cfa daily questions
a competitive firm will tend to expand its output as long as marginal: revenue is greater than average cost revenue is greater than marginal cost cost is less than average cost
revenue is greater than marginal cost
Which of the following disclosures about inventory would be required by IFRS's but not US GAAP reversal amount of inventory write downs amount of inventory pledged as collateral carrying amount of raw materials
reversal amount of inventory write downs
name similarities between american and euro bonds
right to exercise option at expiration
the yield from an investment in commodities that results from a differewnce between the spot price and a futures price is the: convenience yield roll yield collateral yield
roll yield
CAPM formula
rₐ = rf + Bₐ(rm-rf) rf = risk free rate Bₐ = Beta of security rm = expected market return
whats an absolute return? whats an example?
stated goal as defined by stand alone amount. a return equal to say 5% based on an investors risk objectives (a return equal to some rate of return)
other things equal, the no arbitrage forward price of an asset will be higher if the asset has: convenience yield dividend payments storage costs
storage costs
3 primary functions of money
store of value cuz it can be saved for future consumption unit of account cuz things are expressed in units of money medium of exchange cuz its a payment form
which of the following would least likely be considered a minimum requirement of an IPS? benchmark portfolio investments strategy based on client circumstances and constraints target return figure
target return figure
all of the following affect an investor's risk tolerance except: tax bracket family situation years of experience with investing in the markets
tax bracket
all of the following affect an investors risk tolerance except: tax bracket family situation years of experience with investing in the markets
tax bracket
exec describes her compannys "low latency, multiple terabyte" requirements for managing Big Data. To which characteristics of Big Data is he referring to?: volume and velocity velocity and variety volume and variety
volume velocity
which of the following accounts is an estimated amount? prepaid expenses accounts payable warranty expense
warranty expense
what happens to yield spreads in the bond market when equitys weaken? when theyre strong? when theyre stable?
weak - widen strong - narrow stable - narrow
while assessing an investors risk tolerance, a financial adviser is least likely to ask which of the following questions? what rate of investment return do you expect how much insurance coverage do you have is your home life stable
what rate of investment return do you expect gauge risk tolerance first, then set of feasible returns comes next
conservatism principle
whe, if, how much, and when item should be recorded on the financial statements. generally, losses that are probablt and can be reasonably estimated impact the financial statement
what is a reset date when buying property?
when a initial fixed interest rate on an ARM changes to an adjustable rate
which of the following statements about portfolio diversification is correct? the efficient frontier represents individual securities when a risk adverse investor is confronted with two investment opportunities having the same expected return, the investor will take the opportunitiy with the lower risk as correclation cooefficient moves from +1 to 0, the potential for diversification dimisnishes
when a risk adverse investor is confronted with two investment opportunities having the same expected return, the investor will take the opportunitiy with the lower risk
an investor deposits $10k in a bank accout paying 5% interest compounded annually. rounded to the nearest dollar, in 5 years the investor will have: $12,763 12,500 10,210
$12,763
what is a swap rate
A swap rate is the rate of the fixed leg of a swap as determined by its particular market and the parties involved
what is correct? a price weighted index assumes an equal number of shares represented in the index a market weighted series must adjust the denominator to reflect stock splits in the sample over time an equal weighted index assumes a proportionate market value investment in each company in the index
a price weighted index assumes an equal number of shares represented in the index
whats high margin debt mean
bullish
define current ratio
current assets / current liabilities
One-tailed hypothesis
only one direction of an effect or relationship is predicted in the alternative hypothesis of the test
define gambler fallacy
recent outcomes affect investors estimatees of future probabilities
what is a SPE
special purpose entity
yied spreads tend to widen when equity market performance is: weak strong stable
weak
what is clean price of a bond
bond price without accrued interest
Holding Period Return formula
(P1-P0 + CF1)/ P0
define short interest
# shares investors have borrowed and sold short
At the start of the current year, Company A, which reports using US GAAP, sold a piece of land to Company B for $10 million. The land had a cost of $6 million. Company B made a $2 million down payment with the remaining balance to be paid over the next 5 years. Over the course of the year, it has been determined that there is significant doubt about the ability and commitment of Company B to complete all payments. In the current year, Company A would most likely report a profit related to the sale of the land of: $4M with accrual method $0.8M w installement method $2M w cost recovery method
$0.8M w installement method its looking for PROFIT so cost recovery wouldnt be right cuz there hasnt been profit yet
Chad Co most recent income statement shows net sales of $6k. Marginal tax rate of 40%. Cash expenses were $3,200. Depreciation was $800. Further examination of the most recent balance sheets reveals that AR during that period increased by $1000. CF from operating activities reported by Chad Co should be: $2,200 $1,200 $1,000
$1000 Net income is ($6k - 3.2k - 800) (1-.4) = 1200. To get net income to cash flow from operating activities, add depreciation (800) and subjtract AR (1000) = 1000
if you need $25k in 10 years, how much must you dp today if your money will earn 6% per year compunded annually? $25,000 $13,959.87 $2,320.01
$13,959.87
assume a competitive firm produces 10 units of a good and sells them each for price P equal to $15. if the marginal cost MC of the 10th unit is $15 and the average total cost ATC is $13, economic profit for the firm is closes to: $20 $120 $0`
$20
a compnay purchased a new oven for $12,676. It will work for 5 years and has no salavge value. the tax rate is 41% and annual revenues are constant at $7,192. For financial reporting, the straight line depreciation method is used but for tax purposes depreciation is 35% of original cost in years 1 and 2 and the remaining 30% in year 3. For this question ignore all expenses other than depreciation. what is the deferred tax liability as of the end of year 3? $780 $2079 $1029
$2079 for tax purposes the oven is 100% depreciated at the end of year 3 while for financial reporting its only 60%. difference in depreciation is $12,676 * (1-.6) = $5070 deferreed tax liability = difference in depreciation x tax rate = $5070 * .41 = $2079
at the beginning of 2004, chad co had 1.4m shares of commons stock outstanding and no preferred stock. at the end of august 2004, chad co issued 1.2m new shares of common stock. if chad co reported net income equal to $7.2m, what were EPS for 2004? $3.33 $4 $2.77
$4 weighted # of shares outstanding is 1.4 + (4/12*1.2)
an annuity will pay eight annual payments of $100 with the first to be recieved a year from now. if the interest rate is 12% per yeat whiat is the PV of this? $556 $496 $1229
$496 n - 8 i/y - 12% pmt - -100 fv - 0
assuming a discount rate of 15%, a preferred stock with a perpetual dividend of $10 is valued at approximately: $66.67 1.50 8.70
$66.67 D / kp, or 10.0 / 0.15 = $66.67.
you buy a call on Apple for $190 with a premium of $2.80 with an expiration date of a month away. A month away Apple is trading at $200 so you exercise the trade. did you profit
$7.20
an analyst studying Chad Co determines the average EV/EBITDA ratio for Chad Co is 10. The analyst obtains the following information from Chad's financal statements: EBITDA = $11m MV of debt = $30m cash - $1m. based on the indsutrys average enterprise value multiple, what is the equity value of Chad Co? $80m $110m $81m
$81m Enterprise value = Average EV/EBITDA × company EBITDA = 10 × £11,000,000 = £110,000,000 Enterprise value = Equity value + debt - cashEquity value = Enterprise value - debt + cash = £110,000,000 - £30,000,000 + £1,000,000 = £81,000,000
a firm needs to adjust its financial statements for a change in the tax rate. taxable income is $80k and pretax income is $120k. the current tax rate is 50% and the new tax rate is 40%. the effect on taxes payable of adjusting the tax rate is closest to $4k $8k $16k
$8k
a firm needs to adjust its financial statements for a change in the tax rate. taxable income is $80k and pretax income is $120k. the current tax rate is 50% and the new tax rate is 40%. the effect on taxes payable of adjusting the tax rate is closest to: $4k $8k $16k
$8k
continous EAR formula
((1+i)/n)^n -1
EAR forumla
(1+period rate)^m-1
EAR formula
(1+r/m)^m-1
effective annual rate formula MEMORIZE
(1+r/m)^n-1
Basic EPS
(NI - Preferred Dividends) / Weighted avg # of common shares outstanding
define quick ratio
(current assets - inventory) / current liabilities
formula for dividend discount model
(dividend per share- cost of capital equity) / dividend growth rate
formula for coefficient of skewness or explain
(mean - mode) / standard dev 0 means no skewness at all. larger the value (+/-) larger the distribution differs from a normal distribution
z value formula
(observed value - mean value) / standard deviation
effective duation formula
(pV-) - (pv +) / 2x(change in Curve) x (PV0)
correlation coefficient measurement
-1.0 is perfect negative correlation, +1.0 is positive correlation. 0 is no correlation
find beta Covariance between market reurn and security reurn (CovRi,Rm) = .01104 Correlation coefficient between market return and security return(Pi,m) = .3 Standard Deviation of MV = .16
.43
if the number of offspring for females of a certain mammalian species has a mean of 16.4 and a standard deviation of 3.2, what will be the standard error of the sample mean for a survey of 25 femailes of the species .64 3.20 1.28
.64 equal to standard deviation of population / square root of sameple size 3.2/sq25
whats the cross rate FOR NZD/SGD: USD/SGD = 1.23 NZD/USD = .767
.9664 .767*1.26
at the end of 2018, Chad Inc estimates that $26k of warranty repairs will be required in the future on goods already sold. For tax purposed, warranty expense is not deductible until the work is actually performed. the firms believes that the warranty work will be required over the next two years. the tax base of the warranty liability at the end of 2018 is: $13k $26k zero
0
adding a stock to a portfolio will reduce the risk of the portfolio if the correlation coefficient is less than which of the folliwng?: .5 1 0
1
picard sells a commercial real estate building for $15 million. damik pays a down payment of 3 million, with the remainder of the sale price due to picard over the following 6 years. the cost of the building is $10 mil and picard is not assured of collecting the full sales price from damik. if picard uses the installment method, they will record profit on the down payment of: 1 mil 1.5 mil 3 mil`
1 mil
how to do EAR on the calc
1+rate -> e^x
how to do HPR on the calc
1+rate ->LN
US GAAP Revenue Recognition (4)
1. EVIDENCE of arrangement between buyer and seller 2. product DELIVERED or service rendered 3. PRICE determined or determinable 4. Seller reasonably sure of COLLECTING money
order of the below for highest yields for a dataset: arithmetic geometric harmonic
1. arithmetic - highest 2. gemoetric 3. harmonic - lowest
a hong kong fund was valued at HK$400 million last year. At years end the value before fees was HK$480. the fund charges 2 and 20. management fees are calculated on end of year values. incentive fees are independent of management fees and calculated using no hurdle rate. the previous year the funds net return was 2.5%. the annualized return for the last two years is closets to: 13.6% 8.1% 7.9%
7.9%
Chad Co had 1m shares outstanding at the beginning of the year. On April 1, Chad Co issued an dadditional 399k shares. On July 1, Chad issued 200k more. Whats the weighted averga enumber of shares outstanding for the caculatino of EPS? 1.2m 1.5m 1.325m
1.325 1m + .75*300k + .50+200k
the spot exchange rate for USD per UK Pound is 1.5775. If 30 day interest rates are 1.5% in the US and 2.5% in the Uk, and interest rate parity holds, the 30 day forwarrd USD/GBP exchnage rate should be: 1.5762 1.5621 1.2788
1.5762 USD/GBP * (1 + US interest rate) / (1 + UK Interest rate)'' 1.5775 * ((1+.015/12) / (1 + .025/12))
use the following data to calculate the standard deviation of the return: 50% chance of a 12% return, 30% chance of a 10% return, 20% chance of a 15% return: 3.0% 2.5% 1.7%
1.7%
which of he following would a technical analyst most likely interpret as a buy signal 20 day moving average crosses below a 100 day moving average 30 day moving average crosses above a 5 day moving average 10 day moving average crosses above a 60 day moving average
10 day moving average crosses above a 60 day moving average
consider a bond selling for $1150. bond has 28 years to maturity, pays a 12% annual coupon, and is callable in 8 years for $1100. The yield is closest to: 10.55% 10.05 9.25
10.55
assume a bonds quoted price is 105.22 and the accrued interest is $3.54. the bond has a par value of $100. what is the bonds clean price? $105.22 108.76 103.54
105.22 clean price is bond price without accrued interest so its equal to the quoted price
Chad CO, a Japanese software development firm, has a capital structure that is comprised of 60% common equity and 40% debt. in order to finance several capital projects, Chad CO will raise $1.6m USD by issuing common equity and debt in proportion to current capital structure. debt will be issued at par with a 9% coupon and floation costs on the equity issue will be 3.5%. Chad COs common stock is currently selling for $21.4/share and last dividend was $1.80 and is expected to grow at 7% forever. Tax rate is 40%. Chad's WACC based on cost of new capital is closes to: 9.6% 11.8 13.1
11.76 9%(1 - .04)=5.4 ((1.8x1.07)/21.4)+.07 = 16% .6*16% +.4*5.4% = 11.76
ChadCo, a japanese development firm has a capital structure that is comprised of 60% common equity and 40% debt. in order to finance several capital projects, ChadCo will raise $1.6 USD by issuing common equity and debt in proportion to its current capital structure. the debt will be issued at par with a 9% coupon and flotation costs on the equity issue will be 3.5%. ChadCo's common stock is currently selling for $21.40 per share and its last dividend was $1.80 and is expected to grow at 7% forever. The company tax rate is 40%. Chadco's WACC based on the cost of new capital is closest to: 9.6% 11.8% 13.1%
11.8%
A 20-year $1,000 fixed rate non-callable bond with 8% annual coupons currently sells for $1,105.94. Assuming a 30% marginal tax rate and an additional risk premium for equity relative to debt of 5%, the cost of equity using the bond-yield-plus-risk-premium approach is closest to: 9.9% 12.0 13.0
12 solve for i first. then add risk premium
$250/mo beginning next month for 20 years into an account paying 7% per year, compounded monthly, how much is in your account after the last dp? $58,205.58 $308,663.09 $130,231.66
130231
at the end of 2012 Chad Company has 200 widgets in inventory valued at $100 each. During 2013 Chad bought 100 more widgets at $80 each, and sold 80 widgets. At year end 2013, a recession caused the wholesale widget price to drop to $60 each. Based on FIFO cost flow assumptions, 2014 year end inventory for Chad Co is CLOSEST to $13,200 $17,600 $21,600
13200
Chad Corp pays 40% of its earnings out in dividends. the return on equity ROE is 15%. Last years earnings were $5 per share and the dividend was just paid to shareholders. the current price of shares is $42. the firms tax rate is 30%. the cost of common equity is closest to: 13.8% 16.1% 14.2%
14.19%
Company B paid a $1 dividend per share last year and is expected to continue to pay out 40% of its earnings as dividends for the forseeable future. if the firm is expected to earn a 10% return on equity in the future, and if an investor requires a 12% return on the stock, the stocks value is closest to: $12.50 16.67 17.67
17.67 g = (0.6)(0.1) = 0.06 D1 = (D0)(1 + g) = (1)(1 + 0.06) = $1.06 P0 = 1.06 / (0.12 - 0.06) = 1.06 / 0.06 = $17.67
the expected dividend one year from today is $2.50 for a share of stock priced at $22.50. The long term growth in diviends is projected at 8%. the cost of common equity is closest to: 19.1% 18% 15.6%
19.1% Kce = [2.50 / 22.50] + 0.08 = 0.19111, or 19.1%
chad wants to make an offer on the condo hes renting. he takes a sample of prices of condos in his development that closed in the last 5 months. samples are as following in 1000 dollars: 125, 175, 150, 155, 135. standard devaition is closes to: 38.47 370 19.24
19.24
what percent of the observations will lie above the mean plus two standard deviations: 5% 2.5% 95%
2.5
theirs a 40% probability that the economy will be good next year and 60% probability that it wont. if the economy is good theres a 50% probability of a bull market, 30% probability of a normal marker and 20% probability of a bear market. if its bad, theirs a 20% probability of a bull market, 30% probability of a normal market, 50% probability of a bear market. what is the joint probability of a good economy and a bull market 50% 12% 20%
20%
thers a 40% probability that the conomuc will be good next year, 60% bad. If its good, 50% bull, 30% normal, 20% bear. If bad, 20% bull, 30% normal, 50% bear. Whats the joint probability of a good eocnomy and bull market?
20%
the expected rate of return is twice the 12% expected rate of return from the market. what is the beta if the risk free rate is 6% 2 3 4
3 24 = 6+B(12-6) 18 = 6B B=3
chad receives a premium of $3.80 for writing a put option with an excercise price of $64. If the stock price at expiration is $84, chads profit or loss from the options position is: $3.80 16.20 23.80
3.80
at the beginnign of 04, alaska corp has 2m shares of common stock outstanding and no preferred stock. at the end of august 04, Alaska issued 600k new shares of common stock. if alaska reported net income equal to $8.8m, what was the firms earnings per share in 04? $3.38 3.67 4
4
effective duration for below: current price - 101.45 estimate for decrease in interest rates by .25%, price will rise to 103.28 estimate for increase in interest rates by .25%, price will decresae to 100.81
4.87 (103.28-100.81)/(2*.0025*101.45)
Chad smith purchased, on margin, 200 shares of TMK Corp at a price of $35 per share. the margin requirement was 50%. The stock price has icnreased to 42$ per share. what is his return on investment before commisions and interest if he decides to sell his holdings now?
40% 200 shares x 35$ = $7000 $3500 borrowed 200 x $42 = $8400 $8400 - $3500 = $4900/350 - 1 = 40%
chad industries has a preferred stock oustanding that pays fixed annual dividends of $3.75 a share. if an investor wants to earn a rate of return of 8.5% how much should he be willing to pay for a share of preferred stock $42.10 31.88 44.12
44.12
company invests in 2 hedge funds DXS and REF funds. company initially invested $50mm in DXS and $100mm in REF. After a year, DXS and REF were valued at $55.5 million and $104.5 million, respectively, net of both hedge funds management fees and incntive fees. They charged 1% management fee based on assets under management at the beginning of the year and a 10% incentive fee independent of management fees. The annual net return for the company is closes to 5 6 5.5
5%
the net return on an investors portfolio after fees of 0.2% is 5.8%. if the trackign error is 90 points, the becnhmark index return is closest to: 6.9%, 6.7%, 5.1%
5.1
an analyst has gathered the following data about a company: average receivables collection period of 37 days. average payable payment period of 30 days. average inventory processing period of 46 days. what is there cash conversion cycle 45 days 53 days 113 days
53 days
technical analysts who use cycles deine a Kondriatieff wave as a cycle of: 54 years 18 years 10 years
54
chad inherits $50k and deposits it immediately in a bank account that pays 6% interest. no other deposits or withdrawals are made. in two years what will be the account balance assuming monthly compounding? 53,100 50,500 56,400
56,400
assume that a callable bonds call period starts two years from now with a call price of $102.50. also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. which of the following is the price of the bond assuming that it is called on the first call date $102.50 $100 $103.17
6/1.055+(102.50+6)/1.0552=$103.17
chad has applied to both Harvard and Yale. chad has determined that the probability of getting into Harvard is 25% and the probability of getting into Yale (his father's alma mater) is 42%. chadhas also determined that the probability of being accepted at both schools is 2.8%. What is the probability of chad being accepted at either Harvard or Yale? 64.2 10.5 7.7
64.2
a business has an outstanding loan with an interest rate of 10%. its incremental tax rates are 25% for fed and 5% for state for a total of 30%. whats the after tax cost of debt?
7% 10% * (100% - 30%)
the SSP Company had 5 million shares outstanding on January 1. On Feb 15, the board of directors approved a 3:2 stock split, effective Aptil 1. What is the weighted average number of shares outstanding for the SSP company for year-end? 5,625,000 shares 6,875,000 shares 7,500,000 shares
7.5m
a Hong Kong hedge fund was valued at HK$400m last year. at years end the value before the fees was HK$480m. the fund charges 2 and 20. management fees are claculated on end of year values. incentive fees aee independent of management fees and calculated using no hurdle rate. the previous year the funds net return was 2.5%. the annualized return for the last two years is closest to: 13.6% 8.1 7.9
7.9% Management fee is HK$480 million × 0.02 = HK$9.6 million.Incentive fee is (HK$480 million - HK$400 million) × 0.20 = HK$16.0 million. Total fee is HK$9.6 million + HK$16.0 million = HK$25.6 million.Net of fee: HK$480.0 - HK$25.6 = HK$454.4 million Net return: (HK$454.4 / HK$400.00) - 1 = 13.6%Two year annualized return is (1.136 × 1.025)1/2 - 1 = 7.9%
an investor makes 48 monthly payments of $500 each beginning today into an accoutn that will have a value of $29,000 at the end of four years. the stated annual interest rate is closest to: 9.50% 9 10
9
an investor makes 48 monthly payments of $500 each beginning today into an account that will have a value of $29k at the end of 4 years. the stated annual interest rate is closest to 9.5% 9% 10%
9%
which of the following qualifies as a cumulative distribution function? f(1) = 0, F(2) = .25 F(3) = .5, F(4) = 1 F(1) = 0, F(2) = .25 F(3) = .25 F(1) = 0, F(2) = .5, F(3) = .5, F(4) = 0
A cumulative probability values must stay the same or increase
a BLDR (basket of listed depository receipts) is best described as a: special purpose vehicle for issuing depository receipts in multiple countries index of global depository receipts that trade on a specific exchnage exchange traded fund of depository receipts
A basket of listed depository receipts (BLDR) is an exchange traded fund that represents a portfolio of depository receipts.
APR v APY v EAR
APR - assumes interest is withdrawn whhen earned (usually not the case) APY - APR but w interest accounted for EAR - the same as APY. dont get tricked
what is an ips
An investment policy statement (IPS) is a document drafted between a portfolio manager and a client that outlines general rules for the manager. This statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives
3 ways to describe big data
volume - amount available velocity - speed which it travels variety - degrees of structure in which data exists
what do common markets and econmic unions have in common.
Both common markets and economic unions adopt a common set of trade restrictions with non-members. Neither requires the adoption of a common currency
which of the following markets is least accuratley described as a factor market? market for: land assembly line workers capital market securities
Capital market securities
What are: CAPM D/E EBIT EBITDA EPS
CCapital Asset Pricing Model Debt to equity Earnings before Interest and Taxes Earning before Interest Tax, Depreciation and amortization Earnings per Share
Chad co is a gold mining company HQ'd in Indonesia with operations throughout the world. Chad reports under IFRS. when subsidiareies located in the US and Canada pay dividends to the indonesian parent company, Chad may classify the dividends as: CF from financing CF from investing or financing CF from investing
CF from investing or financing
Black-Scholes Model
Call Option = S N (d₁) - Xe(-ʳᵗ) N(d₂) Put Option = Xe(-ʳᵗ)N(-d₂) - SN (-d₁) C = Price of call option S = Price of underlying stock X = Option excersize price r = risk free interest rate T = Current time until expiration N() = area under normal curve
cash ratio
Cash / Current Liabilities
Chad and Smith have both passed Level I of the CFA program. both are currently enrolled to sit for LEvel II. Chads business card reads "Chad, CFA Level I." Smith's resume states "Lvel II candidate in the CFA program". acording to the CFA institute standards of professional conduct involving use of the professional designation: both are in violation Chad violated, Smith didnt Smith violated, Chad didnt
Chad violated, Smith didnt
discount rate
Coc of the firm +/- a risk premium if its riskier/less risky than average project
beta formula
Cov(Ri,Rm)/SDm^2
Firm considering in investing in a bunch of attractive homebuilders. They intend to invest minimum capital that would allow it to get at least a seat on the board of each. Which would it prefer, why? Proxy voting statutory voting cumulative voting
Cumulative - Allows minority shareholders to apply all of there votes to one director candidate, increasing the chances of obtaining board representation for a given number of voting rights
which of the following uses of data is most accurately described as curation? a data technician accesses an offsite archive to retrieve data that has been stored there an investor creates a word cloud from finanical analysts recent research reports about a company an analyst adjusts daily stock index data from two countries for their different market holidays
Curation is ensuring the quality of data—for example, by adjusting for bad or missing data, analyst adjusting daily stock index from two countries on holidays
which of the following is least likely an indicator of a firms liquidity? cash as a percentage of sales inventory turnover amount of credit sales
amount of credit sales
formula for value of preferred stock with perpetual dividend
D / kp, or 10.0 / 0.15 = $66.67. D=dividend kp=discount rate
which of the following statements regarding exchange traded derivatives is not correct? they: often trade in a physical location are standardized contracts are illiquid
Derivatives that trade on exchanges have good liquidity in most cases. They have the other characteristics listed.
financial leverage magnifies: taxes earnings per share variability operating income variability
EPS
How does the installment sale method work? calculation
Each payment consists of return of cost and gross profit. gross profit percentage ((sales price - carrying value/ sales price x gross profit percentage) + interest payment = revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
1/2 of the enterprise value formulas
Enterprise value = Equity value + debt - cash Enterprise value = Average EV/EBITDA × company EBITDA
difference between american and European put options?
Euro bonds can be exercised only at expiration dates, American can be exercised anytime before
which of the folllwing about importance of risk and return in the inv objective is least accurate: the return objectiv may be stated in $ amounts even if risk is stated in % expressing inv goals in terms of risk is more appropriate than expressing goals in terms of return investors risk tolerance is likley to determine what leveel of return will be feasible
Expressing investment goals in terms of risk is not more appropriate than expressing goals in terms of return.
what is carrying value of a bond
Face amount + premium or Face amount - discount aka book value
Chad Advisors recently had a trading error in a customer account that was subsequently discovered by Chad. the firm felt embarrased by the disclosure of this error and in order to induce the client to continuw its relationship, Chad offers the client preferential access to a new issue that is expected to be "hot". which standard is violated? INdependence and Objectivity Fiduciary Duty Fair Dealing
Fair Dealing
what is forward price
Forward price is the predetermined delivery price for an underlying commodity, currency, or financial asset as decided by the buyer and the seller of the forward contract, to be paid at a predetermined date in the future. At the inception of a forward contract, the forward price makes the value of the contract zero, but changes in the price of the underlying will cause the forward to take on a positive or negative value.
What are: FCFE FCFF IFRS Libor
Free cash flow to equity free cash flow to the firm International financial Reporting Standarda London Interbank Offer Rate
market money yield = ?
HPR * (360/days til maturity)
what is backfill bias
Instant history bias, also known as "backfill bias," is a phenomenon whereby inconsistent reporting practices can unduly inflate the apparent performance of a hedge fund.
·Preferred stock is similar to debt securities because:
It ranks above equity with respect to the distribution of net assets upon liquidation (companies can declare dividend on common stock only if all current and accrued dividends on preferred stock are paid first)
Which of the following best describes fundamental concept of S+D Law of demand assumes inverse relationship between price of good and quantity that can be bought, law of supply assumes inverse relationship between price of good and quantity produced, if supply decreases while demand doesn't change quantity supplied by its producers will decrease while quantity of product demanded remains unchanged
Law of demand assumes inverse relationship between price of good and quantity that can be bought,
a british hedge fund has a value of $100m at the beginning of the year. the fund charges a 2% management fee based on assets under management at the end of the year and a 20% incentive fee with a soft hurdle rate of LIBOR + 2.5%. INcentive fees are calculated net of management fees. IF the relevant LIBOR rate is 2.5% and the fund's value at the end of the year before fees is $120m, the net return to investors is closest to: 14.1% 16.5% 17.6%
Management fee = £120.0 × 2.0% = £2.4 million. Gross value at end of year (given) = £120.0 million.Gross return = (£120.0 / £100.0) - 1 = 20.0%. The soft hurdle rate of 2.5% + 2.5% = 5.0% was exceeded.Incentive fee = (£120.0 - £100.0 - £2.4) × 20% = £3.52 million. Total fee = £2.40 + £3.52 = £5.92 million.Net of fee: £120.00 - £5.92 = £114.08 million. Net return = (£114.08 / £100.00) - 1 = 14.1%.
the typical trade used by a merger arbitrage fund is: long position in acquirer, short position in firm being acquired short positions in both the acquirer and the firm being acquired short position in acquierer, long position in firm being acquired
Merger arbitrage funds typically short the stock of the acquirer and buy the stock of the firm being acquired.
in the valuation of a real estate investment trust, subtracting the REITs liabilities from the value of its real estate assets and dividing by the number of shares outsnading provides an estimate of the REITS: net asset value adjusted funds from operations free csh flow per share
NAV
a bond with a 12% annual coupon, 10 years to maturity and selling at 88% of par has a yield to maturity of: between 10% and 12% between 13% and 14% over 14%
PMT = 12; N = 10; PV = -88; FV = 100; CPT → I = 14.3
what happens when portfolios are to the left of point M
Portfolios that lie to the left of point M are created by lending funds (or buying the risk free-asset). These investors own less than 100% of both the market portfolio and more than 100% of the risk-free asset.
explain PIPE and why its used
Private Investment in Public Equity, is 3rd type of PE investment, along with VC and leveraged buyout. Used to raise capital quickly, allows private investors to get lots of equity for cheap before listing
a pooled investment fund buys all the shares of a publically traded company. the fund reorganizes the company and replaces its management tea,. three years later the fund exits the invetsment through an IPO of the companys shares. this pooled investment fund is vest described as a: VC fund PE fund Event driven fund
Private equity
· Venture capital investments 3/4 things
Provide financing to start-ups that need to rapidly expand, generally hard to value, illiquid until its less risky, IPOs make it so they exit the investment
which is not correct about risk and return?: return objectives may be stated in $ amounts return objectives should be considered in conjunction with risk preferences return only objectives provide a more concise and efficient way to measure performaance for investment managers
Return-only objectives may actually lead to unacceptable behavior on the part of investment managers, such as excessive trading (churning) to generate excessive commissions.
for an investment with negatively skewed returns, th emost appropriate of the following risk measures is: shortfall risk value at risk Sortino ratio
Sortino ratio
standard error of the mean formula
Standard deviation / square root of population
what is stratified random sampling
Stratified random sampling is used in situations in which the researcher knows some of the variables for the population that are critical for achieving representativeness. Typical variables used include: age, gender, ethnicity, diagnosis, etc. Stratification ensures that all levels of the identified variables are adequately represented in the sample.
time weighted rate of return v money weighted return
TW - not sensitive to timing and amount of dps or wds. basically compound rate for $1 during a period MW - IRR based on cash inflowsd and outflows
which of the following statements regarding price multiples is most accurate? a rationale for using the price/cash flow ratio is that there is only one clear definition of cash flow a disadvantage of the price/book value ratio is that it is not an appropriate measure for firms that primarily hold liquid assets an advantage of the price/sales ratio is that it is meaningful even for distressed firms
The P/S ratio is meaningful even for distressed firms, since sales revenue is always positive. This is not the case for the P/E and P/BV ratios, which can be negative.
define capacity utilization
The capacity utilization rate measures the proportion of potential economic output that is actually realized.
a sample of 5 numbers drawn from a population is 5,2,4,5,4. which of the following statements concering this sample is most accurate: the variance of the sample is: ?(x1 ? mean of the sample)2 / (n ?1) = 1.5 The sampling error of the sample is equal to the standard error of the sample. the mean of the sample is ?X / (n ? 1) = 5
The mean of the sample is ∑X / n = 20 / 5 = 4. The sampling error of the sample is the difference between a sample statistic and its corresponding population parameter.
the payoff of a call option on a stock at expiration is equal to: the minimum of zero and the stock price monus the exercise price the maximum of zero and the exercise price minus the stock price the maximum of zero and the stock price minus the exercise price
The payoff on a call option on a stock is Max (0, S - X)
Define capital budgeting
The process of measuring, evaluating, and selecting long-term investment opportunities, primarily in the form of projects or programs
in applying the treasury stock method, if warrants allow the purchase of 1 million shares at $42/share when the average price is $56 per share, how many shares will be added to the firms weighted average number of shares outstanding? 420,000 1,000,000 250,000
The treasury stock method would allow the 1 million additional shares to be partially offset by the number of shares that could be repurchased with the amount of money received for those shares. In this case, the 1 million shares issued would be offset by (1,000,000 × $42 / $56) or 750,000 shares.).
total surplus = ?
Total Value - Total Variable Cost
how is inventory measured under ifrs
Under IFRS, inventory is measured at the lower of cost or net realizable value. Inventory that has been written down can later be revalued upward if its net realizable value recovers, but only to the extent that reverses the writedown (i.e., no higher than cost). Under U.S. GAAP, inventory that has been written down may not be revalued upward.
chad, CFA, is preparing a research report on a company, Capital Assets Management. bob carter, president, invites him and several other analysts to visit his company and offers to pay transportation and lodging. chad pays for her own transportation and lodging, but while visiting accepts an item of small value from carter. chad doesnt disclose this gift to his supervisor when he returns. in the course of the company visit, chad overhears a convo between ceo and cfo that eps will be $1.10 for next quarter. chad was surprised that this eps is substanitally above initial earnings estimate of $.70. without further investiation, chad decides to include $1.10 eps in the report. using high eps positiviely affects his recommendation. which of the following statements about whether chad violated Standard V(A), Diligence and Reasonable Basis and Standard I (B), Independence and Objectivity is correct?: chad violated both standard V(A) and Standard I(B) didnt violate A but did B diid violate A but not B
V(A)
Chad S<ith CFA is a equity research analyst who has recently left a large firm to start an independent practice. He is able to recreate several of his previous reocmmendation reports, based on his clear recollection of supporting documentation he complied at his previous employer. he publishes thereport and obtains several new clients. he is most likely: not in violation of a standard in violation of Standard V(C) Record Retention in violation of Standard V (A) Diligence and Reasonable Basis
V(C) Record Retention
estimate that required rate of return is 11%. Which of the following independent projects should they accept? Proj X - up front expenditure of $1m and generates NPV of -4600 Proj Y - up front expenditure of $800,000 and generates internal RoR to 10.5% Proj Z - up front expenditure of $600k and generates internal Ror of 12%
Z When projects are independent, you can use either the NPV method or IRR method to make the accept or reject decision. Only Project Z has an IRR in excess of the required rate of return and therefore has a positive NPV.
z test vs t test
Z - tests whether the two samples means calculated are different in case the standard deviation is available and sample is large T - tests averages of different data sets differs from each other in case standard deviation or the variance is not known
which of the following is a change in an accounting principle? recording a prior period adjustment a change from FIFO to weighted average a change in the estimated service life of machinery
a change from FIFO to weighted average
compared to issuing a bong at par value and holding all else equal, when a company issues a bond at a premium, its effect on the debt/equity ratio will be: an increasing trend in the ratio over the life of the bond no effect on the ratio over the life of the bond a decreasing trend in the ratio over the life of the bond
a decreasing trend in the ratio over the life of the bond premium amortizes
return and risk data on alternative investments may be affected by backfill bias if: the incorrect distribution is used to model volatility data only includes currently existing firms a firms historical returns are included when its added to an index
a firms historical returns are included when its added to an index Backfill bias refers to bias introduced by including the previous performance data for firms added to a benchmark index.
Ivo Co has a $10m face value bond issue outstanding. these bonds include a call option that permits Ivo to redeem the bonds at any time for 101% of par. these bonds were issued at a premium and have a carrying value of $10,200,000. if Ivo calls the bonds, its income statement will reflect: a loss on redemption a gain on redemption neither a gain nor loss on redemption
a gain on redemption. the firm can call the bonds for 101% of $10m, or $10.1m. redeeming bonds for less than the carrying value of the bond liability results in a gain
when comparing the use of the percentage of completion method with the completed contract method during a long term projects life, the percentage of completion method will result in which of the following? a lower asset turnover a lower return on assets a lower debt to equity ratio
a lower asset turnover
which of the following is an example of an arbitrage opportunity? a stock with the same price as another has a higher ror a put option on a share of stock has the same price as a call option on an identical share a portfolio of two securities that will produce a certain return that is greater than the risk free rate of interest
a portfolio of two securities that will produce a certain return that is greater than the risk free rate of interest
which of the following events would MOST LIKELY affect a securities nonsystematic risk? a product failure a large earthquake a government revolution
a product failure
which is most true? ethics can be described as: commitment to upholding he law an individuals personal belief of right and wrong a set of moral principles that provide guidance for our behavior
a set of moral principles that provide guidance for our behavior
which of the following items is least likely an example of an intangible asset with an indefinite life trademarks that can be renewed at minimal cost acquired patents goodwill
acquired patents
which of the following statements about moneyness is most accurate? when the stock price is: below the strike call, a call option is in the money above the strike price, a put option is in the money above the strike price, a put option is out of the money
above the strike price, a put option is out of the money
which of the following statements about moneyness is most accurate? when the stock price is: below the strike price, a call option is in the money above the strike price, a put option is in the money above the strike price, a put option is out of the money
above the strike price, a put option is out of the money
What is smoothing?
accountign method of leveling out net income from one period to another
in order to more acuratley estimate the cost of equity for a company situated in a devloping market, an analyst should: use the yield on the soverign debt of the developing country instead of the risk free rate when using CAPM add a country risk premium to the rf rate when using the CAPM add a country risk premium to the market risk premium when using the CAPM
add a country risk premium to the market risk premium when using the CAPM
in order to more accurately estimate the cost of equity for a company situated in a developing market, an analyst should: use the yield on the sovereign debt of the developing country instead of the risk free rate when using the capital asset pricing model (CAPM) add the country risk premium to the risk free rate when using the capital asset pricing model (CAPM) add a country risk premium to the market risk premium when using the capital asset pricing model
add a country risk premium to the market risk premium when using the capital asset pricing model
diluted eps formula
adjusted income available for common shares / weighted avg common and potential common shares out
what is curation
adjusting for bad data
Two of the steps in the accounting cycle are
adjusting the accounts and closing the accounts.
what is a affirmative covenant? negative covenant?
affirmative - actions a borrower is required to take negative - restrictions on a borrowers actions
which of the following is least likely to be a required inventory disclosure under IFRS carrying amount of work in progress cost formula used to value inventory after tax adjustment to net income reflecting reversals of inventory write downs
after tax adjustment to net income reflecting reversals of inventory write downs
whats a customs union
all members adopt common trade policies with nonmembers
A function of the financial system is to: Protect investors from fraud, allow for trading on info, set tax rates on capital transactions
allow for trading on info,
the lending portfolio of an individual investor with a higher borrowing rate than lending rate will MOST LIKELY be located: along the capital market line below the line above the line
along the capital market line - because hes lending at risk free rate
Primarily invested in Swedish stocks and bonds but has became concerned about inflation risk and decides to invest a portion in commodities. Purchase of commodities would best be characterized as: Money market, traditional investment market, alternative inv market
alt § Includes commodities, hedge funds, real estate securities and properties, collectibles, private equities
difference between american and euro options
american options can exercise before
which of the following terms applies to allocating the cost of intangible assets over a definite period? depreciation amortization capitalization
amortization
as an economic expansion approaches its peak, the economy is most likely to show a decrease in inventory levels accelerating sales growth an increase in the inventory to sales ratio
an increase in the inventory to sales ratio
as an economic expansion approches its peak, the economy is most likley to show? why? a decrease in inventory levels accelerating sales growth an increase in the inventory to sales ratio
an increase in the inventory to sales ratio unsold inventories begin to accumulate
which of the following statements about a security market index is most accurate: if an index increases by 5% in one year, the market return for the year is 5% an index may reflect dividends paid by its constituent securities an index must use actual prices from market transaction
an index may reflect dividends paid by its constituent securities
in the top down approach to asset allocation, industry analysis should be conducted before company anlaysis because: most valuation models recommend the use of industry wide average required returns, rather than individual returns the goal of the top down approach is to identify those companies in non cyclical industrues with the lowest PE ratios an industrys propspects within the global business environment are a major determinant of how well individual firms in the industry perform
an industrys propspects within the global business environment are a major determinant of how well individual firms in the industry perform
the underlying instrument in a forward rate agreement is: a fixed income security an interest rate an asset
an interest rate A forward rate agreement is a forward contract with an interest rate, such as 30-day LIBOR, as its underlying instrument.
in analyzing disclosures related to the financing liabilities of a company, which of the following disclosures would be least helpful to the analyst? interest expense for the period as provided on the income statement or in the footnotes the PV of the future bond payments discounted at the coupon rate of the bonds filings with the SEC that disclose all outstanding securities and their features
analysts would review balance sheet and find PV of promised future liability payments, these payments would then be discounted at the rate in effect at issures, not the coupon rate of the bonds
a current Code of Ethics principle reads in full, "Promote the integrity: and viability of the global capital market" of and uphold the rules governing capital markets" and viability of the global capital markets for the ultimate benfit of society"
and viability of the global capital markets for the ultimate benfit of society"
what is positive/negative convexity in a bond?
bonds duration rises and yields fall, bond has a positive convexity bond durations increases as yields increase, bond has negative convexity
Goods markets; difference between the others
are markets for output of production
when to use arthimetic or geometric return
arithmetic - better estimate for next years return geo - better for past performance
to compare the returns over the past 3 years on a mutual fund to the returns on a certificate of deposit with annual compounding over the same period, an analyst is least likley to use the mutual funds annual: time weighted return arithmetic mean return geometric mean return
arithmetic mean return The arithmetic mean will overstate the average annual compound return of the mutual fund. The average annual compound rate of return is calculated as the geometric mean return over the period. The annual time-weighted return is a geometric mean return.
which of the following steps is least likley to be an administravtive step in the capital budgeting process? conducting a post audit to identify errors in the forecasting process arranging financing for capital projects forecasting cash flows and analyzing project profitability
arranging financing for capital projects
asset x has a total risk of 20% evenly divided between systematic and unsystematic risk. if asset Y has a total risk of 10%, 90% of which is systematic, which of the following will have the lowest expected return? asset x asset y both
asset y
After closing, the only accounts with non-zero balances are
assets, liabilities, and equity.
Z test - tests whether two sample means calculated are different in case ____ is available and sample is ____
available, large
pierce motor company has an operating cycle of 150 days and a cash conversion cycle of 120 dayts while dunhil motor has an operating cycle of 140 days and a cash conversion of 125 days. bsed on these figures its most likley that: average days of payables for dunhill is less than for pierce average days of inventory for dunhill is less than for pierce average days of recievables for dunhill is less than for pierce
average days of payables for dunhill is less than for pierce
which is not a determinant of the expected price/earniings ratio? average debt to capital expected dividend payout rate expected growth rate in dividends
average debt to capital ratio
cash conversion cycle formula
average receivables collection period + average inventory processing period - payable payment period`
primary factors that influence price elasticity o demand for a product are: changes in consumer income, time since price change occured, availability of subs avilability of subs, time thats elapsed since price has changed, proportions of budgets spent on prodyuct porportions of budget spend on product, sizr of shift in demand curve, change sin price expectations
avilability of subs, time thats elapsed since price has changed, proportions of budgets spent on prodyuct
6 required financial statements of IAS No. 1
balance sheet statement of income statement of equity change cash flow statement explanatory notes comparative info prescribed by standard
a quoted Libor interest rate is least likely to refer to a specific: maturity currency bank
bank, it takes average of a bunch of them
a derivative security: has a value dependednt on the shape of the yield curve is like a callable bond is one that is based on the value of another security
based on the avlue of anotyher security
an internet retailer is revising contracts with suppliers and will be changing from reporting gross revenue to reporting net revenue. this will most likely cause the company to notice improved gross margins be exposed to greater credit risks recognize revenue to the extent of costs incurred
be exposed to greater credit risks Recall the WACC equation:WACC = [wd × kd × (1 − t)] + (wps × kps) + (wce × ks)The increase in the corporate tax rate will result in a lower cost of debt, resulting in a lower WACC for the company.
puwhats a high put call ratio mean
bearish its the # of puts / calls for a period
chad, a cfa charterholder is an automobile industry analyst who has been recommending the purchase of GM sotck to his clients for months. chads son received 5 shares of GM stock as a bday present from his grandma. based on the standard on disclosure of conflicts, chad does not need to disclose his sons ownership: because chads not in beneficial ownership if he places the stock in a trust for his son because its not material or significant
because its not material or significant
interest expense = ?
beginning carrying value x market rate of interest
what period are stock splits applied
beginning of period
prior to the beginning of summer, the gov of Japan places a 150% tariff on imported chain saws. assume for this example that this tariff has a significant impact on the supply of chain saws. the gov's actions: benefit japanese gov and domestic producers is more harmful than if the gov had limited the amount of chain saws imported will protect the jobs and high wages of japanese chain saw industry workers
benefit japanese gov and domestic producers
sharp ratio going up means
better returns relative to risk taken
real estate and private equity most likely share which of the following characteristics? low management fees commonly traded on an exchange biases in historical returns on indexes
biases in historical returns on indexes
for a non-dividend paying firm, an increase in net income must increase: book value of equity market value of equity both book value andf market value of equity
book value of equity market value may go up or down depending on investors expectations
a portfolio manager who adds hedge funds to a portfolio of traditional securities is most likely seeking to: dcrease portfolio variance only both increase expected returns and decrease portfolio variace increase expected returns
both
cash flows from tax on incomes must be seperately disclosed under IFRS US GAPP Both
both
coefficient of skewness of +2.48 indicates: mean is larger than median tail of distribution is to the right both are right
both
when considering convertable preferred stock which of the following components of the EPS equation needs to be adjusted to calculate diluted EPS. why? numerator denominator both
both numerator cuz reduction in preferred dividends denominator cuz weighted avg number of shares increase upon conversion
difference between trading and available for sale securities?
both are short term sells, reported at fair value AFS - unrealized gains/losses are recorded in accumulated other comprehensive income. appears on balance sheet as equity trading securities - unrealized gains/losses are recorded in operating income and appear on income statement
one of a firms assets is a 270 day commerical paper that the firm intends to hold to maturity. one of its liabilities is a short position in a common stock, which the firm holds for trading purposes. how should this asset and this liability be classified on a firms balance sheet? one should be classified as current and one should be noncurrent both current both non current
both current
two-tailed hypothesis
both directions of an effect or relationship are considered in the alternative hypothesis of the test
quick ratio v current ratio
both measure short term liquidity quick ratio doesnt factor in inventory or other current assets that are harder to liquidate.
farthest point on the left side of the lognormal distriution: can be any negative number is skewed to the left is bounded by 0
bounded by 0
which of the following issues is most accurately described as a eurobond? brazilian firms US dollar denominated bonds sold to investors in Canada south korean firms euro denominated bonds sold to investors in the EU EU firms Japanese yen denomincated bonds sold to investors in Japan
brazilian firms US dollar denominated bonds sold to investors in Canada
define cost recovery method (accounting)
business doesnt recognize profit related to sale until cash collected exceeds COGS
which of the following represents a long position in an option buying a put option writing a put option writing a call option
buying a put option buyer is long, writer is short
whats a PE fund
buys out public company and makes them private and reorganizes
what is gdp
c+I+GOV+NETEXPORTS
which of the following embedded options in a fixed income security can be exercised by the issuer? call option put option conversion option
call
difference between a call and put
call - buy stock at a certain price up until expiration date put - sell stock at specific price up until expiration date
which of the following embedded options in a fixed income security can be exercised by the issuer call option put option conversion option
call option
difference between call and put
call option - can buy at certain price put - can sell at certain price
calls ____ in value as stock price increases. puts ____ in value as stock price increases
calls increase, puts decrease
a Forward rate agreement (FRA): is settled by making a loan at a contract rate can be used to hedge the interest rate exposure of a floarting rate loan is risk free when based on the Treasury bill rate
can be used to hedge the interest rate exposure of a floarting rate loan
· Which of the following ab private equity is most accurate: More regulated than publicly traded co's, can represent an investment in a publicly traded co, provide companies more capital raising opportunities than public
can represent an investment in a publicly traded co,
Chad CFA resides in Country L where laws are less strict than CFA. Chad does business in Conutry N which has now laws on material nonpublic infor. Chad has clients in both countries. According to CFA, Chad may: not take investment action on the basis of this info take investment action based on this info only for his cluients in Country N but not for his clinets in country L or for himself take invetsment action basd on this info for clients in both N and L and for himself
cant use material nonpublic based on CFA
sales and purchases of non produced, non financial assets are included in which of a countrys trade accounts?: capital acccount financial account current account
capital account
The process of evaluating and selecting profitable long‐term investments consistent with the firm's goal of shareholder wealth maximization is known as: monitoring financial restructuring capital budgeting
capital budgeting
the process of evaluating and selecting profitable long term investments consistent with the firms goal of shareholder wealth maximization is known as: monitoring financial restructuring capital budgeting
capital budgeting
chad LTD is a gold mining company headquartered in Indonesia with operations throughout the world. chad reports under IFRS. when subsidiaries located in the US and Canada pay dividends to the Indonesian parent company, chad may classify the dividends as: cash flow from financing only cash flow from either investing or operations cash flow from investing only
cash flow from either investing or operations Under IFRS, interest and dividends received may be shown as either cash flow from operations or cash flow from investing.
f=Fisher Inc is evaluating the benefits of investing ina new printer. the printer will cost $28k and increase after-tax cash flows by $7000 during each of the next four years and $6000 in each of the two years after that. The IRR of the printer project is closest to: 11.6 11.8 12.0
cf0=-$28k cf1=$7k f1=4 cf2=$6k f2=2 irr=11.6%
for the past 5 years, Chad Smith CFA has served as a proctor for the CFA exam. Chad tells his assisant, a Level III CFA candidate that she normally receives the exams on the Thursday before the exam. given the low pass rate at Level III, Chad asks her assistant if hed like a advanced copy of the next exam. he declines. the asisstnat has been very vocal about his opinions on the low pass rate. the assistant claims "there are too many charterholders and CFA charter is becoming diluted". with regard to Standard VII(A) Conduct as PArticipants in CFA Institute Programs, which of the following statements concerning Chads and her assistants behavior is most acurate? chad is in violation of VII(A) but his assistant is not both are involation of VII(A) neither are in violation
chad is in violation of VII(A) but his assistant is not
· A US pension plan has an investment policy which requires plan assets to be invested in equities and debt that are publicly traded in secondary markets. It would most likely be able to purchase: § Equity futures contracts, limited partner interest in a venture capital fund, common stock of a Chinese shanghai exchange traded company
chinese traded one
the component of the return on a futures position that results from interest earned on US T bills deposited to establish the position is called the: collateral yield roll yield current yield
collateral yield - return eanred on the pollateral to satisfy margin requirements
what is an arbitrage opportunity
combination of two securities will produce a certain payoff thats greater than the risk free rate and borrowing at the rf rate will produce future amount higher
common value auction v private value auction
common - value will be revealed after auction is setlled and bidders must estimate true value. think a jar of coins private - each buyer places subjective value on item and usually each value differs. think of something for personal enjoyment
The board wants to be involved in decision-making of its company, which would it prefer to reinvest in : common shares, senior secured debt securities, participating preference shares
common shares
with which of the following types of equity shares does the investor typically have the greatest voting power? participating preference shares common shares unsponsored depository recepits
common shares Preference shares usually dont have voting rights bank retains right for depository recepits
a simple capital structure has:
common stock and non convertible bonds
aggressive accounting choices by management are most likley to: produce decision useful fniancial reporting report sustainable earnings compy with GAAP
comply with GAAP
which of the following industries are technological factors least likely a significant influence? pharma confections oil services
confections
a member or candidate who suspects that a colleague is violating the law should most appropreatly: report all illegal activities to the appropriate regulatory agency consult with the company counsel to determine if in fact a law is being violated report the illegal activity to CFA institute professional standards reveiew board for action
consult with the company counsel to determine if in fact a law is being violated
law of demand
consumers buy more of a good when its price decreases and less when its price increases
all of the following are investment constraints except: liquidity needs pension plan contributions of the employer tax concerns
contributions
If the price of a commodity futures contract is below the spot price, it is most likely that the: roll yield is negative convenience yield exceeds storage costs cost of carry exceeds convenience yield
convenience yield exceeds storage costs As interest cost is always positive, the convenience yield must also exceed storage costs in order to arrive at a futures price below the spot pric
describe the realization principle
conversion of noncash resources into cash. example - when assets are sold
what is a negative/postivie cost of carry
cost of carrying is greater or lower than benefit
what does the marginal cost of capital represent?
cost of raising an additional dollar of capital
revenue recognition methods
cost recovery completed contract precentage of completion
what is current cost
costs that would be required to replace an asset in the current period
which is correct about a CFA suspecting law has been broken and knowing it has: firms counsel if he feels a law has been brokem supervisor if he knows its broken firms counsel if he feels law a been broke, SEC if he knows supervisor if he feels, counsel if he knows
counsel, supervisor
what is covariance of returns
covariance is a metric used to measure how one random variable moves in relation to another random variable. In investment, covariance of returns measures how the rate of return on one asset varies in relation to the rate of return on other assets or a portfolio.
if required margin on a floating rate is greater than the quoted margin, it is most likley that the: credit quality of the FRN has decreased reference rate on the FRN has increased bond will be priced above par at the reset date
credit quality must have decreased
current liabilities result from what kind of operating activities? wb long term liabilities?
current - operating and financing LT -financing
how often do futures contracts have weekly settlements? daily monthly yearly
daily
define operating cycle
days of inventory plus days of receiveables
dividends or interest paid by the asset underlying a call option: decrease the value of the option have no effect on the value of the option increase the value of the option
decrease
if the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will decrease and firms will enter the market in the long run decrease and firms will exit the market in the long run increase and firms will enter the market in the long run
decrease and firms will exit the market in the long run
if the market demand for a product decreases in a competitive market, then the quantity supplied by an individual firm will: decrease and firms will enter the market in the long run decrease and firms will exit the market in the long run increase and firms will enter the market in the long run
decrease and firms will exit the market in the long run
Chad Smith, CFA cadidate, considers a $1k FV option free bond issued at par. which of the following statements about the bonds dollar price behavior is most likley accurate when yield rise and fall by 200 bps respectively? prices will: decrease by $149, price will increase by $124 increase by $149, price will decrease by $124 decrease by $124, price will increase by $149
decrease by $124, price will increase by $149
Which is most likely to cause demand for coffee products to change, why? Decrease in price of coffee, price of tea increases due to poor leaf crop, consumer increase consumption of hot chocolate
decrease in price, law of demand -> changes in demand are result of changes in price
why does a HF do to portfolio variance in a portfolio of stocks
decrease it, cuz returns are less than perfectly correlated than retrns on traditinoal investments
a portfolio manager who adds commodities to a portfolio of traditional investments is most likley seeking to: increase expected returns only decrease portfolio variance only both
decrease portfolio variance
if _____ curve is steeper, consumers capture more of the surplus
demand
changes in population size and average age that affect industry growth and profitability are best described as: social demographic macroeconomic
demographic
what is a eurobond
denominated in a currency other than that of any countries involved
a financial instrument that has payoffs based on the price of an underlying physical or financial asset is a: future option derivative security
derivative security options and futures are a type of derivative security
all of the following are benefits of derivatives markets except: transactions costs are usually smaller in derivatives markets, than for similar trades in the underlying asset derivatives allow the shifting of risk to those who can most efficiently bear it derivatives markets help keep interest rates down
derivatives markets help keep interest rates down
What does Bayes' Theorem allow us to do?
determines conditional probability which is liklihood of an outcome occuring based on a previous outcome occuring.
whats a t test
determines if theres significant difference between means of two groups
the main functions of the financial system most likely include: determining the supply of money and deterring equilibrium interest rates allocating capital to its most productive uses and determining the supply of money determining the equilibrium interest rates and allocating capital to its most productive uses
determining equilibrium interest rates and allocating capital to its most productuve uses
how to find NAV for REITS
difference between the value of the REITs real estate assets and its liabilities divided by number shares outstanding
define tracking error
difference between total return on the portfolio and the benchmark
describe and show consumer surplus
difference between value that the consumer places on units and amount of money reuired to pay for them. customer would have paid more for Q of items on a graph demand curve, above where P and Q intersect
primary difference between basic EPS and diluted EPS is that discontinued operations are omitted from basic EPS but included in diluted EPS proprietors and partners report basic EPS but corporations report diluted EPS diluted EPS includes the potential effects of convertible securities while basic EPS doesnt
diluted EPS includes the potential effects of convertible securities while basic EPS doesn't
chad cfa is a analyst for venture investments in the country of NewAmerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds $250. Chad has evidence that her colleague, Smith CFA has been receiving gifts from vendors in excewss of $250. Chad is obligated to: disassociate herself from the activity and urge venture to persuade smith to cease activity disassociate himself from the activity, urge venture to persuade smith to cease the activity and uniform cfa institution of the violation dissassociate from the activity, urge venture to persuade smith to cease the activity and inform cfa institution and regulatory authorities of the violation
disassociate herself from the activity and urge venture to persuade smith to cease activity
chad, cfa is an analyst with a large insurance company. his personal portfolio includes a big investment in QRS Co, which his firm no longer follows. the director of the insurance companys research department asks chad to analyze QRS and write a report about its investment potential. based on the standards of professional conduct, chad should : disclose the ownership of the stock to his employer and in the report decline to write the report without specific approval of his supervisor places his shares of QRS in a trust
disclose the ownership of the stock to his employer and in the report
if a bonds interest rate is below current market rate it sells aT a ____
discount
whats the value of a stockl that paid a $0.25 dividend last year, if dividends are expected to grow at a rate of 6% forever? assume the risk free rate is 5%, the expected return on the market is 10% and the stocks beta is 0.5 $16.67 $17.67 $3.53
discount rate = ke = .05 + .5(.1-.5) = .075 infinite period dividend discount model = D1 / (ke - g) = (.25*1.06)/(.075-.06) = $17.67
according to the standards of practice handbook, johnsons best course of action in regards to recommending a stock is to: disseminate the recommendation based upon client suitability and known interest communicate the recommendation within the firm and to favored customers simultaneously allow the firms institutional sales force to communicate the recommendation as it deems appropriate
disseminate the recommendation based upon client suitability and known interest
define t distribution
distribution specified by degrees of freedom used to model test stats for sample means. used on bell curves.
define Two-Stage Dividend Discount Model
dividend discount model in which dividend growth is assumed to level off only at some future date
do uneven cash flow on ti84
do it
look up spot rates
do it
look up american and euro options, make some slides on it
do it nerd
an independent analyst has only one client. one of the clients largest holdings is a brokerage firm. cuz of the large holding by his client, the brokerage firm recently began allowing the analyst to tap into the firms compute rnetowrk to use the firms research facilities. this is allowable as long as the analyst: uses the resources to help manage the clients account discloses the relationship to the client does both actions
does both
which of the following asset class specifications is most appropraite for asset allocation purposes? consumer discretionary emerging markets domestic bonds
domestic bonds assets class should be specified by type of securitiy and can be further subdivided by region or industry. the others dont specifiy a type of security
in contrast to GDP, GNP includes income earned bu: domestic capital invested abroad foreign capital invested domestically foreign labor working domestically
domestic capital invested abroad GNP includes goods and services produced outside the country by domestic factors of production, both labor and capital.
who benefits least from tariffs? foreign consumers domestic consumers domestic producers
domestic consumers
other things equal, a real exchange rate (stated as units of domestic currency per unit of foreign currency) will decrease as a result of an increase in the: nominal exchange rate (domestic/foreign) domestic price level foreign price level
domestic price level
dont use
donut
market value of a bond goes ___ when rates go up. It is sold at a _____. why?
down discount as rates increase, the value of this bond decreases cuz more better bonds are on the market
the experience curve which illustrates the cost per unit relative to output: slopes upward in the early years and downward in the later years slopes upward slopes downward
downward
what does accrual mean?
earnings recognized before cash is received
the total risk of any investment can be decomposed into: overall market risk and priced risk systematic risk and nondiversifiable risk idiosyncratic risk and risk that cant be diversified
idiosyncratic risk and risk that cant be diversified
in a set of portfolios, the portfolio with the highest ror but the same variance of the rate of return as the other would be conisdered: positive alpha portfolio efficient portfolio positive beta portfolio
efficient portfolio
expenses on income statement may be grouped by nature, not by function function, not nature either
either
some forward contracts are termed cash settlement contracts. this means: at contract expiration, the long can buy the asset from the short or pay the difference between market price of the asset and the contract price either the long or the short in the forward contract will make a cash payment at contract expiration and the asset is not delivered at settlement, the long purchases the asset from the short for cash
either the long or the short in the forward contract will make a cash payment at contract expiration and the asset is not delivered asset is not purchased or sold at settlement
according to the standards and practice handbook, when preparing a research report, an analyst may: not omit any information even if its not helpful in making an investment decision omit important matters that would appear obvious to a trained stockbroker emphasize certain issues or facts over others
emphasize certain issues or facts over others
name 4 types of probabilities
empirical - uses old data a priori - formal reasoning subjective - least formal method unconditional (marginal) - regardless of past or future events conditional - what happens if something happens
Chad smith, CFA, has just learned from a financial analyst at Corvac Infdustries that orders for their core products are running ahead of last years orders by 15%, info that hasnt been publicaly disclosed by the compnay. clark currently has a hold rating on crovac based on his expectation of a 5% increase for the year. based on Standard II (A) Material Non-public INfo, chads most appropriate course of action is to: encourage corvac to publicaly release the order info and not act on that info until its publically disclosed disclose the info publicaly prior to making any change sin his reocmmendation put corvac ob his firms restricted list and no make recommednation until the increase in orders is publicaly disclosed
encourage corvac to publicaly release the order info and not act on that info until its publically disclosed
what is continous probability distribution
endless possibilities of outcomes. think of guessing a persons weight within 10 pounds. it theoretically could be 110 lbs or 320 lbs
when the economy dips into recession, automatica stabilizers will tend to alter government sp[ending and taxation so as to: reduce interest rates, thus stimulating aggregate demand reduce the budget deficit (or increase surplus) enlarge the budget dificit (or reduce surplus)
enlarge deficit
A perfectly hedged position consisting of a derivative and its underlying asset will most likely yield a return that is: smaller than rf equal to rf greater than rf
equal to rf
Country entered recession before end of year and inventories of final goods rose. Compared to GDP calculated by sum of value added, analyst will most likely determine that the GDP calculated using the value of final output approach is: o Equal, lower, higher
equal § No difference because inventories are included in GDP the year they're produced
which of the following is most lilkely an exchange traded derivative? bond option currency forward contract equity index futurescontract
equity index futurescontract
neil jones compares his portfolios return to a benchamrk return over the past calendar year. if jones calculates a negative tracking error, then: the portfolio must have outperformed the benchmark erroneously factoring in fees will make the error larger he should choose a different benchmark for the current year
erroneously factoring in fees will make the error larger
The expected value of a portfolio manager's miss from his benchmark return over a 10-year period was 63 bp (basis points). This could best be described as his tracking: risk, error, variance
error
ethics v morals
ethics: a guideline to help marketing managers and other employees make better decisions. Morals: the beliefs of good, bad, acceptable behavior
a hedge fund strategy that takes position in shares of firms undergoing restructuring or acquisition is an: equity hedge strategy event driven strategy macri strategy
event driven
the purchaser of a stock will recieve the next dividend if the order is filled before the: ex dividend date payment date holder of record date
ex dividend date
sharpe ratio
excess return per unit of risk, higher the better excess return / standard deviation where excess return = Rp-Rf
an american option is: exercisable at any time up to its expiration date an option on a US stock or bond exercised only at expiration
exercisable at any time up to its expiration date
what is negative screening
exluding companies or sectors from consideration for Environmental or social factors
When are credit spreads most likely to narrow? During: expansions contractions flight to quality
expansion more money for corporations so easier to service debt. investors dont do T bills they do corporate bonds
Describe the matching principle
expense should be reported in the same period in which the corresponding revenue is earned
all are violations of Standard II(B) Market Manipulation EXCPT: securign a controlling interest in an equity security in order to influence the price of a related derivative instrument exploiting differences in market inefficiencies disseminating misleading information about the development of new products and technologies
exploiting differences in market inefficiencies
inorder for effective price discrimination to occur the seller must: have more than one identifiable group of customers with the same price elasticities of demand for the project maximize revenue by selling at the highest price possible face a demand curve with a negative slope
face a demand curve with a negative slope
in order for effective price discrimination to occur the seller must have more than one identifiable group of customers with: the same price elasticizes of demand for the product maximize the revenue by selling at the highest price possible face a demand curve with a negative slope
face a demand curve with a negative slope The seller must also have at least two identifiable groups of customers with price elasticities of demand for the product, and the seller must be able to prevent customers from reselling the product.
factor market v goods market
factor - goods for pruchase and sale of factors of production. households own factors of production. Households are sellers, firms are buyers goods market - markets for output of production. firms transfor services into intermediate goods and services. Households and firms are buyers, frims are sellers
Jones company: makes kitchen furniture, having trouble hiring because of college enrollments. Hiring challenges most likely pertain to: Capital markets, good markets, factor markets
factor markets
for the task of arranging a given number of items without any subgroups, this would require: the labeling formula only the factorial function the permutation formula
factorial function
assume that a company has equal amoutns of debt, common stock, and preferred stock. an increase in the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to: rise fall more info needed
fall
as yields increase, bond prices ____, the price curve gets ____, and changes in yield have a smaller effect on bond prices
fall, flatter
a security portfolio earns a gross return of 7% and a net return of 6.5%. the difference of .5% most likley results from: fees inflation taxes
fees
· Compared to publicly traded firms, private equity-financed firms: o are smaller, have fewer investors, employ more comprehensive governance processes
fewer investors
under US Gaap, which of the following inventory cost flow assumptions results in the highest reported net income during periods of rising prices lifo fifo average cost
fifo - lower cogs
in a period of rising prices, the us gaap inventory cost flow assumption that is most likely to result in the highest reported inventory balance is fifo lifo average cost
fifo - most recent items are applied to ending inventory
proceeds from issuing a bond are recorded on the statement of cash flows as an inlow from: financing (CFF) operations (CFO) investing (CFI)
financing
when computing the cash flows for a capital project, which of the following is least likely to be included? Tax effects financing costs opportunity costs
financing costs. theyre considered int he claulcation of the discount rate but not for cash flow calc
Which most accurately describes goods markets? Firms are only sellers and households are only buyers, firms can be both buyers and sellers but households can only be buyers, firms and households can be both sellers and firms that deal with intermediate goods and services are buyers
firms can be both buyers and sellers but households can only be buyers,
types of annuities
fixed, variable, equity-indexed
which of the following statements about NPV and IRR is least accurate? for independent projects if the IRR is > the cost of capital accept the project the NPV method assumes that all cash flows are reinvested at the cost of capital for mutually exclusive projects you should use the IRR to rank and select projects
for mutually exclusive projects you should use the IRR to rank and select projects
slingshot corp purchased inventory on jan 1, 2012 for $600k. on dec 31 2012, the inventory had a net realizable value of 550k. during 2013, slingshot sold the inventory for 620k. based on the above, which of the following statements best reflects the proper IFRS financial reporting for the inventory the Dec 31, 2012 balance sheet reported the inventory at 620k when the inventory was sold in 2013, slingshot reported a 20k gain on its income statement for the year ending dec 31, 2012, slingshot recognized a 50k loss on its income statement
for the year ending dec 31, 2012, slingshot recognized a 50k loss on its income statement
what is Bayes Theorm
formula for determining conditional probability
a PM wants to eliminate 4 stocks from a cportfolio that consists of 6 stocks. how many ways can the 4 stocks be sold when the order of the sales is important? 180 360 24
formula: n! / (n - r)! = 6! / (6 - 4)! = 360. With TI calculator: 6 [2nd][nPr] 4 = 360.
NAFTA is most accurately described as: free trade area common market customs union
free trade area
which best describes principles which GIPS are based?: full disclosure and fair representation of performance results uniformity and cosistent application of standard for the global regulation of the securities industry fair and consistent application of a global set of regulatory requirements
full disclosure and fair representatino of performance results
which of the following best describes the underlying principles upon which the GIPS are based? full disclosure and fair representation of performance results uniformity and consistent application of standards for the global regulation of the securities industry fair and consistent application of a global set of regulatory requirements
full disclosure and fair representation of performance results
describe angel nivesting stage of VC
funds are used for business plans and asessing market potnential
· Which of the following derivatives are traded only on a regulated exchange o Futures options, stock options, warrants
futures optinos
what is contango? whats its opposite
futures price of a commodity is higher than the expected spot price of contract at maturity backwardization
what is contango
futures price of a commodity is higher than the spot price
formula for future value MEMORIZE
fv=pv/(1+i)^n
baker computer earned $6 per share last year, has a retention ratio of 55% and a return on equity of 20%. assuming their required rate of return is 15%, how much would an investor pay for Baker on the basis of the earner multiplier model? $74.93 $173.90 $40
g = Retention × ROE = (0.55) × (0.2) = 0.11 P0/E1 = 0.45 / (0.15 - 0.11) = 11.25 Next year's earnings E1 = E0 × (1 + g) = (6.00) × (1.11) = $6.66 P0 =11.25($6.66) = $74.93
redeeming bonds for less than the carrying value of the bond liability results in a ______
gain
felker inc owns specialized machinery. original cost was $500k and to date, theres an accumulated depreciation balance of $140k. which of the following will felker recongnize if it sells the machinery for $400k?
gain of $40k difference between the proceeds and carrying value is reported as a gain or loss on income statements
which of the following would be recorded as a cash inflow from investing activities on the statement of cash flows? gain on the sale of long term assets a period to period decrease in inventory proceeds received from the divestiture of a business
gain on the sale of long term assets
whats a conversion option
gives the bonderholder the right to exchange the security for the issuers common stock
· What would be included in calculation of GDP but not GNP: o Goods produced outside the US by US citizens, goods produced inside the US by citizens of a foreign country, goods produced on property owned by US citizens but located outside the US
goods produced inside the US by citizens of a foreign country,
gross profit =
gross revenue minus COGS
a security market index is best described as a: directory of ticket symbols for the securities listed on a given market group of securities selected to represent the performance of a security market value used to adjust nominal security prices for the effects of inflation
group of securities selected to represent the performance of a security market
when a hedge fund charges an incentive fee only on the portion of returns that exceed a stated benchmark whats it called?
hard hurdle rate
an ethical decision making framework will most likley: include a pre determined uniform sequence focus exclusively on confirmable facts and relationships help avoid a decision that as unanticipated ethical consequences
help avoid a decision that as unanticipated ethical consequences
which is most likely to cause an increase in aggregate demand? relative appreciation in the countries currency high capacity utilization rates an increase in the general price level
high capacity utilization rates
when a hedge funds value must exceed its highest previous value before the fund may charge an incentive fee, whats this called?
high water mark
compared to a traditional mutual fund, a hedge fund is more likley to feature: higher fees higher liquidiuty lower leverage
higher fees
3 CF instruments
hold to maturity- bonds trading - less than 90 days Available For Sale
portfolio to the right of the market portfolio on the capital market line is created by: fully diversifying holdinhg both the rf asset and market portfolio holding more than 100% of the risky asset
holding more than 100% of the risky asset
formula and acronym for HPR
holding period return (ending value - beginning value) - 1
whats an inferior good
household income goes down but demand goes up
explain Circular flow:
households supplying factors of production to firms which are converted to finished goods and sold to households in goods market
What does the demand curve show?
how price affects quantity demanded
a company engaged in real estate transactions had an exceptionally successful quarter and as a result it has selectively structured a few of the most profitable deals to qualify as installment sales. structuring deals this way allows the firm to boost future margin results in lower taxes for ther accounting period hurts near term margins but boosts long term margins
hurts near term margins but boosts long term margins
4 administrative steps in the capital budgeting process are:
idea generation analyzing project proposals creating the firm wide capital budget monitoring decisions and conducting a post audit
concentration measures are most likely to be used to: analyze barriers to entry into an industry measure elasticity of demand facing an industry identify the market structure of an industry
identify the market structure of an industry
What is best in class investing
identifying best companies in each sector with respect to environment and social factors
what is cross price elasticity? what happens if its negative?
if price of Y increases, more of X is demanded. if it's negative, when price of X increases, demand for Y decreases. complementary good
what is notional principal
in an interest rate swap, predetermined $ amounts (principal) on which the exchnaged interest payments are based
if a commoditys convenience yield is close to 0, the futures market for that commodity is most likely: at fair value in backwardation in contango
in contago
which of the following regarding plain vanilla interest rate swaps is least accurate? the time frame covered by the swap is called the tenor of the swap ina swap contract, the counterparties usually swap the notional principal the settlement dates are when the interest payments are to be made
ina swap contract, the counterparties usually swap the notional principal
chad industries has the following investment policy statement: "in order to achieve the safety and liquidity necessary in the investment of excess cash balances, the CFO or his designee may invest excess cash balances in 30 day US Treasury bills or in bankers acceptances with maturities of less than 31 days or 30 day certificates of deposit, where the credit rating of the issuing bank is A+ or higher" this policy statement is" appropriate because these are all safe, liquid securities inappropriate because it is too restrictive inappropriate because both bankers acceptances and certificates of deposit are illiquid
inappropriate because it is too restrictive
chad industries has the following investment policy statement: in order to achieve the safety and liquidity necessary in the investment of excess cash balances, the cfo or his designee may invest excess cash balances in 30 day US t bills or in bankers acceptances with maturioties of less than 31 days or 30 day CDs, where the credit rating os the issuing bank is A+ or higher. the policy statement is: appropriate because these are all safe, liquid securities inappropriate because its too restrictive inappropriate because both bankers acceptances and CDs are illiquid
inappropriate because its too restrictive
Factor markets; difference between the others
include land, labor, physical capital, materials used in production
which of the following statements concering the notes to the audited financial statements of a compnay is least accurate? financiual statement notes: contain info about contingent losses that may occur include managements assesment of the compnays operating performance and financial results are audited
include managements assesment of the compnays operating performance and financial results
under which approach to valuing real estate properties is an analyst most likely to estimate a capitalization rate: comparable sales approach cost approach income approach
income approach
a negative net cost of carry will: increase the no-arbitrage forward price have no effect on the no-arbitrage forward price decrease the no-arbitrage forward price
increase
all else equal, increase in companys growth rate will most likely cause PE to increase either increase or decrease decrease
increase As g increases, the spread between ke (cost of equity( and g, or the P/E denominator, will decrease, and the P/E ratio will increase.
which of the following is least likley to increase a bond yields spread to the benchmakr yield curve? credit rating downgrade increase in expected inflation decrease in liquidity
increase in expected inflation
what is capitalization for assets
increasing asset base (opposite of depreciation)
when household incomes go down and the quantity of a product demanded goes up, the product is a veblen good a normal good an inferior good
inferior good
· Develops analysis that predicts a drop in stock price and shorts accordingly. High risk high reward. Most likely can be described as: Hedger, investor, information motivated trade
info motivated trader - Believes he can predict future prices for goal of excess returns
chad CFA is a senior analyst at a mutual fund. he's also a member of the board of directors of his daughters skating club. hes often asked about advice for the management of the club budget and short term investments but isnt paid for it. he doesnt take any research to answer the question, providing info based only on the general practices of the mutual fund at the moment. the only benefit she receives is a free monhtly membership for her daughter that would usually cost $182. What should she do before makign recommendations to comply. consult only on the free time and do not accept any benefit greater than $100 obtain prior permission from the employer inform the currenct clients about the outside conasulting
inform employer
which of the following statements regarding standard II(A), Material, Nonpulic Information, is least accurate? material non publicinformation regarding a tender offer may not be traded on information received from an insider who is not breaching his fiduciary responsibility may be traded on if you receieve the infomation in a public forum, it has been disseminatedm and you can trade on it
information received from an insider who is not breaching his fiduciary responsibility may be traded on
difference between tracking risk and error
interchangeable in the real world - tracking error is the deviance from a benchmark tracking risk is the standard deviation of misses from the benchmark rather than in percentage
the underlying instrument in a forward rate agreement is: a fixed income security an interest rate an asset
interest rate
public ratings on stockls ranging from 1 to 5 are examples of which measurement scale?: ordinal interval nominal
interval
the quick ratio is considered a more conservative measure of liquidity than the current ratio because the quick ratio excludes: accounts receivable which may not be collectible in the short term inventories which arent necessarily liquid short term marketable securities, which may need to be sold a significant loss
inventories which arent necessarily liquid
which of the following statements properly reflects the application of lower of cost or net realizable value inventory valuation under IFRS? - inventory losses are recognized immediately, but inventory gains are recognized only when an item in inventory is sold - inventory gains are recognized immediately but inventory losses are recognized only when an item in inventory is sold - inventory losses and gains are recognized only when an item in inventory is sold
inventory losses are recognized immediately, but inventory gains are recognized only when an item in inventory is sold
for a firm that uses the LIFO inventory cost method, a LIFO liquidation occurs if: the firm changes to a different inventory cost method inventory quantity decreases during a reporting period sales decrease during a reporting period
inventory quantity decreases during a reporting period
for which of the following would the use of lower of cost or market valuation be most appropriate fixed assets inventory only under US GAAP inventory under both IFRS and US GAAP
inventory under both IFRS and US GAAP
which of the following statements best describes an aspect of the professional conduct program process? inquiries are not initiated in response to information provided by the media investigations result in disciplinary review committe panels for each case investigations may include requesting a written explaination from the member of candidate
investigations may include requesting a written explaination from the member of candidate
sale of obsolete equipment would be classified as: financing cash flow investing cash flow operating cash flow
investing cash flow.
the major components of a typical investment policy statement (IPS) least likely include: investment managers compensations duties and responsibilities of investment manager, custodian and client investment objectives, guidelines, constrains
investment managers compensation
describe early stage of VC
investments made to fund initial commercial production and sales
· Sara is in 50s, wants to retire in 10 years, saved and invested in bond mutual funds but needs higher returns to have sufficient retirement funds. She redeems bonds and invests in equity mutual funds. She is a: o Hedger, investor, info motivated trader
investor - nopt tryna predict prices
define mental accounting
investors keep track of gains and losses for different investments in seperate menatl accounts
compared to traditional investments, alternative investments are most likely to be more: leveraged liquid transparent
leveraged
define disposition effect
investors tend to avoid realizing losses but rather seek to realize gains
whats a VC fund
invests in start ups
to maintain trust , the investment management profession must be interdependent with: regulators employers invetsment firms
invetsment firms
Capital markets; difference between the others
involved raising money to invest in stuff
the farthest point on the left side of the lognormal distribution: can be any negative number is skewed to the left is bounded by 0
is bounded by 0
The principal value of a sovereign bond is $1,000 at issuance and $1,055 two years after issuance. This bond most likely: has been upgraded is indexed for inflation trades at a premium
is indexed for inflation inflation indexed bonds often have a capital indexed structure in which the prinipal value is adjusted periodically by the inflation rate. credit rating up/downgrades dont affect principal value a bond is trading at a premium when its market p[rice is greater than its principal value
a derivative security: has a value dependent on the shape of the yield curve is like a callable bond is one that is based on the value of another security
is one that is based on the value of another security
default risk in a forward contract: only applies to the short, who must take the cash payment at settlement only applies to the long, and is the probability that the short can not acquire the asset for delivery is the risk to either party that the other party will not fulfill their contractual obligation
is the risk to either party that the other party will not fulfill their contractual obligation
asset = ?
liability + equity
a yield curve for coupon bonds is composed of yiedls on bonds with similar : maturities issuers coupon rates
issuers think rate
a large creditworthy manufacturing firm would most likely get short term financing by entering into a agreement for a committed line of credit issuing commercial paper factoring its receivables
issuing CP
for a lessor that reports under US GAAP, a lease is classified as an operating lease if: the fair value of the asset is greater than the sum of the lease payments and the assets ecpected residual value ownership risks are not substantially transferred to the lesse it cannot be classified as a sales ttype lease or a direct financing lease
it cannot be classified as a sales ttype lease or a direct financing lease
one advantage of using price to book value mutiples for stock valuation is that: it is a stable and simple benchmark for comparison to the market price most of th etime it is close to the MV book value of a firm can never be negative
it is a stable and simple benchmark for comparison to the market price
which of the following statements regardingthe CAPM model is least accurate? its accuracy depends upon accuracy of the beta estimates its useful for determining an appropriate discount rate it is when the security market line and capital market line coverge
it is when the security market line and capital market line coverge
whats a special purpose bond
its formed specifically to purchase and administer assets that will provide cash flows to pay interest and principal on bonds the entity issues
in a test of the mean of a population, if the population variance is: known, a t distributed test statistic is appropriate known, a z distributed test statistic is appropriate unkown, a z distributed test statistic is appropriate
known, a z distributed test statistic is appropriate
in the Heckscher-Ohlin model, whether a country has a comparative advantage relative to another country is determined by labor productivity differences capital productivity differences amount of labor and capital the countries posses
labor and capital
sources of long run economic growth most likley include increases in: government spending labor supply phsyical capital labor supply phsycial capitail technology human capital money supply and naural resoucres
labor supply phsycial capitail technology
what is a settlement for a futures contract
last/closing price on any given day
A regulator who requires financial advisers to merely consider the suitability of a product when making recommendations to their clients would most likely be setting: both a legal and an ethical standard. an ethical standard. a legal standard
legal
which of the following markets is most accuratley described as a factor market? market for: companies unskilled labor legal and lobbying ervices
legal and lobbying
define special purpose entity
legal entity used to fulfill a specific or temporary objective
The advantages to an investor owning convertible preference shares of a company most likely include: less price volatility than underlying common shares preference dividends that are fixed contractual obligatiuons of the company an opportunity to receive additional dividend is the companys profit exceed a pre specified level
less price volatility than underlying common shares cuz dividend payments are more known and stable
which of the following statements is most accurate in an environment of rising prices? because fifo matches older costs to sales, both gross profit and taxes will be higher lifo costing will result in higher net income and lower after tax cash flows the working capital balance will be lower using fifo inventory costing
lifo costing will result in higher net income and lower after tax cash flows
which of the following is a common criticism of derivatives likened to gambling fees for derivates transaction are relativy high too illiquid
likened to gambling
an additional risk of direct investment in real estate , which is not typically a singifcant risk in portfolio of traditional investments, is: liquidity risk counterparty risk market risk
liquidity risk
a futures strategy generally used when a market participant expects to acquire and asset in the future but is concerned that the assets price might rise before the asset is received is called: arbitrage strategy short hedge long hedge
long hedge
situational influences in decision making will most likley be minimalized if: strong compliance programs are in place longer term consequences are considered individuals believe they are truthful and honest
long term consequences are considered
investor overeaction that has been documented in securities markets is most likely attributable to investors exhibiting: loss aversion risk aversion conservatism
loss aversion
a portfolio inside the efficient frontier can have the same return as the market portfolio but will have a level of risk that is: lower higher the same
lower
during a period of rising price, the use of the fifo inventory method (vs lifo) will have which of the following impacts on a us companys net asset higher lower none
lower
why does fifo result in higher net income in period of rising prices
lower costs, higher inv balance
when unethical behavior erodse trust in an investment firm, that firm is more likley to experience lower revenues only higher expenses only lower revenues and higher expenses
lower revenues and higher expenses
What does the supply curve show?
lowest price sellers are willing to accept for each quantity. highest quantity sellers are willing to offer at each price
chad, cfa, is an inv manager of pension fun illusion inc, a publicly traded electronics manufacturing firm. market price of illusions stock has been dropping for several months. illusions management suggests that chad consider acquiring a substantial number of shares for the pension fund. chad decides to add a number of illusions shares to the pension fund without doing further research. according to the standards of practice handbook, parks least likely violated the standard relating to: loyalty suitability loyalty, prudence, and care
loyalty
which of the following will be the greatest for a putable bond at relatively high yields? macaulay duration of the bond ignoring the option modified duration of the bond ignoring the option effective duration of the bond
macaulay duration of the bond ignoring the option
which one of the following alternatives best describes the primary use of inferential stats? inferential stats are used to: summarize important characteristics of a large data set based on statistical characterizations of a smaller size make forecasts, estimates or judgements abouit a large set of data based on statistical characteristics of a smaller sample make forecasts based on large data sets
make forecasts, estimates or judgements abouit a large set of data based on statistical characteristics of a smaller sample
which one of the following alternatives best describes the primary use of inferential statistics? inferential statistics are used to: summarize the important characteristics of a large data set based on statistical characteristics of a smaller sample make forecasts, estimates or judgements about a large set of data based on statistical characteristics of a smaller sample make forecasts based on large data sets
make forecasts, estimates or judgements about a large set of data based on statistical characteristics of a smaller sample
ChadCo is a hedge fund that has a 3 and 15 fee structure. compared to hedge funds with 2 and 20 fee structures, ChadCo charges higher: load fees incentive fees management fees
management feea
in a 2 and 20 hedge fund fee structure, the 2 refers to a hedge funds: incentive fee management fee redemption fee
manegement fee 2 for 20 means 2% management fee and 20% incentive fee
Chad Co is considering investing in a new vehicle. Chad co finances new projects using retained earnings and bank loans. this new vehicle is expected to have the same level of risk as the typical investment made by Chad co. Which one of the following should the firm use in making its decision? after tax cost of debt marginal cost of capital cost of retained earnings
marginal cost of capital
Chad manufacturing is considering investing in a new vehicle. they finance new projects using retained earnings and bank loans. this new vehicle is expected to have the same level of risk as the typical investment made by them. which one of the following should the firm use in making its decision? after tax cost of debt marginal cost of capital cost of retained earnings
marginal cost of capital
the slope of the capital market line can be determined by dividing the standard deviation of the market portfolio returns into the difference between the returns of the: risky portfolio and risky free asset market and risky portfolio market portfolio and risk free asset
market portfolio and risk free asset
define accrual method (accounting)
matches revenue to expenses (matchign principle) at the time when the transaction occurs rather than when payment is made or received revenues and expenses should be recognized in same period opposite of cash accounting most common one (only super small biz use cash)
the concept that costs are expenses (recognized) in the same period that the associated revenues are recorded (recognized) correspsonds to which of the following principles? matching realization conservatism
matching
insider trading is info that is: material and public material and nonpublic nonmaterial and nonpublic
material and nonpublic
a firm determines that inventory of manufactured goods with a cost of $10m has a net realizeable value of $9m and writes down its carrying balue to this amount. one period later, the firm determines that the net realizeable value of this inventory has icnreased to $11m. under IFRS, the carrying value of this inventory: may be revalued up to $10m up to $11m remain at $9m
may be revalued up to $10m
a firm has average days of receivables outstanding of 22 cmopared to an industry average of 29 days. an analyst would most likely conclude that the firm: has a lower cash conversion cycle than its peer companies has better credit controls than its peer companies may have credit policies that are too strict
may have credit policies that are too strict
positvely skewed distribution: mean = median mean > median mode > median
mean > median
from the entire population of MCDanks franchises, an analyst constructs a sample of the monthly sales volume for 20 randomly selected franchises to eb $400k. The sampling distribution of the mean is the propability distribution of the: mean monthly sales volume estimates from all possible samples of 20 observations monthly sales volume for all McDanks franchises mean monthly sales volume estimates from all possible samples
mean monthly sales volume estimates from all possible samples of 20 observations
kytosis
measures degree to whcih distribution is more or less peaked than normal distribution. leptokurtic - more peaked fatter tail
what is beta, hows it measured
measures volatility 1 = exactly as volatile as market less than one but more than 0 is less volatile over 1 is more volatile less than 0 is negatively correlated 0 is no correlation
restrictions on asset sales and borrowings most ccurately describe: neutral covenants affirmative covenants negative covenants
negative covenants
order for a positively skewed distribution of the 3 M's. then negatively skewed
mode median mean opposite -> mean median mode
money functions as a store of value because: its accepted as the form of payment for a good money received for work or goods can be saved to purchase goods or services in the future prices of goods and services are expressed in units of money
money received for work or goods can be saved to purchase goods or services in the future
which of the following is most accurate with respect to the relationship of the money weighted return to the time weighted return? if funds are contributed to a portfolio just prior to a period of favorable performance, the: time weighted rate of return will tend to elevated money weighted rate of return will tend to be elevated money weighted rate of return will tend to be depressed
money weighted rate of return will tend to be elevated
which of the following is most accurate with respect to the relationship of the money wieghted retyrn to the time weighted return? if funds are contributed to a portfolio just prior to a period of favorable performance? why time weighted ror will tend to be elevated money weighted ror will ten d to be elevated money weighted ror will tend to be depressed
money weighted ror will tend to be elevated biased upward if invested right in front of an upswing. time weighted doesnt have any effect
what does a beta greater than 1 mean
more volatile than market
an analyst belongs to a nationally recognized charitable organization, which requires dues for membership. the analyst has worked out a deal where he provides money management advice in lieu of paying dues. which of the following must the analyst do? nothing. hes not an employee resign cuz his positions is a conflict of interests must treat organizaations as his employer
must treat organizaations as his employer
exhaustive events are best described as events: with a probability of 0 mutually exclusive include all potential outcomes
mutually exclusive
financial derivatives contribute to market completeness by allowing traders to do all of the following except: increase market efficiency through the use of arbitragee narrow the amount of trading opportunities to a more manageable range engage in high risk speculation
narrow the amount of trading opportunities to a more manageable range
what is Sortino ratio used for
negatively skewed returns, its kinda like the sharpe ratio
if mean median and mode of a distribution are 3.5, 3.8 and 4 respectively, the distribution is said to be: positively skewed negatively swkewed symetrical
negatively swkewed
what is realizable value
net amount of money you get from selling an asset
when a firm is earnign positive economic profits in a monopolistic competitive market, what will most likley occur? price takers will be over run by price searchers new firms will enter driving down the eocnomic profits to zero losses will occur in the short run
new firms will enter and drive eocnomic profits to 0
under gapp, can inventory that has been written down be revlued upwards
no, but yes under IFRS if the realizeable value recovers
a CFA institute member puts the following sttament on her resume: "I Passed each level of the CFA exam on the first try". Is this a violation of Standard VII (B)? no because its a statement of fact yes because saying she passed exams on the first try is inappropriate yes uz she incorrectly refers to the CFA exam
no, cuz its a fact
required interest rate on a security
nominal rf rate + dedfault risk premium + liquidity premium + maturity risk premium
required interest rate on a security =
nominal risk free rate + default risk premium + liquidity risk premium + maturity risk premium
reuqired interest rate on security = ?
nominal risk free rate + default risk premium + liquidity risk premium + maturity risk premium
what is idiosyncratic risk. definition and other name for it
nonsystematic risk - risk inherent to one company or industry
a small advertising firm which has historically traded ad placement services in exchange for computer equipment plans to discontinue the practice of bartering and start receiving cash payments. this change will likely: change reported revenue based on the value of the services received increase revenue, as actual cash is exchanged not impact reported revenue
not impact cuz fair value
the period of time within which a hedge fund must fulfill a redemption request is the lockup period withdrawal period notice period
notice period, typically 30 to 90 days
you buy a put in apple for $185 a month away and apple trades at $186.87 currently. It's $3 a share for the put and you buy 100 shares. a month away, apple is at $180, and is exercised. Whats the result? what about if its at $190?
nstead of losing $7, you lose only $4.87 youd make a total profit of $0.13 cuz of the $3 premium
· A futures contract is:
o Agreement to buy or sell a specified quantity of a stated asset at a given future time for a given price
· The CPI vs GDP deflator:
o Only consumer goods and services while GDP delator measures price elevel changes in all sectors of the economy
when using NPV profiles: one should accept all independent projects with positive NPVs the NPV profile intersection with the vertical y-axis indetifies the projects internal RoR one should accept all mututally exclusive projects with positive NPVs
one should accept all independents projects with positive NPVs
3 major classifications of activities in a CF statement
operating - buying and selling investing - cash transactions on purchasing financing - rise of company's capital
difference between operating, financing and investing activities
operating - day to day financing - obtaining or repaying capital investing - acquisition and disposal of LT assets
define cash conversion cycle
operating cycle minus days of payables
if under US GAAP, a lease is classified as ________ lease if it cant be classified as a sales type lease or direct financing lease
operating lease
the risk of losses caused by human error or faulty processes within an organization is most accurately described as: operation risk solvency risk model risk
operation risk
chad is in the process of completing an investment research report. which of the following is most accurate with regard to the standards: the research report must be reviewed by two supervisory analysts opinions may be expressed in the research report if they are distinguished from facts the report should include any detailed accounting adjustments in an appendix to the main report
opinions may be expressed in the research report if they are distinguished from facts
which of the following statements regarding capital budgeting is most accurate: shipping and installation costs for equipment shouldnt be included cost of capital used in capital budgeting should be the cost of the specific financing used to fund project opportunity costs should be included when measuring incremental fcf of proj
opportunity costs should be included
3 types of scales w examples
ordinal, interval, ratio O - blond or brunette I - temperature R - # ppl in household
name for when cash flows occcur at end of each compounding period v beginning
ordinary annuity v annuity due
what is carrying value
original cost - accumulated depreciation
GNP includes goods and servicxes produced _____ the country by ____ factors of production, both labor and capital
oustide, domestic
which best identifies an internal trait that may lead to poor ethical decisions: overconfidence loyalty to employer promise of money or prestige
overconfidence
decision makers who use a compliance approach are most likley to: avoid situational influences oversimplify decision making consider more factors than when using an ethical decision making approach
oversimplify decision making may over look other more important things
difference between parameter and sample statistic
parameter - population
all of the following are investment constraints except: liquidity needs pension plan contributions of the employer tax concerns
pension plan contributions of the employer Investment constraints include: liquidity needs, time horizon, tax concerns, legal and regulatory factors and unique needs and preferences.
which of the following statements about the discounted payback period is least accurate? the discounted payback: method can give conflicting results with the NPV frequently ignores terminal values period is generally shorter than the regular paycheck
period is generally shorter than the regular paycheck
· Which of the following mechanisms serves as the primary safeguard against default risk on an OTC derivative o Daily mark to market cash transfers mitigate the impact of default, a clearinghouse guarantees the performance of one party to the other, prudent risk management procedures reduce the probability of default
prudent risk management procedures reduce the probability of default
discard
poop
what is positive skewness and negative skewness
positive - tail on the right. mean value is greater than median negative - skew on the left. mean value less than median
if yield to maturity and risk factors remain constant over the remainder of a coupon bonds life, and the bond is trading at a discount today, it will have a positive current yield only negative current yield and a capital gain positive current yield and a capital gain
positive current yield only
if yield to maturity and risk factors remain constant over the remainder of a coupon bonds life, and the bond is trading at a discount today, it will have a... why? positive current yield only negative current yield and capital gain positive current yield and a capital gain
positive current yield only no cap gain cuz price will price to par if YTM remains constant
CFA Institute Global Body of Investment Knowledge & Candidate Body of Knowledge are updated on an ongoing basis through which process
practice analysis helps remain relevant
if a bonds interest rate is above current market rates it sells at a _____
premium
define bond preimum and discount
premium - amount over FV that issuer never returns to bondholders discount - excess of issue price that must be paid by issuer at time of maturity
which of the following is most accurate about a bond with positive convexity positive changes in yield lead to positive changes in price price increases and decreases at a faster rate than the change in yield price increases when yields drop are greater than price decreases when yields rise by the same amount
price increases when yields drop are greater than price decreases when yields rise by the same amount
which is most accurate about a bond with positive convexity? positive changes in yield lead to positive changes in price price increases and decreases at a faster rate than change in yield price increases when yields drop are greater than price decreases when yields rise by the same amoutn
price increases when yields drop are greater than price decreases when yields rise by the same amoutn
chad co will have better liquidity than its peer group of companies if its: average trade payables are lower quick ration is lower receivable turnover is higher
receivable turnover is higher receivables are converted to cash more rapidly A lower quick ratio is an indication of less liquidity
what is Black Scholes model used for?
pricing options contracts for European style bonds
which of the following statements about american and European options is most accurate euro options allow for exercise on or before the option expiration date prior to expiration, an american option may have a higher value than an equivalent European option there will always be some price difference between american and euro options because of exchange rate risk
prior to expiration, an american option may have a higher value than an equivalent European option
whats a discrete probability distribution?
probability is between a fixed number. bad explaination but think of rolling a dice and getting a 6.
how does this read: P (A | B)
probability of A given B
bayes formula
probability of A given B = probability of A * probability of B given A / probability of B
how dies this read: P (A ⋂ B)
probability of both A and B happening
whats a confidence interval?
probability that a p[opulation parameter will fall between a set of values.
what is shortfall risk
probability that a portfolio value will fall below a particular value over a time period
what is capital budgeting
process to analyze investment projects to determine which one will do
if supply curve is steeper than demand curve, more of the surplus is being caputred by _____. If demand curve is steeper, consumers capture more of the ____.
producers surplus
describe seed stage of VC
product devlopment , marketing and market research
fiduciary duty is a standard most likley to be upheld by members of a: employer profession not for profit body
profession
specialized knowledge and skills, a commitment to serve others and a shared code of ethics best charcterize: vocation profession occupation
profession
high ethical standards are distinguishing features of which of the following bodies craft guilds trade bodies professional bodies
professional bodies
Cost Recovery Method
profit is recognized only when it exceeds estimated total cost.
what is Financial statement analsyis
providing info about the performance and finanical position of companies so that users can make economic decisions
which of the following statements is most accurate? a professions code of ethics: includes standards of conduct or specific benchmarks for behavior ensure that all members of a profession will act ethically at all times publicaly communicates the shares principles and expected behaviors of a professions members
publicaly communicates the shares principles and expected behaviors of a professions members
a professions code of ethics: includes standards of conduct or speciific benchmarks for behavior ensures that all memebers of a preofession will act ethically at all times publically communicates the shares principles and expected behaviors of a professions members
publicaly communicayes the shares principles and expected behaviors of a professions members
the condition that occurs when a company disburses cash too quickly, stretching the company cash reserves, is best described as a: liquidity premium pull on liquidity drag on liquidity
pull on liquiduity
what is arbitrage?
purchasing and selling identical securities or currency or commodity accross two different markets
Chad, operation manager of Biochem INc is exploring a proposed product line expansion. He explains that he estimates the beta of the project by seeking out a publicly traded firm that is engaged exclusively in the sam ebusiness as the proposed project is estimated from the beta of that firm after appropriate adjustments for capital strucuture differences. the method that Chad uses is known as the: pure play method build up method accounting method
pure play method
Assuming identical dividends, which of the follow should trade at highest price, define: o Callable common shares, putable common shares, common shares
putable CS - Ability to sell back shares when price goes below strike price
required lump sum deposit MEMORIZE
pv=fv/(1+i)^n
difference between qualified, unqualified and adverse opinion
qualified - some exception to accting standards unqualified - statements are presented fairly adverse - dont reflect a companies rreality
is quick or current ratio more conservative?
quick
clean price of bond
quoted price
what capitalization rate in real estate?
rate of return expected to be generated on a real estate investment property divide propertys net operating income by current MV
nominal risk free rate equals
real risk free rate + expected inflation
nominal risk free rate = ?
real risk free rate + expected inflation rate
nominal risk free rate equals:
real risk free rate + expected inflation rate
Chad Smith CFA is a analyst for WI in Rome. Smith was contacted by SP iin Milan, a brokerage firm, about doing research on companies in the beverage industry on a contract basis. Smith may do the contract work without violating the standards: if WI doesnt follow the beverage industry only after receieving consent from both firms if WI has no clients in the same geographic area as SP
receiving consent from both firms
Completed Contract Method
recognition of revenue for a long-term contract when the project is complete.
define cash accounting
recognizes transactions when a payment is exchanged, not when sold opposite of accrual accouting
define principle of conservatsim
recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received
according to IFRS guidance for management commentary, addressing the companys key relationship is: recommended required neither recommended or required
recommended
the providers of the smith 30 stock index remove Jones Co from the index because it has been acquired by another firm and replace it within Johnson company. this change in the index is best described as an example of: reconstitution redefinition rebalancing
reconstitution
what is depreciation
reduction of tangible asset value
according to the code of ethics, members must practice and encourage other to practice in a professional and ethical manner that will: reflect credit on members and their profession add value for clients, prospects, employers, and employees maintain the excellent reputation of CFA institution and its member
reflect credit on members and their profession
Chad Smith CFA supervises a group of research analysts, none of whom have earned the CFA designation (nor are CFA candidates). On several occassions he has attmepted ti get his firm to adopt a compliance system to ensure that appicable laws and regulations are followed. However, the firms principals have never adopted his recommendations. Chad should most appropriatley: report the inadequacy by submitting a complaint in writing to the CFA Institute Professional conduct Program take no further actions because encouraging his firm to adopt a compliance system he has fulfilled his obligations under the Code of Stnadards refuse supervisory responsibility
refuse supervisor responsibility
CML plots expected ____ vs ____ ____ risk. SML plots expected ____ vs _____ risk
return, standard deviation return, beta
are revenues and liabilities permanent or temporary
revenue - temporary liabilities - permanent
whats a common market
removes all barriers to movement of labor and capital among members
whats a free trade area
removes barriers to imports and exports among themselves
what is monte carlo simulation
repeated generation of one of more risk factors that affect security values in order to generate a distribution of secuirty values
Chad Co is a lessor. Chad classifies a lease as a sales type lease. Its most likley that Chad: reports under US GAAP retains the leased asset on its balance sheet has significant doubt about collecting the lease payments
reports under US GAAP
Deferred Tax Liability - definition and formula
represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year difference in depreciation x tax rate
which of the following is least likely a characteristic of future contracts? futures contracts: are backed by the clearinghouse are traded in an active secondary market require weekly settlement of gains and losses
require weekly settlement of gains and losses
whats a event driven strategy
responds to events like mergers. used to exploit pricing inefficiencies
a company changing to LIFO method of inventory accounting under US GAAP would least likely be required to restate historical financial statement explain in its financial disclosures why LIFO is superior and preferable to its old method notify the IRS to determine if it needs permission prior to making the change
restate historical financial statement
Sharpe Ratio
return of investment - risk free return / standard deviation of returns
which of the following is not a category on the statement of cash flows? cash flow from: financing operations sales
sales
which of the following is not a category on the statement of cash flows? cash from financing operations sales
sales
under US GAAP, a lease can be classified as a (name3)
sales type, direct financing or operating lease
the sample mean is a consistent estimator of the population mean because the: sampleing distribution of the sample mean has the smallest variance of any other unbiased estimators of the population mean sample means provides a more accuaret estimate of the population mean as the sample size increases expected value of the sample mean is equal to the population mean
sample means provides a more accuaret estimate of the population mean as the sample size increases
central limit therom
sample sizer increases, sample becomes more normally distribute
david saul, cfa, heads the trust department at savage national bank. fairway enterprises invites saul to sit on the board of directors. in return for his service on th eboard, fairway offers to provide saul and his family with access to the facilities at wilmont country club at no cost. saul will not receiev any money for his service. according to the cfa institute standards of professional conduct, which of the following actions must saul take? saul must obtain written consent from savage bank and fairway enterprises if he decides to accept the offer to serve on the board of directors saul must disclose in writing to savage bank the terms of the offer whether or not he accepts the offer saul must reject the offer to serve
saul must obtain written consent from savage bank and fairway enterprises if he decides to accept the offer to serve on the board of directors
which of the following is an assumption of capital market theory? all investors: have multiple period time horizons select portfolios that lie above the efficient frontier to optimize risk return relationship see the same risk/return distribution for a given stock
see the same risk return distribution for a given stock
formative stage of VC investing when capital us furnished for market research and prodyct developmen is best characterized as: early stage seed stage angel invetsing stage
seed stage
thematic investing is most accuratley described as: considering a single environmental or social factor when selecting investments identifying the best companies in each section with respect to E and S factors excluding companies of sectors from consideration for E and S factors
selectnig investments with a view to speciric E or S factor
bond equivilent yield
semiannual yield * 2
when an ethical dilemma occurs an investment professional should most likely first raise the issue with a: mentor outside the firm professional bodys hotline senior individual in the firm
senior individual in the firm
which of the following best describes why adding a commodities index position to a portfolio of stocks and bonds may be beneficial? commodities index positions: benefit from commodity markets oscillating between contango and backwardation serve as a hedge against inflation are positiveley correlated with stocks and bond prices
serve as a hedge against inflation
which is most true?: standards of conduct: are necessary component of any code of ethics serve as a general guide regarding proper conduct by members of a group serve as benchmarks for minimally acceptable behavior required of memebers of a group
serve as benchmarks for minimally acceptable behavior required of memebers of a group
in the context of international trading bloc, the primary feature of an economic union that distinguishes it from a common market is the adoption of a common: currency set of economic policies set of trade restriuctions with non members
set of economic policies
dixie miller, cfa, heads the research department of a large brokerage firm. the firm has many analysts, many of whom are CFA charterholders. if miller delegates some supervisory duties, which statement best describes her responsibilities under the code of standards? her supervisory responsibilities do not apply to those subordinates who are not subject to the code and standards she retains supervisory responsibility for all subordinates despite her delegation of some duties she no longer has supervisory responsibility for those duties delegated
she retains supervisory responsibility for all subordinates despite her delegation of some duties
an equity hedge fund strategy that focuses primarily on exploiting overvalued securities is best describes as a(n) fundamental value strategy short bias strategy event driven strategy
short bias strategy
which of the following would a technical analyst most likley interpret as a buy signal? 20 day moving average crosses below a 100 day moving average 30 day moving average crosses above a 5 day moving average 10 day moving average crosses above a 60 day moving average
shortest term average above a longer term average. just think lowest ratio i suppose?
Chad Smith CFA works for a portfolio management firm. hes a partner of the firm and is prelimarily responsible for managing several large pension plans. Smith has just finished a research report in which he recommends Zeta Corp as a strong buy. His rating is based on solid management in a growing and expanding industry. He just handed the report to the marketing department of the firm for immediate dissemination. Upon retrurnign to his desk he notices a news flash by CNN reporting that management for Zeta corp is retiring. Smth wishes he didnt recommend a strong buy but believes the corporationjhn is still a good investment regardles sof the management. what course of action for smith is best: should report the new info to his immediate supervisor so that they can determine whether ort not the marketing departmnet should sernd out the report as written should revise the recommendation based on this new information\ may send out the report as written as long as a follow up is disseminated within a reasonable amount of time reflecting the changes in management.
should revise the recommendation based on this new information.
When is the installment method used?
significant doubt to collection of sales
a researcher is testing whether the average age of employees in a large firm is statistically different from 35 years (either above or below). a sample is drawn if 250 employees and the researcher determins that the appropriate critical value for the test statistic is 1.96. the value of the computed test statistic is 4.35. given this info, which if the following statements is least accurate? the test: indicates that the researcher will reject the null hypothesis has a significant level of 95% indicates that the researcher is 95% confident that the average employee age is different than 35 years
significant level of 95% confidence level is 95%
a firm with a capital strucutre consiting of only common stock and non convertible bonds is said to have a: straight capital strucutre non diluteed capital structure simple capital strucutre
simple capital strucutre
a single independent project with a negative NPV has an initial cost of $2.5m and would generate cash inflows of $1m in each of the next 3 years. The discount rae the company used when evaluating this project is closest to: 8% 10% 9%
since NPV is negative, discount rate must be greater than IRR. On financial calculator: CF0 - -2.5 CFj - 1 Nj - 3 CPT IRR - 9.7
benchmarks for minimally acceptable behaviors of community members are: code of ethics laws and regulations standards of conduct
standards of conduct not code of ethics cuz they dont identify specific behaviors required of community members
which is most accurate? large financial rewards like bonuses are the most powerful situational influneces when decision making focuses on short term factors, the liklehood of ethical conduct increases situtational influences can motivate indiivdials to acy in their short term self interests without recoginzing the long term risks or consequences for themselves or others
situtational influences can motivate indiivdials to acy in their short term self interests without recoginzing the long term risks or consequences for themselves or others
which of the folloiwng about efficient frontier is not correct: slope of the EF increases steadily as one moves up the curve EF line bends backwards due to less than perfect correlation between assets portfolio to the left of the EF is not attainable while a portfolio to the right of the efficient fronter is inefficient
slope of the EF increases steadily as one moves up the curve
the short supply curve for a purely competitive market: is a horizontal line slopes downward to the right slopes upqard to the right
slopes upward to the right firms will produce more when price rises
historical data on returns of real estate are most likely to exhibit: smoothing overstated correlations with other assets classes downward biased sharpe measures
smoothing
when a hedge fund charges an incentive fee on all profits but only if the funds rate of return exceeds a stated bm what is it called?
soft hurdle
a hedge fund that charges an incentive fee on all profits but only if the funds rate of return exceeds a stated benchmark, its said to have a: high water mark soft hurdle rate hard hurdle rate
soft hurdle rate
securitized bonds are most likely issued by supranational entities special purpose entities banking institutions
special purpose entities
T test - tests if average of different data sets differ from each outher in cash ___ or ____ are unknown
standard deviation, variance
when working in a foreign country, a cfa institute member must follow the: standards, even if they are in conflict with laws of the foreign country regulations of that country as the final authority on procedures stricter of standards or the foreign country's regulations
stricter of standards or the foreign countrys regulations
an analyst who is a CFA charterholder is working in a foreign country. which of the following statements is correct? the analyst is: governed by CFA institutes code and standards governed by the laws and standards of the country which he is living and working covered by the strictest of the following laws and rules: his own countries, the forign countries or CFAs
strictest
which of the following is a component of the Code of Ethics? CFA memebers shall: disclose to their employers all matters that reasonablu could be expetced to internfere with their duty to their employer or ability to make unbiased and objective recommendations make reasonable efforts to detect and prevent violations by those who are under their supervision strive to maintain and improve their competence and the competence of others in the profession
strive to maintain and improve their competence and the competence of others in the profession
The market demand for item X is a function of its price, household income and the price of item Y. Own-price elasticity of demand for X −0.8 Income elasticity of demand for X 1.5 Cross-price elasticity of demand for X with respect to the price of Y 0.4 Given the above elasticity coefficients for the two items, which of the following statements is most accurate? why? theyre subsitutes demand for X is elastic X is an inferior good
subs - cross price elasticity is positive. price of Y increases, more of X is demanded
the CFO of chad co is evaluating the introduction of a new product. the costs of a recently completed marketing study for the new product and the possible increase in the sales of a related product made by Chad co are best described as: opportunity cost; externality externality; opp cost sunk cost; externality
sunk cost; externality
the CFO of chad manufacturing is evaluating the introduction of a new product. the costs of a recently completed marketing study for the new product and the possible increase in the sales of a related product made by chad are best described (respectively) as: opportunity cost; externality externality; cannibalization sunk cost; externality
sunk cost; externality
if ____ curve is steeper than demand curve, more of the suprlus is being captured by producers.
supply
the point where technician expect a substantial increase in the demand for a stock to occur is called a: breakout point support level resistance level
support level
an interpolated spread (I-spread) for a bond is a yield spread relative to: swap rates risk free bond yields benchmark spot rates
swap rates
what comprises total risk
systematic and nonsystematic risk
in an efficient market, investors will be compensated for taking on: total risk systematic risk nonsystematic risk
systematic risk
what is factorial function? hows it denoted?
tells how many different ways n items can be arranged where all the items are included denoted in n!
which of the following is the best method to avoid data mining bias when testing a profitable trading strategy? test the strategy on a different data set than the one used to develop the rules use a sample free of survivorship bias increase the sample size to at least 30 observations per year
test the strategy on a different data set than the one used to develop the rules
compared to European put option on an asset, otherwise identical American put options on the asset are most likely to be more valuable if: the assets value is signigicantly lower than the exercise price the asset pays dividends during the life of the option the options are out of the money
the assets value is signigicantly lower than the exercise price
compliance with the cfa institute performance presentation standards (PPS) or the global investment performance standards (GIPS) is required by the code of conduct the only way to comply with standard III(D) performance presentation the best way to comply with standard III(D) performance presentation
the best way to comply with standard III(D) performance presentation
what is marginal cost
the cost added by producing one additional unit of a product or service.
which of the following statements most accurately describes the combinations of a riskfree and a risky asset: the covariance of the risk free asset with the risky asset is 0 the correlation between the risk free asset and any risky asset is negative the addition of a risk free asset to a portfolio of risky assets will not reduce the portfolios standard deviation
the covariance of the risk free asset with the risky asset is 0
Diluted EPS
the earnings per share a company would have based on the total number of shares including the effects of all stock options and convertible bonds
which of the following statements best describes the effects of inventory accounting on the financial statements? reductions in inventory appear as reductions to net income in the operating activities section of the statement of cash flows when calculating cash flow from operations using the indirect method the fifo cost flow assumption assigns the costs of the most recent purchases to ending inventory and the costs of the earliest units purchased to cost of goods sold during periods of rising prices, the unrealized holding gain recognized on the income statement under fifo is greater than the amount recognized under lifo
the fifo cost flow assumption assigns the costs of the most recent purchases to ending inventory and the costs of the earliest units purchased to cost of goods sold
regardless of the shape of a distrubition, according to Chebyshevs Inquality, what is the minimum % of observations that will lie within +/- two standard deviations of the mean?
the minimum % of observations that lie within k standard deviations of the distribution mean is equal to 1 - (1/k2) with k equal to the # of st. dvs. if k = 2, then % of distirbutions is equal to 1 - (1/4) = 75%
where the NPV intersects the horizontal x axis you have
the projects internal rate of return, where cost inflows and outflows offset each other
a technology that all of the firms ina perfectly competitive industry are using in their production process has been banned by new legistation. what will most likley be the effect if these firms stop using this tech? profit will no longer be maximized at the level of output where marginal costs is equal to the market price firms will adopt a different technology that reduces their costs of production the quantity that the industry will supply at a given price will be reduced
the quantity that the industry will supply at a given price will be reduced
deadweight loss
the reduction in economic surplus resulting from a market not being in competitive equilibrium
chad advisors recently had a trading error in a customer account that was subsequently discovered by chad. the firm felt embarrassed by the disclosure of this error and in order to induce the client to continue its relationship, chad offers the client preferential access to a new issue that is expected to be "hot". which standard is violated? the standard concerning independence and objectivity the standard concerning fiduciary duty the standard concerning fair dealing
the standard concerning fair dealing
where NPV intersects the vertical y axis you have:
the values of the cash inflows less the cash outflows, assuming absence of money having a time value
if quantity demanded is greater than quantity supplied: there will be a shortage and prices rise, aggregate demand will slacken until supply is at equilibrium, immediate increase of production
there will be a shortage and prices rise,
which is best. investment professionals have a speical responsibility to act ethically because: the industry is hevaily regulated they are entrusted to protect clients assets the profession requires compliance with its code of ethics
they are entrusted to protect clients assets
phase out period
time between measurement date and disposal date
the mission of CFA institute is
to lead the investment profession globally by promoting the highest stanards of ethics, eductaion, and professional excellence for thre ultimate benefit of society
standards of practice handbook provides guidance: regarding penalities incurred as a result of ethical violation to which all cfa inst. members and cadidates must adhere through explanatory material and examples intended to be all inclusive
to which all cfa inst. members and cadidates must adhere
how is tracking error calculated
total gross return - benchmark return
When MR = MC = P, economic profit equals
total revenue - total cost
the difference between a HFs trading NAV and its accountign NAV is that: trading NAV tends to be lower cuz of illiquid assets accountign NAV tends to be higher cuz of estimated liabilities accounting NAV tends to be lower cuz of model prices
trading NAV tends to be lower cuz of illiquid assets
which is an example of an activity that may be legal but that CFA institute considers unethical? making legally required disclosures in marketing materials trading while in possession of material nonpublic info disclosure by an employee of his or her own companies dishonest activity
trading while in possession of material nonpublic info
· Diversifying portfolio which is heavy in Chinese equities, decides to purchase US based mutual funds that invest in LT deb securities in NA and Europe. This is best characterized as: o Money market, traditional investment market, alternative investment market
traditional investment market,
· Which is added to national income when calculating personal income o Personal income tax, indirect business (sales) tax, government transfer payments to people
transfers
to finance a proprosed project, Chad Co would need to issue $25m in common equity. Chad co would receievd $23m in net proceeds from the equity issuance. When analyzing the project, analysts at Chad Co should: increase the cost of equity capital to account for the 8% floatation cost add the $2m flotation cost to the projects intiial cash outflow not consider the flotation cost cuz its a sunk cost
treat floatation costs as a cash outflow at project initiation rayjer than a component of the cost of equity
the value of a forward or futures contract is: typically zero at initiation specified in the contract equal to the spot price at expiration
typically zero at initiation
during the contraction phase of the business cycle, how will an active portfolio manager using an industry rotation strategy treat stocks of companies in a cyclical industry: maintain the target weight of the indutry overweight the industry underweight the industry
underweight
accounts that are open include: accounts that are closed include:
unearned revenue expenses, dividends, revenue
types of auditor opinions and best
unqualified (clean) qualified adverse opinion disclaimer of opinion
the interbank funds market is most accurately described as: trading of negotiable certificates of deposits unsecured short term loans from one bank to another banks borrowing of reserves from the central bank
unsecured short term loans from one bank to another
above the line
unusual or infrequent items, presented on a pretax basis
percentage of completion
use if certain a project will happen, uses percentages
what is leverage
using borrowed money to increase a return on investment total company debt/shareholders equity
what is historical cost
value of asset on the balance sheet is recorded at its original cost when acquired by the company
a due diligence factor that is common to analyzing REITS, hedge funds and PE is: variability of manager performance drawdown procedures dividend distribution requirement
variability of manager performance
efficiency of an unbiased estimator is measured by its: mean value variance sample size
variance
chad CFA atended a noon luncheon when he overheard two software execs talking about a vendor, datagen, about how wonderful they think the co is and that a major firm was about to issue a strong buy rec. chad returned o the office, checked a couple sources and placed an order to purchase datagen in all of his discretionary portfolios. the order was filled in an hour. 3 days later a brokerage house issued a strong buy rec and the price went up 20%. chad then proceeded to gather data on the stock and prepared a reprot that he dated the day before the purchase. chad has: violated Standards by not having a reasonable basis for making the purchase of Datagen violated standards by using the rec of another brokerage firm in his report violated the standards by improper use of inside info
violated Standards by not having a reasonable basis for making the purchase of Datagen
Phillips, a CFA candidate, works for an investment banking firm. The firm acts as an adviser for Ace Broadcasting, which has made a tender offer for Clark Communications' common stock. Ace is now thinking about raising the price offered for the Clark Communications' stock. As Ace's investment banker, Phillips is aware of this likely increase and subsequently buys the Clark stock for her firm before the increased offer is made public. She does not inform Ace of this action. Based on the Standards of Professional Conduct, Phillips has: violated the standards by not dealing fairly with her client not violated the standards because the purchase benfits her firm violated the standards by not disclosing the transaction to all other clients of the firm
violated the standards by not dealing fairly with her client
which of the following statements about the role of depreciable lives and salvage values in the computation of depreciation expenses for financial reporting is most accurate? estimated useful life of the same depreciable asset should be the same regardless of which company owns the asset companies are specifically required to disclose data about estimated salavge values in the footnoes to the financial statements depreciable lives and salvage values are chosen by management and allow for the possibility of income manipulation
when price levels rise real wealth decreases and individuals will spend less
which of the following statements concerning aggregate demand is most accurate? when price levels fall, real wealth increases and individuals will spend less when price levels rise real wealth increases and individuals will spend more when price levels rise real wealth decreases and individuals will spend less
when price levels rise real wealth decreases and individuals will spend less
what is a complementary good? give example
when price of X increases, demand for Y decreases iphone price goes up, case demand goes down
define installment method (accounting)
when seller allows customer to pay for sale over multiple years
which of the following statements about portfolio theory is least accurate? for a two stock portfolio, the lowest risk occurs when the correlation coefficient is close to negative one assuming that the correlation coefficient is less than one, the risk of the portfolio will always be less than the simple weighted average of individual stock risks when the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will not decrease the overall portfolio standard deviation
when the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will not decrease the overall portfolio standard deviation
Which of the following ratios is most likely to be used as a measure of operating performance? defensive interval ratio cash ratio working capital turnover
working capital turnover
chad smith CFA is a secuirty analyst at an investment firm. in his spare time, chad serves as volunteer for City Rpide which collects clothes for homeless. chad has occiasional given some clothes to his friends or sold them instead of reurning all of the clothes to City Pride. They find out what hes doing and dismisses him. Later City Pride learns that other volunteer organizations have dismissed his for similar things. Has he violated Standard I(D) on profession misconduct in CFA INstitute Standards of Professional conduct? no because Chad volunteers his services to City RPide no because Chads conduct is unrelated to his profesisonal activities as a analsyt yes
yes
assuming the issuer does not default, can capital gains or losses be a component of the holding period return on a zero coupon bond that is sold prior to maturity? no cuz amortization of the discount is interest income yes cuz purchase price is less than bonds value at maturity yes cuz bonds yield to maturity may have changed
yes cuz bonds YTM may have changed
should a company accept a project that has an IRR of 14% and a NPV of 2.8 million if the cost of capital is 12% yes cuz npv and irr yes only ciz npv no cuz npv and irr
yes cuz npv and irr
is lower of cost method acceptable for GAAP? for IFRS?
yes to both
a 10 year spot is least likely the yield to maturity on a 10 year coupon bond appropriate discount rate on the year 10 cash flow for a 20 year bon yielf to maturioty on a 10 year zero coupon bond
yield to maturity on a 10 year coupon bond
difference between z and t tests
z test - used to determine whether two samples means are different if standard deviation is availble and sample is large t test - determines how average of different data differs from each other incash standard deviation or variance are unknown
· Company dervies most of profit and cash flow from 5 countries, including its home country. The firm started projecting its cash flopws by currency and entering into currency forwards to lock in future rates. The firm reported that contracts resulted in currency gain. Most likely can be described as: o Hedger, investor, information motivated trader
§ Hedging is reducing exposure to unwanted risks, regardless of how it turns out
Duration With Convexity Adjustment formula
ΔP/P = -Dₘ * Δy + (Δy)²/2 * Convexity Δy = yield change Δ = bond price change Dₘ = duration