compliance and the integrated control framework of the organization. In completing his review, Rodrigues most likely violated the CFA Institute Standards of Professional Conduct with regards to his due diligence on: A. adherence to strategy. B. performance measures. C. internal control procedures.

A is correct because Standard V (A) Diligence and Reasonable Basis applies to the level of review necessary in selecting an external adviser or subadviser and would at minimum include reviewing the adviser's adherence to its stated strategy.

When Abdullah Younis, CFA, was hired as a portfolio manager at an asset management firm two years ago, he was told he could allocate his work hours as he saw fit. At that time, Younis served on the board of three non-public golf equipment companies and managed a pooled investment fund for several members of his immediate family. Younis was not compensated for his board service or for managing the pooled fund. Younis' investment returns attract interest from friends and co-workers who persuade him to include their assets in his investment pool. Younis recently retired from all board responsibilities and now spends more than 80% of his time managing the investment pool for which he charges non-family members a management fee. Younis has never told his employer about any of these activities. To comply with the CFA Institute Standards of Professional Conduct with regards to his business activities over the past two years, Younis would least likely be required to disclose which of the following to his employer? A. Board activities B. Family investment pool management C. Non-family member management fees

A is correct because golf equipment is a business independent of the financial services industry such that any board obligations would not likely be considered a conflict of interest requiring disclosure according to Standard IV (B) Additional Compensation Arrangements. Managing investments for family and non-family members could likely create a conflict of interest for Younis' employer and should be disclosed to his employer. Standard IV (B) requires members and candidates to obtain permission from their employer before accepting compensation or other benefits from third parties for the services that might create a conflict with their employer's interests.

14. Sheila Schleif, CFA, is an equity analyst at an investment banking division of Mokara Financial Group, a full service financial group. Schleif uses a multi-factor computer model to make stock recommendations for all clients of Mokara. Schleif discovers the model contains an error. If the error were corrected, her most recent buy recommendation communicated to all clients would change to a sell. Schleif corrects the error, changing the buy to a sell recommendation, and then simultaneously distributes via e-mail the revision to all investment banking clients who received the initial recommendation. A week later, Schleif sells the same shares she held in her personal portfolio. Concerning her actions, Schleif most likely violated which of the following CFA Institute Standards of Professional Conduct? A. Fair Dealing B. Priority of Transactions C. Diligence and Reasonable Basis

A is correct because the analyst violated Standard III (B) Fair Dealing by selectively distributing the recommendation only to investment banking clients despite being responsible for making investment recommendations to all group clients. Schleif should distribute the change in recommendation to all clients who received the initial recommendation, not just those within the investment banking division of the group.

80. A company has initiated the process of selling unproductive land representing 5% of its total assets and using the proceeds to buy back its common shares. Holding other factors constant, these actions by the company will most likely result in a: A. higher return on equity. B. higher operating margin. C. lower sustainable growth.

A is correct. Selling unproductive land and using the proceeds from the sale to buy back shares reduces the total assets. Holding sales constant the decrease in assets would improve the asset turnover. Buying back shares increases the firm's financial leverage. Both the increase in asset turnover and financial leverage will lead to a higher return on equity.

84. Which of the following financial intermediaries are most likely to provide liquidity service to their clients? A. Dealers B. Brokers C. Exchanges

A is correct. The service that dealers provide is liquidity. Liquidity is the ability to buy or sell with low transaction costs when you want to trade. By allowing their clients to trade when they want to trade, dealers provide liquidity to them.

2. Jack Steyn, CFA, recently became the head of the trading desk at a large investment management firm that specializes in domestic equities. While reviewing the firm's trading operations, he notices clients give discretion to the manager to select brokers on the basis of their overall services to the management firm. Despite the client directive, Steyn would most likely violate Standard III (A) Loyalty, Prudence, and Care if he pays soft commissions for which of the following services from the brokers? A. Equity research reports B. Investment conference attendance C. Database services for offshore investments

A. Equity research reports B. Investment conference attendance C. Database services for offshore investments

81. Which of the following is the most appropriate reason for using a free-cash-flow-to-equity (FCFE) model to value equity of a company? A. FCFE is a measure of the firm's dividend paying capacity. B. FCFE models provide more accurate valuations than the dividend discount models. C. A firm's borrowing activities could influence dividend decisions but they would not impact FCFE.

Answer = A

86. The financial systems that are operationally efficient are most likely characterized by: A. security prices that reflect fundamental values. B. the use of resources where they are most valuable. C. liquid markets with low commissions and order price impacts.

Answer = C

Reliable Data Corp offered to pay all the expenses for Lindsey Robinson, CFA, an equity analyst who covers the company, to attend the company's upcoming annual shareholder meeting. Robinson declined the offer and explained to the company that had she accepted, she would most likely be violating: Standard III: Duties to Clients Standard I: Professionalism Standard II: Integrity of Capital Markets

B Had Robinson accepted Reliable Data Corp's offer to pay all her expenses to attend the company's upcoming annual shareholder meeting, she would be in violation of Standard I(B): Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity.

3. Abdul Naib, CFA, was recently asked by his employer to submit an updated document providing the history of his employment and qualifications. The existing document on file was submitted when he was hired five years ago. His employer notices the updated version shows Naib obtained his Master of Business Administration (MBA) degree two years ago, whereas the earlier version indicated he had already obtained his MBA. Because the position Naib was hired for had a minimum qualification of an MBA, Naib is asked to explain the discrepancy. He justifies his actions by stating: "I knew you wouldn't hire me if I didn't have an MBA degree, but I already had my CFA designation. Knowing you required an MBA, I went back to school on a part-time basis after I was hired to obtain it. I graduated at the top of my class, but this shouldn't come as any surprise, as you have seen evidence I passed all of my CFA exams on the first attempt." Did Naib most likely violate the CFA Institute Standards of Professional Conduct? A. No B. Yes, with regard to Misconduct C. Yes, with regard to Reference to the CFA Designation

B is correct because Naib knowingly misrepresented his qualifications by stating he had obtained an MBA degree at the time of his hire when in fact he had not. This reflects adversely on his professional integrity, violating Standard I (D) Misconduct. Stating he passed his CFA exams in three consecutive years is not a violation of Standard VII (B) Reference to CFA Institute, the CFA Designation, and the CFA

10. Henrietta Huerta, CFA, writes a weekly investment newsletter to market her services and obtain new asset management clients. A third party distributes the free newsletter on her behalf to those individuals on its mailing list. As a result, it is widely read by thousands of individual investors. The newsletter recommendations reflect most of Huerta's investment actions. After completing further research on East-West Coffee Roasters, Huerta decides to change her initial buy recommendation to a sell. To avoid violating the CFA Institute Standards of Professional Conduct it would be most appropriate for Huerta to distribute the new investment recommendation to: A. newsletter recipients first. B. asset management clients first. C. newsletter recipients and asset management clients simultaneously.

B is correct because according to Standard III (A) Loyalty, Prudence and Care members and candidates must place their clients' interests first before their own interests. The temptation may be to release the changed recommendation to newsletter recipients simultaneously with or even before the asset management clients to try to obtain new clients. However, to avoid violating Standard III (A) Loyalty, Prudence and Care, Huerta must ensure any change in an investment recommendation is first distributed to her asset management clients before any newsletter recipients, who are not necessarily clients (that is, they receive the newsletter for free from a third party distribution list).

78. Which of the following is the least appropriate method for an external analyst to estimate a company's target capital structure for determining WACC? Using the: A. averages of comparable companies' capital structure. B. company's current capital structure, at book value weights. C. statements made by the company's management regarding capital structure policy.

B is correct. An external analyst does not know a company's actual target capital structure. Consequently, the analyst should rely on market value (not book value) weights for the components of the company's current capital structure.

85. A trader places a limit order to buy shares at a price of $49.94 with the stock trading at a market bid price of $49.49 and the bid-ask spread of 0.7%. The order will most likely be filled at: A. $49.49. B. $49.84. C. $49.94.

B is correct. An order is filled at the best available price as long as this price is lower than the limit price. In this case, the best available price is the market ask price = $49.49 x (1+ 0.7%) = $49.84. Since this price is lower than the limit price of $49.94, the order will be filled at this price

51. An analyst is forecasting gross profit of the three following companies. He uses the five-year average gross margins and forecasts sales using an internal model. Company 1's products currently enjoy healthy margins because of its technological edge. New technologies typically replace old ones every two years in this industry. Company 2 has been offering the same products throughout the period, and the demand and cost structures for its products have not experienced any significant changes. Company 3 has recently restructured its product offerings focusing on high margin products only. For which of the three companies will the forecast of gross profit be most reliable? Company: A. 1. B. 2. C. 3.

B is correct. Company 2 because it has been offering the same products and its demand and cost structures have been stable too. Therefore, the relationship between sales and gross profit (i.e., gross margin) should be stable and most reliable.

88. After the public announcement of the merger of two firms an investor makes abnormal returns by going long on the target firm and short on the acquiring firm. This most likely violates which form of market efficiency? A. Semi-strong form only B. Weak and semi-strong forms C. Semi-strong and strong forms

B is correct. In a semi-strong efficient market, prices adjust quickly and accurately to new information. In this case, prices would quickly adjust to the merger announcement and if the market is semi-strong efficient market, investors acting after the merger announcement would not be able to earn abnormal returns. Therefore, it is a violation of the semi-strong form of market efficiency. Note that the semi-strong form of market efficiency encompasses the weak form. Therefore, both weak and semi-strong forms of market efficiency are violated.

66. An analyst can most accurately identify a LIFO liquidation by observing a(n): A. increase in gross margin. B. decrease in the LIFO reserve. C. change in inventory out of line with change in sales.

B is correct. The most appropriate way to identify a LIFO liquidation is by reviewing the inventory footnotes for a decrease in the LIFO reserve. Although a LIFO liquidation may result in an increase in gross margin or changes in inventory out of line with changes in sales there are other factors that could explain those changes.

34. Partial information on three baskets containing goods A and B is given in the table below. The marginal rate of substitution of B for A, (MRSBA), at Basket 2 is also provided: table. A consumer's indifference curves are strictly convex and he claims that he is indifferent between Baskets 2 and 3. If he is also indifferent between Baskets 1 and 3, the number of units of A in basket 1 is most likely:

Because the consumer is indifferent between all three baskets, they must all fall on the same indifference curve. The MRS at Basket 2 is 4, meaning that the slope of the indifference curve is -4.

Maria Martinez is a research analyst and a Level II CFA candidate. Recently, friends of Martinez organized a party for her 30th birthday. At the party, Martinez received an inexpensive gift from a friend who is the CEO of a publicly listed company Martinez recommends to clients. Martinez also received gifts from some of the firm's best clients. Aware of her employer's policy requiring her to report all gifts received within one week of receipt, Martinez declares the gifts she received from the firm's clients two days after the party. Does Martinez most likely violate the CFA Institute Code of Ethics and Standards of Professional Conduct? No, because her CEO friend's gift was inexpensive No, because the gifts do not impact her research independence and objectivity Yes

C Standard I(D)-Misconduct states that members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence. By only reporting the gifts she received from clients and not the inexpensive gift from her CEO friend, she does not conform to her employer's gift policy of reporting all gifts. Her non-compliance with employer policies reflects adversely on her professional reputation and honesty.

11. Danielle Deschutes, CFA, is a portfolio manager who is part of a 10-person team that manages equity portfolios for institutional clients. A competing firm, South West Managers, asks Deschutes to interview for a position within its firm and to bring her performance history to the interview. Deschutes receives written permission from her current employer to bring the performance history of the stock portfolio with her. At the interview, she discloses that the performance numbers represent the work of her team and describes the role of each member. To bolster her credibility, Deschutes also provides the names of institutional clients and related assets constituting the portfolio. During her interview Deschutes most likely violated the CFA Institute Standards of Professional Conduct with regards to: A. the stock portfolio's performance history. B. her contribution to the portfolio's returns. C. providing details of the institutional clients.

C is correct because Deschutes most likely violated Standard III (E) Preservation of Confidentiality by failing to preserve the confidentiality of client records when she disclosed specific details about clients in the equity portfolio.

How do you decide about accepting gifts2. Dilshan Kumar, CFA, is a world-renowned mining analyst based in London. Recently, he received an invitation from Cerberus Mining, a London Stock Exchange listed company with headquarters in Johannesburg, South Africa. Cerberus asked Kumar to join a group of prominent analysts from around the world on a tour of its mines in South Africa, some of which are in remote locations, not easily accessible. The invitation also includes an arranged wildlife safari to Krueger National Park for the analysts. Kumar accepts the invitation, planning to visit other mining companies he covers in Namibia and Botswana after the safari. To prevent violating any CFA Institute Standards of Professional Conduct, it is most appropriate for Kumar to only accept which type of paid travel arrangements from Cerberus? A. Ground transportation to Krueger National Park B. Economy class round trip ticket from London to Johannesburg C. Flights on a private airplane to the remote mining sites in South Africa

C is correct because Standard I (B) Independence and Objectivity requires members and candidates to use reasonable care and judgment to maintain their independence and objectivity in their professional activities. Best practice dictates that Kumar only accept transportation to the remote mining sites in that it is unlikely he would be able to source commercial flights to the locations and ground transport may not be viable. Because Kumar would normally visit mining sites around the world as part of his job and because he is combining this trip with trip to other mine sites in different countries, it would be inappropriate for Cerberus to pay for the analyst's travel expenses from London. Although Kumar could go on safari with the group of analysts, he should pay his own way so as to restrict any influence such a gift could possibly have when making his investment recommendations on Cerberus.

Elbie Botha, CFA, an equity research analyst at an investment bank, disagrees with her research team's buy recommendation for a particular company's rights issue. She acknowledges the recommendation is based on a well-developed process and extensive research but feels the valuation is overpriced based on her assumptions. Despite her contrarian view, her name is included on the research report to be distributed to all of the investment bank's clients. To avoid violating any CFA Institute standards, it would be least appropriate for Botha to undertake which of the following? A. Leave her name on the report B. Insist her name is removed from the report C. Issue a new report based on her conclusions

C is correct because Standard IV (A) calls for employees to be loyal to their employer by not causing harm. If Botha released a contradictory research recommendation report to clients, it could possibly cause confusion amongst clients and embarrassment to the firm.

17. Millicent Plain has just finished taking Level II of the CFA examination. Upon leaving the examination site, she meets with four Level III candidates who also just sat for their exams. Curious about their examination experience, Plain asks the candidates how difficult the Level III exam was and how they did on it. The candidates say the essay portion of the examination was much harder than they had expected and they were not able to complete all questions as a result. The candidates go on to tell Plain about broad topic areas that were tested and complain about specific formulas they had memorized what did not appear on the exam. The Level III candidates least likely violated the CFA Institute Standards of Professional Conduct by discussing: A. specific formulas. B. broad topic areas. C. the examination essays.

C is correct because discussing the level of difficulty of the essay portion of the examination did not violate Standard VII (A) Conduct as Members and Candidates in the CFA Program. Standard VII (A) and the Candidate Pledge were violated by candidates revealing broad topical areas and formulas tested or not tested on the exam. 18.

92. A portfolio manager is required to sell 31,250 shares of XYZ Inc. in two months. She is concerned the price of XYZ shares will decline during the 2-month period, so she enters into a deliverable equity forward contract to sell 31,250 shares of XYZ in two months for EUR 160 per share. When the contract expires, XYZ is trading at EUR 138 per share. The portfolio manager will most likely: A. pay EUR 687,500 to the dealer. B. receive EUR 4,312,500 from the dealer. C. receive EUR 5,000,000 from the dealer.

C is correct because the portfolio manager entered into a contract to sell the stock to the dealer at $160 per share in 2 months time. 31,250 shares x EUR 160 = EUR 5,000,000.

13. Kim Klausner, CFA, monitors several hundred employees as head of compliance for a large investment advisory firm. Klausner has always ensured that his company's compliance program met or exceeded those of its competitors. Klausner, who is going on a long vacation, has delegated his supervisory responsibilities to Sue Chang. Klausner informs Chang that her responsibilities include detecting and preventing violations of any capital market rules and regulations, and the CFA Institute Code and Standards. Klausner least likely violated the CFA Institute Standards of Professional Conduct by failing to instruct Chang to also consider: A. firm policies. B. legal restrictions. C. industry standards.

C is correct because the requirement under Standard IV(C) Responsibilities of Supervisors does not include any reference to industry standards. Standard IV(C) requires supervisors to instruct those subordinate to whom supervision is delegated about detection methods to prevent violations of laws, rules, regulations, firm policies and the CFA Institute Code and Standards.

8. Charles Mbuwanga, a Level III CFA Candidate, is the business development manager for Sokoza Investment Group, an investment management firm with high-net-worth retail clients throughout Africa. Sokoza introduced listed Kenyan Real Estate Investment Trusts (REITs) to its line of investment products based on new regulations introduced in Kenya so as to diversify its product offering to clients. The product introduction comes after months of researching Kenyan property correlations with other property markets and asset classes in Africa. Sokoza assigns Mbuwanga as part of the sales team in introducing this product to its clients across Africa. Mbuwanga subsequently determines most of Sokoza's clients' portfolios would benefit from having a small Kenyan property exposure to help diversify their investment portfolios. By promoting the Kenyan REITs for Sokoza's client portfolios as planned, Mbuwanga would least likely violate which of the following standards? A. Suitability B. Knowledge of the Law C. Independence and Objectivity

C is correct because there is no indication Mbuwanga's recommendation is based on any compensation package based on sales targets as being part of the sales team. If he had a sales target as part of his responsibility to promote the new product, it could be conceived that his independence and objectively was in question. Mbuwanga does, however, seem to be in violation of Standard III (C) Suitability in that, although research with regard to correlation was undertaken, an analysis based on each individual client's return and risk objectives was not done. He may also be in violation of Standard I (A) Knowledge of the Law in that he would need to determine if the Kenyan REIT product is allowable in each of the countries where his clients reside.

An analyst gathers the following information about two companies in the same industry: Book value per share A>B Market price per share A>B Return on equity A>B Retention ratio A<B What is the most appropriate conclusion regarding investors' expectations? Compared to Company B, Company A has: A. higher intrinsic value as reflected by its higher market price. B. higher sustainable growth as reflected by its higher return on equity. C. lower future investment opportunities due to its lower price-to-book ratio.

C is correct. The price-to-book ratio, which is also referred to as the market-to-book ratio, provides an indication of investors' expectations about a company's future investment and cash flow-generating opportunities. The larger the price-to-book ratio (i.e., the greater the divergence between market value per share and book value per share), the more favorably investors will view the company's future investment opportunities. In this case, as shown below, Company A has lower price-to-book ratio than Company B and therefore an expectation of lower future investment opportunities.

79. Which of the following statements concerning regulatory bodies is least accurate? Regulatory bodies: A. act to level the playing field for market participants. B. help define minimum standards of practice for agents. C. require that regulated firms maintain optimum levels of capital.

C is correct. Regulators impose minimum levels of capital that apply across the board to all regulated firms, not the optimum level which is firm specific.

Which type of cashflow are trading securities?

CFO Only the cash flows for the purchase of the shares in an affiliated company are cash from investing activities,

68. If a company chooses to capitalize an expenditure related to capital assets instead of expensing it, ignoring taxes, the company will most likely report: A. a lower cash flow per share in that period. B. a higher earnings per share in future periods. C. the same free cash flow to the firm in that period.

CFO + interest×(1- t) - capital expenditures If capitalized, the amount capitalized increases capital expenditures and is recorded as a cash outflow from investing activities The CFO will be higher by amount capitalized, i.e., the amount not expensed Since capital expenditures and CFO increase by the same amount, FCFF is unchanged

How to calculate FCFF

Calculate FCFF: Net income + Non-cash charges + Interest expense × (1-tax rate) - Capital expenditures - Working capital expenditures

how is property treated differently forIFRS and GAAP

GAAP doesn't distinguish from other types of assets IFRS gives optino of fair value model or cost model. must use same model for all properties. Unlike other types of assets, gains are shown on Income statemetn

If two events are independent what is the joint probability? what is at least probability?

P(AB)= P(A) * P(B) P(A or B)= (PA) + P(B)

lagging indicators

duration of unemployment inventory to sales ratio labor cost/unit output commercial/industrial loans ave. prime rate

What is the equation for sample variance?

s^2 = sum of (obs-mean)^2/ (n-1)

The following table shows the volatility of a series of funds that belong to the same peer group, ranked in ascending order: table with 13 values. The value of the first quintile is closest to:

Ly = (n + 1) × (y / 100), =(13+1) x (20/100) =2.8 answer is between 2nd and 3rd value-interpolate

An investor examines the following rate quotes for the Brazilian real and the Australian dollar: Spot rate BRL/AUD: 2.1128 BRL 1-year interest rate: 4.1% Forward rate BRL/AUD: 2.1388 AUD 1-year interest rate: 3.1% If the investor shorts BRL500,000 he will achieve a risk-free arbitrage profit (in BRL) closest to:

FORWARD+ Convers convert total BRL to AUS= 500k*1/2.11= total AUS calculate inc. AUS= total AUS*1.031=new AUS convert new AUS to BRL= new AUS*2.1388= new BRL1 SPOT RATE= calculate the BRL increase=500k*1.041=new BRL2 Arbitrage= new BRL2- new BRL1

what is the difference between FCFF and FCFE

FCFF is a measure of cash available for discretionary purposes, once the firm has covered all capital expenditures. FCFF is a measure of the cash avaialble to all investors E &D = NI + NCC + INt(1-t) - FCinv - WCInv. =CFO+ INt(1-t) - FCinv FCFE is a measure of the firm's dividend paying capacity. =CFO - FCinv + net borrowing net borrowing (debt issued-repaid)

Component depreciation is required under which accounting method

IFRS

83. A trader buys 500 shares of a stock on margin at $36 a share using an initial leverage ratio of 1.66. The maintenance margin requirement for the position is 30 percent. The stock price at which the margin call will occur is closest to:

Initial equity (%) in the margin transaction = 1/Leverage ratio = 1/1.66 = 0.60; P* (1-initial)/(1-maintenance)

How to calculate total return index

The total return of an index is the price appreciation, or change in the value of the price return index, plus income (dividends and/or interest) over the period, expressed as a percentage of the beginning value of the price return index.

what is financial leverage

Total Assets/Total Equity

how do you identify null hypothesis?

want to reject always has = the alternative hypothesis is one tailed or two

52. A company whose objective is to maximize income had spent $1,000,000 for a machine with two significant components as indicated below. The machine is expected to have an overall useful life of 10 years and the company uses the straight line method of depreciation. The depreciation expense for the first year computed under IFRS compared with under U.S. GAAP will most likely be: A. the same. B. lower. C. higher.

Under IFRS: the company must use the component method of depreciation expense : (500,000 ÷ 10) + (500,000 ÷ 5)= $150,000 per year for the first five years. Under U.S. GAAP, the company would not use component deprecation because it would prefer to minimize depreciation expense in order maximize income. 1,000,000 ÷ 10 = $100,000 per year.

what should happen if the board director is not independent

Under best practices in corporate governance procedures, independent board members should have a "lead" director when the board chair is not independent.

Priscilla Moab, CFA, is the director of marketing at Red Lantern Investments. Red's investment approach uses technical and fundamental analysis, as well as portfolio construction, to minimize risk. Moab plans to market an online investment newsletter to retail clients. Moab decides to let prospective clients have access to Red's buy and sell recommendation list by posting this information on a social media site. The posting also provides information on Red's basic investment process and logic. To avoid violating the CFA Institute Code of Ethics and Standards of Professional Conduct, Moab should most likely: update investment process changes annually. indicate that additional information and analysis are available. describe the investment approach in detail.

b If recommendations are contained in an abbreviated format (such as a recommended stock list), members and candidates should notify clients that additional information and analysis are available from the producer of the report as required by Standard V(B)-Communication with Clients and Prospective Clients. In this case, a clear statement on the website that more information is available upon request would be required.

Alexandra Smirnov, CFA, is a pension consultant to the Springwell Pension Fund. After reviewing Springwell's three-year performance presentation showing the fund's underperformance relative to its investment objectives and agreed benchmarks, Smirnov recommends that the fund hire new asset managers. Smirnov proposes the fund hire Newday Managers on the basis of recent meetings she has had with the firm. Lengthy discussions at these meetings included Newday's investment strategy, its suitability to manage pension funds, its ability to adhere to its stated strategy, the firm's historical investment performance, and its adoption of the CFA Institute Code of Ethics and Standards of Professional Conduct. Smirnov turned down Newday's offer of an introduction fee when recommending its services but did not inform Springwell trustees of this offer. Which of the following CFA Institute Standards of Professional Conduct has Smirnov most likely violated? Diligence and Reasonable Basis Referral Fees Loyalty, Prudence, and Care

a Smirnov violated Standard V(A)-Diligence and Reasonable Basis because she recommended an external adviser without first understanding the adviser's compliance and internal control procedures. She was correct in seeking to understand the proposed fund manager's code of ethics, quality of performance returns, and ability to adhere to its stated investment strategy, but in order to complete her work, she also needed to perform due diligence with regard to the firm's compliance and internal control procedures. Smirnov refused the referral fee [Standard VI(C) Referral Fees], so she did not need to inform her client of this matter. There is also no indication that she did not act with reasonable care and prudent judgment when recommending a change in asset managers to meet the objectives of the client.

Tonya Tucker, CFA, is a financial analyst at Bowron Consolidated. Bowron has numerous subsidiaries and is actively involved in mergers and acquisitions to expand its businesses. Tucker analyzes a number of companies, including Hanchin Corporation. When Tucker speaks with the CEO of Bowron, she indicates many of the companies she has looked at would be attractive acquisition targets for Bowron. After her discussion with the CEO, Tucker purchases 100,000 shares of Hanchin Corporation at $200 per share. Bowron does not have any pre-clearance procedures, so the next time she meets with the CEO, Tucker mentions she owns shares of Hanchin. The CEO thanks her for this information but does not ask for any details. Two weeks later, Tucker sees a companywide e-mail from the CEO announcing Bowron's acquisition of Hanchin for $250 a share. In regard to her purchase of Hanchin stock, Tucker least likely violated the CFA Institute Standards of Professional Conduct concerning: Material Nonpublic Information. Loyalty. Priority of Transactions.

a There is no indication the analyst had access to material nonpublic information and was in violation of Standard II(A): Material Nonpublic Information. Specifically, Tucker did not have information concerning any decision by Bowron to acquire Hanchin stock because she is not a part of Bowron's decision-making team that determines the companies it plans to take over. The analyst had indicated numerous companies were viable options for take over, and she did not single out any one company in particular. However, trading the stock of a company the analyst recommended as an acquisition candidate does violate Standard IV(A): Loyalty because she did not give her employer the opportunity to take advantage of her skill/recommendation prior to buying the shares for her own portfolio. In addition, the analyst violated Standard VI(B): Priority of Transactions, which requires that investment transactions for clients and employers must have priority over investment transactions in which a member or candidate is the beneficial owner despite the fact that there are no stock pre-clearance procedures at Bowron.

A large manufacturing company is seeking help finding a fund manager for its pension plan. After a comprehensive but unsuccessful search, Brett Arun, CFA, is hired to solicit proposals from various fund managers. The client pays Arun a lump-sum fee for his services. The search concludes with Ramport Investments being hired as the pension plan's manager. A year after Ramport is hired, the pension administrator sends Arun a letter telling him how satisfied the pension trustees are with the services provided by the fund manager. Subsequently, without the plan sponsor's knowledge, Arun receives a payment from Ramport for successfully introducing it to the pension plan under an agreement Arun entered into with Ramport when the initial contact with the fund manager was made. With regard to the payment received, did Arun most likely violate the CFA Institute Standards of Professional Conduct? Yes, because he did not disclose the referral fee to the client Yes, because he should have refused payment from the fund manager No

b Arun has violated Standard VI(C)-Referral Fees because he did not disclose the referral fee arrangement with Ramport to his client prior to Ramport being appointed as the client's fund manager. This disclosure is necessary for the client to be able to determine Arun's level of independence and objectivity in recommending Ramport to the fund. If Arun had made proper disclosure, he would be able to accept the payment without violating any CFA Institute Standards of Professional Conduct.

Jennifer Ducumon, CFA, is a portfolio manager for high-net-worth individuals at Northeast Investment Bank. Northeast holds a large number of shares in Baby Skin Care Inc., a manufacturer of baby care products. Northeast obtained the Baby Skin Care shares when it underwrote the company's recent IPO. Ducumon has been asked by the investment banking department to recommend Baby Skin Care to her clients, who currently do not hold any shares of Baby Skin Care in their portfolios. Although Ducumon has a favorable opinion of Baby Skin Care, she does not consider the shares a buy at the IPO price or at current price levels. According to the CFA Institute Standards of Professional Conduct, the most appropriate action for Ducumon is to: recommend the shares after additional analysis. follow the request as soon as the share price declines. ignore the request.

b Ducumon's opinion of the Baby Skin Care shares must not be affected by internal pressure. If Ducumon followed the request from the investment banking department at her company, she would be in violation of Standard I(B): Independence and Objectivity. Ducumon must refuse to recommend the Baby Skin Care shares until they are an attractive purchase based on fundamental analysis and market pricing.

leading indicators

change direction before the peak/trough =manufacturer orders for new goods = stock prices =interest rate spread =index of consumer expectations =claims unemployment insurance

Edo Ronde, CFA, an analyst for a hedge fund, One World Investments, is attending a key industry conference for the microelectronics industry. At lunch in a restaurant adjacent to the conference venue, Ronde sits next to a table of conference attendees and is able to read their nametags. Ronde realizes the group includes the president of a publicly traded company in the microelectronics industry, Fulda Manufacturing, a company Ronde follows. Ronde overhears the president complain about a production delay problem Fulda's factories are experiencing. The president mentions that the delay will reduce Fulda's earnings by more than 20% during the next year if not solved. Ronde relays this information to the portfolio manager he reports to at One World explaining that in a recent research report he recommended Fulda as a buy. The manager asks Ronde to write up a negative report on Fulda so the fund can sell the stock. According to the CFA Institute Standards of Professional Conduct, Ronde should least likely: request the portfolio manager not act on the information. leave his research report as it is. revise his research report.

b Ronde should refuse to follow his supervisor's request. If Ronde revises his research report based on the information he overheard at the industry conference, he would violate Standard II(A): Material Nonpublic Information. The production delay information is material and considered nonpublic until it is widely distributed. Therefore, it should not be included in Ronde's research report or acted on until it becomes public. Ronde should try to encourage Fulda to make the information public. answer woudl have been different if a had been request the portfolio manager report to company's legal

Thomas Turkman recently hired Georgia Viggen, CFA, as a portfolio manager for North South Bank. Although Viggen worked many years for a competitor, West Star Bank, the move was straightforward because she did not have a non-compete agreement with her previous employer. Once Viggen starts working for Turkman, the first thing she does is bring to her new employer a trading software package she developed and used at West Star. Using public information, Viggen contacts all of her former clients to convince them to move with her to North South. Viggen also convinces one of the analysts she worked with at West Star to join her at her new employer. Viggen most likely violated the CFA Institute Standards of Professional Conduct concerning her actions involving: clients. trading software. the analyst.

b The portfolio manager violated Standard IV(A): Loyalty by taking proprietary trading software from her former employer. Although the manager created the software, it was during a period of time when she was employed at West Star, so the software is not her property to take with her to her new employer. The member contacted clients using public information, so she did not violate Standard IV(A): Loyalty. Because Viggen was not obligated to abide by a non-compete agreement that would likely restrict recruitment of former colleagues, Viggen is most likely free to recruit the analyst from her former employer.

Meshack Bradovic, CFA, was recently hired as a credit analyst at a credit rating agency whose major clients include publicly listed companies on the local stock exchange. One of the clients is currently preparing to issue a new bond to finance a major factory project. Analysts are speculating that without the new factory, the company will not survive the onslaught of competition from increasing imports; therefore, the company is counting on an upgraded credit rating to enhance the subscription level of the issue. Bradovic's research suggests the creditworthiness of the company has severely deteriorated over the last year because of negative operating cash flows. Without conducting extensive research, Bradovic's boss puts pressure on him to upgrade the credit rating to an investment-grade rating. Bradovic reports this pressure to the firm's compliance department, where he is encouraged to follow his boss's advice. What course of action is most appropriate for Bradovic to prevent any violation of the CFA Standards of Professional Conduct? Disassociate with the credit rating report, the bond issue, and the client. Upgrade the rating but note his objections in writing. Quit his position with the firm.

c Bradovic's boss's insistence that all credit ratings be given an investment-grade rating, irrespective of the analysis undertaken, indicates a systemic disregard for due diligence, reasonable basis, and true representation. This shows a total disregard for the CFA Institute Standards of Professional Conduct, in particular Standard V(A)-Diligence and Reasonable Basis. Bradovic's best course of action consequently is to resign because the company's current practice of giving false credit ratings is likely to continue.

Ensuring that a country's interests are taken into account when effectively implementing the GIPSstandards on a country-wide basis most likely relies on which of the following entities? Local independent valuation firms Local regulator(s) A local sponsoring organization

c Effective implementation of the GIPS standards in countries relies heavily on a local sponsoring organization. This organization ensures the country's interests are taken into account as the GIPS standards are incorporated.

Tammi Holmberg is enrolled to take the Level I CFA examination. While taking the CFA examination, the candidate on Holmberg's immediate right takes a stretch break and a piece of paper from his pocket falls onto Holmberg's desk. Holmberg glances at the paper and realizes there is information written on the paper, which includes a formula Holmberg needs for the question she is working on. Holmberg had not memorized this formula and could not complete the question without this information. Holmberg pushes the paper off her desk and uses the formula to complete the question. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, Holmberg most likely: was free to act on the information that fell on her desk. is responsible for notifying exam proctors of her neighbor's violation. compromised her exam.

c Holmberg's conduct compromised the validity of her exam and violated Standard VII(A)-Conduct as Members and Candidates in the CFA Program. Her conduct was also a violation of the rules and regulations of the CFA Program, the candidate pledge, and the CFA Institute Code of Ethics.

Which of the following situations most likely helps explain why the Global Investment Performance Standards (GIPS) were created? Firms including only top-performing funds to represent their performance history Consistency among fund managers when making investment performance presentations Asset managers including the performance of all portfolios, even those no longer managed, in their performance history

c The GIPS standards were created to help prevent such misleading practices as "representative accounts," whereby a firm selects top-performing portfolios to represent its overall investment results for a specific mandate.

28. An analyst wants to estimate the return on the S&P 500 Index for the current year using the following data and assumptions: Sample size = 50 securities from the index Mean return for those stocks in the sample for the previous year = 0.114 Variance = 0.0529 The reliability factor for a 95% confidence interval with unknown population variance and sample size greater than 30 is . If he assumes that the S&P return this year will be the same as it was last year, which of the following is the best estimate of the 95% confidence interval for this year's S&P return?

eqn= mean return +/- z* (root variance/root sample size)

relation between spot and forward

f/s=d/f forward/spot= (1+dom)/(1+For)

76. The effective annualized cost (%) of a banker's acceptance that has an all-inclusive annual rate of 5.25% for a one-month loan of $2,000,000 is closest to:

interest/net proceeds (proceeds-interest) = 2M * 5.25%* 1/12 / 2M * (1 - 5.25% *1/12)

how does inventory method affect D/E ratio

no impact on debt changes RE (changes NI) which changes OE

what does mutually exclusive mean in capital budgetting

only one project can be accepted

where does revaluation value of property go in financial statemetns

revaluation surplus=owner's equity