Exam WeightingsSections on FinalQuestionsTopicPercentMinutes1 to
18Ethical and Professional Standards15%2719 to 32Quantitative
Methods12%2133 to 44Economic Analysis10%1845 to 80FSA &
Corporate Finance28%5181 to 114Asset Valuation30%54115 to
120Portfolio Management5%9Sections on your resultsEthical and
Professional Standards (total)15%Quantitative
Methods12%Economics10%Financial Reporting and Analysis20%Corporate
Finance8%Equity Investments10%Fixed
Income12%Derivatives5%Alternative Investments3%Portfolio
Management5%QuestionTopic1Quantifying Cash Flows2Weighted Average
Shares Issued3Retained Earnings4Valuing Inventory5Cost of
Equity6WACC7NPV & IRR8NPV & IRR9Bond Equivalent
Yield10WACC11Required Rate of Return12Pure Play Method13Operating
Cycle14Trade Credit15Stock Market Types16Margin
Calls17ROI18Abnormal Return19HHI20Dividend Growth Rate21Stock
Valuation22PE Ratio23Bond Duration24Tax Equivalent Bond Yield25Bond
Valuation26Bond Valuation Zero Coupon27T-Bill Yield28Bond Dirty
Price29Spot Rate Curve30Portfolio Duration31Free Cash
Flow32Accounting for Bonds33Diluted Earnings Per Share34Percentage
of Completion35Comprehensive Income36Accounting for Lease
Expenses37Expected Return38Expected Return and STD39Over/Under
Valued40After Tax Cash Flow41Continuously Compounded
Return42Standard Error of Sample Mean43EPS44Lease
Expenses45Operating Leverage46Bond Yield47Bond Yield48FRA49STD
Portfolio50Correlation of Returns51HHI52EPS53Profitability
Index54Stock Valuation55Stock Valuation56Yield to Worst57BPS
Shift58Gold Futures59Exotic Options60Beta61Net Cash Provided
By62Degrees of Freedom63Inventory Turnover64Comprehensive
Income65Sustainable Growth Rate66Market Value of Index67Bond
Valuation68Deferred Tax Liability69ROE70Market Weighted Index71P/E
Estimate72Valuing Calls73Signifigance Level74Accounting for
Inventory75Margin Return76Portfolio STD77Equity Risk
Premium78FRA79EPS Compound Annual Rate80Weighted Average Shares
Issued81WACC82Stock Valuation83Bond Valuation with Forward
Rates84Currency Swap8586T-Bill Effective Annual
Yield87Probability88Covariance Matrix89FSA90FSA91Weighted Average
Shares Issued92After Tax Cost of Debt93Income Tax Expense94Average
Investment in Receivables95Estimated Inventory Days96Implied P/E
Ratio97Market Value of Index98Future Forward Rate99Swaps100Cash
Flows101Roy's Safety First Ratio102T-Statistic103Time Value of
Money104Holding Period Return105Elasticity of Demand106Debt
breakpoint107CAPM108Bond Valuation109Producer Surplus110Geometric
Mean111DuPont Method112Accounting for Bonds113Discounted Payback
Period114Evaluating portfolio manager performance115Expected rate
of return116Bond Equivalent Yield117Pure expectations
theory118Clean price of bond119Foreign Currency Swap120Equity
Swap
&CExam Weightings and my color codesAndrew McKay:Question 85
was identical to question 60, so I need a new #85
QuestionsQuestion NumberSourceQuestion1BSAS 2007 MorningUse the
following information to answer questions 52 to 53(in millions of
US dollars)Cash collections on receivables1300Cash dividends on
common stock paid35Cash dividends on preferred stock paid120Cash
purchases of inventories750Cash receipts of dividends12Depreciation
expense92Interest payments35Payments of expenses300Proceeds from
issurance of common stock650Proceeds from bridge
financing700Proceeds from sale of equipment200Repurchasing of
issued shares300Purchase of land600Purchase of trading
securities1752The net cash provided by operating activites is
closest
to:A$210,000,000B$198,000,000C$222,000,000D$270,000,00053The net
cash provided by financing activities is closest
to:A$750,000,000B$800,000,000C$850,000,000D$900,000,0002BSAS 2007
MorningTime-Warner had the following information related to its
common stock for the year.5431-DecNumber of shares
outstanding100,00029-FebNumber of shares issued1500029-Jun3.5% cash
dividend declared30-JunNumber of shares
reacquired1200030-SepTwo-for-one stock splitWeighted average shares
outstanding for the year is closest
to:A212,000B213,000C225,000D150,0003BSAS 2007 MorningThe following
information was abstracted from the records of the Vancouver
Corp:48Total income since incorporation$1,200,000Total cash
dividends paid240,000Total par value of 20% stock dividends
ditributed (market value of $125,000)75,000Excess of proceeds over
par value of stock issued125,000The current balance of retained
earnings is closest to:A$775,000B$815,000C$835,000D$855,0004BSAS
2007 MorningThe Yukon Corporation incurred the following
transactions for February, 2007. Yukon is unsure of whether to use
LIFO, FIFO or the average cost method. The inventory method that
shows the highest profits among the alternatives would show ending
inventory closest to:62Unit CostFeb. 1stUnits on Hand 400$7.00Feb.
8Received 800 units, total on hand 1200$7.30Feb. 17Units Sold 500,
On Hand 700Feb. 25Received 200 units, On Hand 900$7.70Feb. 28Units
Sold 400, On Hand 500A$3,700B$3,600C$3,500D$10,1805CFAI Chapter
45Using the following information what is the approximate cost of
equity capital for Sears Mining if the company pays a dividend of
$2.15 next year, has retention rate of 73 percent, a ROE of 13.5
percent and a stock price of $47?3A4.50%B6.17%C7.96%D9.18%6CFAI
Chapter 45John Smith, CFA has been assigned the task by his
employer Smothers Brothers Brokerage to determine the weighted cost
of capital of Zulu Corp. He has been provided the following
information:7Before-tax cost of new debt8.50%Corporate Tax
Rate37%Target debt-to-equity ratio0.8Current Stock Price$32Next
year's dividend$1.75Estimated growth rate6.73%Estimated Beta1.3WACC
is closest to:A5.6%B6.1%C6.5%D7.5%7CFAI Chapter 44Given the
following cash flows calculate the NPV and IRR allowing for a
required rate of return of 10%.1YearCash
Flow0-$80,000.001$17,000.002$17,000.003$50,000.004$25,000.005-$5,000.00NPVIRRA$1,040.6010.55%B$7,249.8113.54%C$4,979.9410.55%D-$7,855.334.34%8CFAI
Chapter 44Projects 1 and 2 have similar costs but differing
patterns of future cash flows. Given the cash flows as well as the
NPV and IRR and a required rate of return of 10 percent which of
the two mutually exclusive projects should you invest
in?12YearProject 1Project
20-100-100140024003400440200NPV$24.36$33.28IRR22%19%AInvest in
Project 1 because it has the larger IRRBInvest in Project 2 because
it has the larger NPVCInvest in Project 1 because it has the
shorter payback periodDInvest in Project 1 because it has the
smooth yearly cash flows9CFAI Chapter 46Calculate the bond
equivalent yield for a 185-day U.S. Treasury bill that has price of
$9650 and a face value of $10000.4A6.47%B6.91%C7.16%D7.06%102007
BFS AfternoonNBC's capital structure includes $20 million in debt
and $10 million in equity. Their bonds currently have a
yield-to-maturity of 6.5 percent. The firm's Beta has been
estimated at 1.25. The risk free rate is currently 5 percent and
NBC must pay a risk premium of 8 percent. If their corporate tax
rate is 37 percent, the firm's weighted average cost of capital is
closest to:75A7.02%B7.65%C9.71%D11.25%112007 BFS AfternoonVision
Critical concluded a market research study on a five-year project.
The project's expected net present value is $75,000, its equivalent
annual cost is $22,000 and depreciation is $4500 per year. If the
firm pays taxes at 35 percent then its required rate of return is
closest to:79A5.36%B9.67%C14.29%D22.55%12CFAI Chapter 45An analyst
gathered the following information about a private company and its
publicly-traded competitor:26Private CompanyPublic CompanyTax
Rate32.00%37.00%Debt/Equity0.950.85Equity BetaN.A.1.6Using the
pure-play method, the estimated equity beta for the private company
is closest to:A1.5B1.7C1.85D1.9513CFAI Chapter 46Given the
following financial statement data, calculate the operating cycle
for Harley Davidson.2In MillionsCredit Sales$32,000Cost of goods
sold$26,000Accounts receivable$3,000Inventory - Beginning
balance$2,000Inventory - Ending balance$2,500Accounts
payable$1,650The operating cycle for this company is closest
to:A70B72C74D7614CFAI Chapter 46Suppose a company uses trade credit
with the terms 3/15, net 45. If the company pays its account on the
45th day, the effective borrowing cost of skipping the discount on
day 15 is closest to:6A40%B42%C44%D46%15Musk's Memory BanksJimmy
James, CFA, has been hired by the government of Kerblackistan to
advise them in setting up their first stock market. He recommends a
market where a few licensees determine the bid and ask spread and
an index made up of the 45 largest companies in Kerblackistan. The
index will reflect the importance these large companies have on the
Kerblackistani economy. They will be the companies with the most
shares issued.Is Jimmy James Recommending:Type of MarketType of
IndexACall MarketUnweightedBContinuous Dealer MarketPrice
WeightedCContinuous Dealer MarketValue WeightedDContinuous Auction
MarketValue Weighted16BFAS Morning SessionSarah Sutherland, an
investor, purchases on margin 10,000 share of Beta Corp. for 25
dollars a share. Her broker said there would be zero commision on
such a large purchase, however the margin requirement for the
purchase would be 50%, the maintenance margin would be 35% and the
call money rate is 4.5%. One year later shares of Beta Corp. are
trading at 19.50 per share. Which of the following is most
accurate?82Initial margin amount ($)Total Return on Investment
(%)Received margin
call?A$125,000-48.50%NoB$125,000-44%YesC$250,000-24%YesD$250,000-22%No17BFAS
Morning Session90Jill purchased a stock for $35 last year and it
currently trades at $40. During her investment horizon, she
received $1.50 in dividends. If the stock's Beta is 1.25, her
return during the year is closest to:A16 percentB17 percentC18
percentD19 percent18Schweiser = Reading 54Jill Smith CFA has
gathered the following data about a stock:10Estimated
Beta1.37Actual Return10.90%Market Rate of Return6%Risk Free
Rate3.50%Compute the stock's abnormal rate of
return.A3.55%B3.975%C4.25%D4.375%19CFAI 58An analyst gathered the
following information about market shares in two industries:3Market
Share in Industry 1Market Share in Industry 2The top firm has
42%The top three firms all have 21%The next two each have 9%The
next two have 8% eachThe other eight all have 5%The last three have
7% each.Which industry has the highest:four frim concentration
rationHefindahl IndexA11B12C21D2220BFAS Morning87A company released
its latest financial statements:Net Income$2,500,000Dividends
declared$850,000Total Equity$6,500,000Total Debt$4,500,000Total
Assets$14,000,000The company's dividend growth rate is closest
to:A24%B25%C26%D27%21BFAS Morning89Yakamichi Corp. paid $1.75
annual dividend last year and distributed 67 percent of its
earnings to shareholders. The firm's projected ROE is 12.5 percent.
If investors require 14 percent rate of return on this stock, the
estimated value of Yakamichi's stock is closest
to:A$17.00B$17.75C$18.50D$19.2522BFAS Afternoon87The market
equilibrium rate on the stock of Williams Brothers is 8.5%. Its
expected return on equity is 12.5% and its expected earnings per
share is $4.50. If the firm's plowback ratio is 37.5%, its price to
earnings ratio will be closest to:A15.9B16.4C16.8D17.223CFAI
63Jimmy James, CFA has been tasked with estimating the interest
rate risk of a bond using duration. The current price is 83. An
internal computer valuation model has predicted that if interest
rates decline by 25 basis points, the price will increase to 85 and
if interest rates increase by 25 basis points the price will
decline to 81.5The duration of this bond is closest
to?A10B11C12D1324CFAI 6518Arnold Palmer is a taxable investor who
is currently in the 30% income tax bracket. He is considering the
purchase of a tax-exempt bond issued by Palm Beach Municipal
Authority with a yield of 4%. The tax equivalent yield of this bond
is closest to:A5.25%B5.75%C6.25%D6.75%25CFAI 677What is the value
of a 4 year 7% coupon bond selling at a yield of 6% assuming the
coupon payments are made
semiannually?A$100.00B$102.25C$103.50D$104.7526CFAI 678What is the
value of a zero-coupon bond paying semiannually that matures in 15
years, has a maturity of 2.5 million and is selling at a yield of
6.75%?A$777,349.23B$876,000.00C$900,000.00D$923,579.6027CFAI 6715A
Treasury Bill with 72 days from settlement to maturity is selling
for $0.997 per $1 of maturity value. What is the yield on a
discount basis?A1.37%B1.50%C1.69%D1.77%28CFAI 67For a bond trading
on the Korean Stock Exchange, using the "actual days/actual days"
convention calculate it's dirty price.19The bond has a coupon rate
of 6%Pays Coupons SemiannuallyIs quoted at 102 and 13/32nds percent
of parThe Par Value is $10,000Settlement takes place on April
8th.The next coupon will be paid on July 15th, which is 98 days
after settlement.There are 181 days between January 15 and July
15.The Dirty Price is Closest
to:A$10,000.00B$10,240.62C$10,378.19D$10,403.0629CFAI 6834Use the
following spot rate curve to calculate the implied forward rate for
a six-month loan beginning 18 months from now.MaturitySpot RateSix
months5.00%Twelve months6.00%Eighteen months7.00%Twenty-four
months8.00%Thirty months9.00%Thirty-six
months10.00%A10.56%B10.78%C11.22%D11.64%30CFAI 6922An investor
holds three bonds in their portfolio.BondMarket ValueDuration6.2% 3
year$300,0002.57.3% 4 year$200,0002.757.1% 5 year$500,0008.02The
portfolio duration is:A5.31B4.42C4.21D4.1131Schweiser 2008 Exam 3
Afternoon Session50An analyst gathered the following information
about a company:Cash flow from operations$700Purchase of
Plant$50Sale of Land$27Interest Expense$75Depreciation and
Amortization$110The company has a tax rate of 35% and prepares its
financial statement under U.S. GAAPThe company's free cash flow to
the firm is closest to:A625B675C715D86532Schweiser 2008 Exam 3
Afternoon Session54A company issues $5,000,000 of 5-year annual, 7%
coupon bonds. Upon issurance their YTM was 6.5%. Based on this
information, the initial balance sheet valuation and the first
year's income statement amortization are:Initial
BalanceAmortizationA$5,000,000.00$0.00B$5,350,000.00$22,750.00C$5,103,891.99$18,247.02D$5,325,000.00$27,083.3333Schweiser
2008 Exam 3 Afternoon Session55An analyst gathered the following
data about a company:1,500,000 shares of common stock are
outstanding at the beginning of the year.10,000 6% convertible
bonds (conversion ratio 20 to 1) were issued at par June 30 of this
year.The company has 250,000 warrants outstanding all year with an
exercise price of $25 per share.The average stock price for the
period is $20, and the ending stock price was $30.If the
convertible bonds are considered dilutive, the number of shares of
common stock that the analyst should use to calculate diluted
earnings per share
is:A1,500,000B1,600,000C1,700,000D1,750,00034Schweiser 2008 Exam 3
Afternoon Session59A research analyst has collected the following
information regarding a long-term construction project. The company
uses the percentage-of-completion methodology to account for this
project:Invoiced AmountsA/R CollectionsConstruction
Expenses2004$1,000$800$7002005$500$600$5002006$500$600$400Total$2,000$2,000$1,600Given
this information, the net constuction-in-progress balance sheet
value at the end of 2005 equals:A0B400C500D60035Schweiser 2008 Exam
3 Afternoon Session64At the end of its last fiscal year, Vintner's
Supply Corp. reported retained earnings of $200,000. This year,
Vintner's reported year-end retained earnings of $250,000 and net
income of $25,000, paid dividends of $10,000, paid interest expense
of $5,000, and received dividends of $5,000. Vintner's other
comprehensive income for this year is closest
to:A50000B25000C20000D1500036Schweiser 2008 Exam 3 Afternoon
Session66A company leased an airplane under the following terms:The
lease is a 10-year capital leaseThe present value of the lease
payments discounted at the appropriate interest rate (10%) is
$5,000,000The company uses the straight-line depreciation
method.The company does not own the asset or have a purchase option
at the end of the lease.In the first year, the reported lease
related expense
is:A$1,000,000.00B$500,000.00C$50,000.00D$0.0037BFAS Morning115An
investor wants to achieve a portfolio risk (standard deviation) of
0.037. The expected return on the market portfolio is 0.12 with a
standard deviation of 0.1. If the risk free rate is .042, the best
expected return the investor can achieve is closest
to:A4.44%B7.00%C8.00%D12.00%38BFAS Afternoon117Expected returns on
the Fidelity S&P 500 Index fund and the Prudential Low Priced
Stock fund are 8% and 13.5%, respectively, and they have standard
deviations of 6.5% and 14%, respectively. The correlation of
returns between these funds is 0.75. A portfolio with 15%
Prudential and 85% S&P index fund would have an expected return
and standard deviation closest to:Expected ReturnStandard
DeviationA8.825%7.30%B8.825%7.65%C10.75%7.30%D10.75%7.65%39BFAS
Afternoon118Expected returns on Fidelity S&P 500 Index fund and
the Prudential Low Priced Stock fund are 8% and 13.5%,
respectively, and they have betas of 1.0 and 1.375, respectively.
The risk free rate is 4.5% and the expected return on the market is
8%. The required return on the Prudential fund is therefore
________ and it is ________.Expected ValueValuationA9.3
percentovervaluedB9.3 percentundervaluedC11 percentovervaluedD11
percentundervalued40CFAI 7626An investor gathered the following
information about a real estate investment:Amount financed by
mortgage loan$600,000Interest rate on mortgage loan10%Term of
mortgage loan25 yearsYear 1 gross potential rental
income$150,000Year 1 estimated vacancy and collection loses5%Year 1
estimated insurance, taxes, and electricity$30,000Year 1 estimated
repairs and maintenance$22,000Annual straight line
depreciation$29,000Investor's Tax Rate32%The mortgage loan requires
level end-of-year annual payments of $63,450 and interest on the
loan is tax-deductible. The investment's expected after-tax cash
flow in year 1 is closest
to:A$5,550.00B$26,570.00C$66,640.00D$69,000.0041BFAS Morning26Over
the past year a common stock had a holding period return of 10%.
Its continuously compounded return is closest
to:A9.25%B9.50%C10%D10.25%42BFAS Morning28A population has a mean
of 7 and a standard deviation of 11. A sample population of size
120 is taken from this population. The standard error of the sample
mean is closest to:A0.05B0.10C0.50D1.0043BFAS Morning55Edmund
Fitzgerald Inc. reported Net Income of $600,000 for the year. EFI
did not pay any dividends last year but paid dividends of $200,000
to the preferred stock (includes dividends in arrears) and $50,000
to the common stock in the current year. The number of outstanding
shared throughout the year was as follows:Common stock, $1
par100,00010% Preferred stock, $100 par, cumulative10,000The basic
earnings per share (rounded to the nearest penny) is closest
to:A4.75B5.00C5.25D5.5044BFAS Morning65On January 1st, 2006
Immobile Company entered into a 10-year capital lease agreement for
machinery in exchange for equal, annual year-end payments of
$50,000 and a guaranteed residual value of $5,000 at the end of the
lease. The capital lease has a present value of $337,820 based on
an implicit interest rate of 8%. Assuming the company uses the
straight-line method of depreciation, the total amount of lease
related expenses in 2007 is closest
to:A$58,470B$58,970C$60,308D$60,80845BFAS Morning80If a company's
percentage change in sales is 15 percent, its operating margin is
22 percent, its percentage change in operating cash flows is 14
percent, and it pays taxes at 40 percent, its operating leverage is
closest to:A0.56B0.72C0.93D1.0746BFAS Morning99Kiev Industries' 7%
pound sterling denominated bond (maturing March 14th, 2015) pays
interest on an annual basis. On March 14th 2007 the bond is trading
at par. The company then issues a press release to announce an
expected earnings shortfall, and the bond's yield immediately
widens (increases) 50 bps. The price change is closest to:AIncrease
2.63BIncrease 2.93CDecrease 2.63DDecrease 2.9347BFAS Morning100What
is the value of a four year 10% coupon bond using an 8% discount
rate, calculated assuming annual and semi-annual compounding?Annual
CompoundingSemi-Annual
CompoundingA106.23106.23B106.23106.73C108106.23D108106.7348BFAS
Morning105Boeing expects to receive 50 million in 60 days. Boeing
expects short term rates to rise during the next 2 months. Boeing
decides to use a FRA that expires in 60 days and is based on the
60-day LIBOR. It's quoted at 4.75% and at expiration LIBOR is 5%.
Based on a notional principal of 50 million, which of the following
is most accurate?AThis is a 2 X 4 contract.BBoeing should go long
the Forward Rate Agreement.CThe long position had a gain of
approximately20661.15DThe long position had a gain of
approximately20833.3349BFAS AfternoonAn investor has a portfolio of
two mutual funds, A and B, 25% invested in A. The following table
shows the expected return and the covariance matrix for the two
mutal funds:24Expected Return of A12%Expected Return of
B8%FundABA400121B121169The standard deviation of the portfolio is
closest to:A7.75%B12.86%C60.13%D165.44%50BFAS Afternoon26The
covariance between the returns of stock A and stock B is -125. The
standard deviation of the rates of return is 20 for stock A and 10
for stock B. The correlation of the rates of return between A and B
is closest to:A-0.625B-0.375C0.375D0.625512008 BSASM39Consider the
following market share data for two industries each containing 6
firms:FirmIndustry AIndustry
B135%65%225%12%317%9%417%5%53%5%63%4%According to the four-firm
concentration ratio and the Herfindahl-Hirschman Index, Industry
A's concentration relative to Industry B indicates Industry A
is:Four-firm Concentration RatioHHIAless concentratedless
concentratedBless concentratedmore concentratedCmore
concentratedless concentratedDmore concentratedmore
concentrated522008 BSASUse the following information to answer
Questions 58 & 59Common stock, $0.50 par, 1,000,000 shares
outstanding$500,0008% noncumulative preferred stock, $100 par,
20,000 shares$2,000,0009% convertible bonds$1,000,000Each $1,000
bond is convertible into 65 shares of common stock. In addition,
the company had 100,000 options outstanding the entire year. Each
option allows the holder to acquire one share of common stock at a
price of $5. The average market price of common stock for the year
was $20.Net income for the year was $600,000 and the income tax
rate is 40%. The company paid dividends to common stock of $60,000
for the year.M58Basic earnings per share for the year is closest
to:A$0.38B$0.44C$0.54D$0.60M59Diluted earnings per share for the
year is closest to:A$0.41B$0.43C$0.44D$0.56532008 BSASM75Management
estimates that a project will require an initial investment of
$30,000. This project is expected to generate after-tax cash flow
of $9,000 per year for five-years. If the project has no salvage
value at the end of the project and the firm's hurdle rate is 11%,
what is the project's Profitability
Index?A0.99B1.03C1.07D1.11542008 BSASM84Giants Company is expected
to pay a $1.50 dividend in the upcoming year. Dividends are
expected to grow at the rate of 8% per year. The risk-free rate of
return is 6% and the equity market is expected to return 11%. The
stock as a beta of 0.85. The intrinsic value of this stock is
closest to:A$63B$66C$69D$75552008 BSASM85A stock is not expected to
pay dividends of $1.35 per share until two years from now. At this
time, the dividend distribution is going to be 40 percent of net
income, earnings growth is projected to be 8%, and the return on
equity is expected to be 17 percent. If the required rate of return
is 10 percent for the first two years and 12% thereafter, what is
an approximate value of the stock today?A$56B$59C$62D$65562008
BSASM94Burlington Corp. has a bond with the following relevant
information:Par value$100Maturity4 yearsCoupon6% semi-annualMarket
Price$104.21Callablein 2 years at 101Yield to worst for this bond
is closest to:A4.11%B4.27%C4.69%D4.82%57BSAS 2008M99Use the
following information to answer the question:ABC CorpEffective
duration6Convexity adjustment for a 150 bps shift in yield1.80%If
interest rates increase 150 bps, the approximate percentage change
in price is:A-7.20%B-4.10%C4.10%D7.20%58BSAS 2008108A gold futures
contract requires the seller to deliver 100 troy ounces of gold. An
investor sells an August gold future contract at a price of $855
per ounce, posting a $3,375 initial margin. If the required
maintenance margin is $2,500, the price per ounce at which the
investor would first receive a maintenance margin call is closet
to:A$805B$835C$865D$89559BSAS 2008M110Ginormous Yield fund bought
put options expiring in 30 days on 90-day LIBOR with an exercise
rate of 4.5% and a notional principal of $100 million. On the
expiration day, the 90-day LIBOR rate is quoted at 3.75%. Which of
the following is the most accurate description of the payoff for
the options held by the Ginormous Yield fund?A$75,500 lossB$125,500
profitC$187,500 profitDThe options expired worthless60BSAS
2008M120An analysis of PG and S&P 500 returns data over the
past 3 years indicates that the covariance is .0024, the standard
deviation of PG is 12% and the standard deviation of the S&P
500 is 10%. If the S&P 500 is a good proxy for the market as a
whole, the beta of PG is closest to:A0.16B0.25C0.38D0.5561BSAS
2008Use the following information to answer questions 67-69Balance
sheet and income statement for a U.S. firm is as
follows:20072006Cash$540$766AR30413320Inventory45923550Prepaid
Expenses1166786Investments27753292Property, Plant and
Equipment1568013268Less: Accumulated depreciation-8425-7799Total
Assets$19,369.00$17,183.00Liabilities and Stockholders'
EquityAP32382849Accrued Liabilities581988Current portion of long
term debt19311310Long-term Debt60134966Common Stock54325373Retained
Earnings21741697Total Liabilities & Stockholders'
Equity$19,369.00$17,183.00Income Statement for the year ended
December 31, 2007Sales$36,151.00COGS$34,003.00Gross
Profit$2,148.00Selling and Administrative Expense$1,064.00Income
from Operations$1,084.00Other Revenue and Expenses:Loss of Sale on
Equipment-$24.00Interest Expense-$342.00Income Before Income
Taxes$718.00Income Tax Expense$223.00Net Income$495.0067Net cash
provided (used) by operating activities is closest
to:A$(16.00)B$(64.00)C$(642.00)D$605.0068Net cash provided (used)
by investing activities is closest
to:A$(1,269.00)B$(1,895.00)C$(1,919.00)D$(2,412.00)69Net cash
provided (used) by financing activities is closest
to:A$1,088B$1,106C$1,709D$1,72762BSAS 2008A32A research analyst
would like to construct a confidence interval for the mean monthly
return of ABC stock. He assumes that monthly returns follow a
normal distribution. Over the past 24 months, the mean monthly
return was 1.50% with a sample standard deviation of monthly
returns of 2.30%. When finding the reliability factor based on the
t-distribution, he calculates degrees of freedom
as:A22B23C24D2563BSAS 2008A61Wobegon had the following abbreviated
financial statements (in 000)Year 2Sales$12,262Costs and
expenses:COGS8304Other expenses174510049Operating Income2213Income
taxes (30%)664$1,549Year 2Year
1Cash164028Receivables1296886Inventories1329962Property and
equipment75606692Total Assets$11,825$8,568Accounts
Payable961699Notes Payable88093Long-term debt39743397Common
stock20861416Retained Earnings39242963Total liabilities and
stockholders' equity$11,825$8,568An examination of the footnotes
related to inventories revealed that the company follows the LIFO
method and provided the following information:Year 2Year
1Replacement cost16371032Less: Valuation allowance30870LIFO
inventories$1,329$962If the company had used FIFO,inventory
turnover for year 2 would have been closest
to:A5.07B6.04C6.40D7.0464BSAS 2008A66Russian Liberation Front Inc.
reported the following items at the end of the
year:Expenses700000Cash Dividends75000Foreign currency translation
loss125000Revenues1250000Unrealized holding gain on available for
sale securities50000Unrealized holding loss on derivative
contracts25000RLFI's comprehensive income for the year is closest
to:A$375,000B$450,000C$475,000D$550,00065BSAS 2008A86Big Shiney
Company has equity capitalization of $400,000 and debt
capitalization of $200,000. The company reported earnings of
$70,000 for the year and distributed $30,000 of its earnings to
shareholders. If the company's leverage multiplier is 2 and they
pay taxes at 40% what is their sustainable growth
rate?A9.50%B9.75%C10%D10.25%66BSAS 2008A87You project next year's
stock index retention rate to be 37% and EPS to be $325. You also
forecast that ROE will be 15% and the required rate of return on
the market will be 13%. What is the approximate market value of the
index?A$2,891.95B$3,101.27C$3,209.66D$3,532.1767BSAS 2008A91Value a
3 year 6% bond with the following spot rates. The bond pays
interest once per year.1 year spot rate5.11%2 year spot rate5.22%3
year spot rate5.33%A$99.49B$101.15C$101.84D$102.7468Schweiser Exam
1An analyst gathered the following data about a deprechiating
asset:M64Acquisition cost $8000Four year useful life and no salvage
valueThe asset will generate $5000 per year in revenue.The
company's tax rate is 40%For tax purposes the asset can be
depreciated (straight line) for two years.For financial accounting
purposes the asset can be depreciated (straight line) for four
years.Assuming a constant tax rate, what is the deferred tax
liability at the end of the second
year?A0B$400C$800D$1,60069Schweiser Exam 1An investor has obtained
the following information about Mega Corp.M73Net Profit
Margin8.70%Total Asset Turnover2.4Dividend Payout Ratio35%Tax
Rate35%Total Sales120,000,000Equity as a percentage of total
assets40%Based on this information, Mega Corp's ROE is closest
to:A8.40%B14.50%C20%D52.20%70Schweiser Exam 1M85Jim Craig, CFA is
working for a small exchange and has been asked to set up an index.
He is interested in examining the difference between price-weighted
and market-weighted index. Here is the information that was
provided by the exchange:DayOneTwoThreeStock APrice $6Price $2Price
$7Shares 200Shares 200Shares 50Stock BPrice $95Price $100Price
$51Shares 500Shares 500Shares 1000Stock CPrice $10Price $12Price
$16Shares 1000Shares 1000Shares 1000Prices are shown for the last
trade on each day.Prior to the start of trading on Day 3 a 1 to 4
reverse stock split was executed on Stock A, and a 2 for 1 stock
split will be reflected for Stock B.The market-weighted is to be
standardized to 500 on Day 1.The initial divisior for the
price-weighted index was set at 3.The percentage change in the
market-weighted index on Day 2 is equal
to:A6.30%B8.30%C12.74%D14.74%71Schweiser Exam 1M92An analyst is
asked to calculate the trailing P/E for AdMicro Systems (AMS) on
November 15th 2003, when the share price is $27.50. The company's
fiscal year ended on December 31st 2002. Financial statements
indicate that the EPS for the year was $1.27, which included a
non-recuring element amounting to $0.12 per share. As of October
31st the 12 month trailing EPS was $1.45 based on three quarters in
2003 and one quarter in 2002. When various nonrecurring and
extraordinary items are taken into account, the adjusted EPS for
the most recent 12 months is $1.10. Based on this information the
most appropriate P/E estimate an analyst should us for AMS
is:A18.97B21.44C23.91D2572Schweiser Exam 1M116What are the minimum
price for an American-style and European-style 3-month call option
with a strike price of $80 on a non-dividend paying stock trading
at $86 if the risk-free interest rate is
3%.AmericanEuropeanA$6.00$6.00B$6.00$5.96C$6.59$6.00D$6.59$6.5973Stella
WorkshopL1-00346The records of a national mutal fund association
indicate that the average mutual fund achieves annualized returns
or 9.0%. Due to recent market fluctuations, the association
believes the annualized returns are higher than 9.0%. In a study of
100 randomly selected funds, it was found that the average
annualized return was 9.4% with a standard deviation of 2.2%. At
the 5% significance level:AThe analyst can conclude that the
annualized return has decreased.BThe analyst can conclude the
annualized return is 9.0%.CThe analyst can conclude that the
annualized return has increased.DThe analyst cannot conclude that
the annualized return has increased.74Stella WorkshopL1-03200Zeta
Corp. uses LIFO inventory accounting. The footnotes to the 20X9
financial statements contain the following inventory
information:20X820X9Raw Materials$292,675.00$369,725.00Finished
Product$501,342.00$377,104.00$794,017.00$746,829.00Less adjustments
toLIFO basis$(46,000.00)$(50,000.00)$748,017.00$696,829.00Tax rate
is 35%If FIFO had been used for both years, the 20X9 net income
would have changed
by:A$(2,600.00)B$1,400.00C$2,600.00D$4,000.0075Stella
WorkshopL1-01318An investor buys 100 shares of GHG Technologies for
$50 dollars a share. The investor pays $4000 of the purchase cost
and uses his margin, borrowing to buy the rest. The investor pays
8% on the margin balance. One year later, GHG announces poor
earnings and the price falls to $25 dollars per share. What is the
investor's one-year rate of return, with the use of margine
borrowing and without?Margined ReturnUnmargined
ReturnA-64.50%-37.50%B-64.50%-50.00%C-62.50%-37.50%D-62.50%-50.00%76Stella
WorkshopL1-02134Dr. Filly plans to invest $100, with a portion in a
risky asset and a portion in a risk-free asset. The risky asset has
an expected return of 12% and a standard deviation of 15% while the
risk-free asset has an expected return of 5%.What percentages of
Dr. Filly's money must be invested in the risk-free asset and the
risky asset, respectively, to form a portfolio with a standard
deviation of 0.06?A30% and 70%B70% and 30%C60% and 40%D40% and
60%77Stella WorkshopL1-01968XYZ industries is a mature company that
is growing at 4%, which is equal to the nominal growth rate of the
economy. Assuming XYZ's P/E ratio is 8, its payout ratio is 20%,
the real risk-free rate of return is 1.0%, and the inflation rate
is 1.5%, the estimated equity risk premium for the Company's shares
is closest to:A2.50%B4.00%C6.50%D7.50%78Stella
WorkshopL1-02223Suppose two parties agree to a $100,000,000 1x4 FRA
contract on LIBOR at a rate of 2.5%. In one month's time the
following LIBOR rates are observed:LIBOR# of days in Period1
month2.50%302 months2.60%603 months2.70%904 months2.80%1205
months2.90%1506 months3.00%180What is the closest amount due to the
FRA buyer?A$74,478.65B$49,664.76C$50,000.00D$625,00079BFS December
2008Morning 21Over the last five years, the earnings per share data
for a firm were as
follows:2003$3.002004$3.502005$4.002006$4.502007$5.00Over this
period, the EPS compound annual rate was closest
to:A10.76%B13.62%C16.32%D66.67%80BFS December 2008Morning 57An
examination of a company's statement of stockholders' equity
revealed the following transactions:Common shares outstanding,
January 1150,000Issued shares, March 112,000Reacquired shares, July
1-60002-for-1 split, September 30156,000Common shares outstanding,
January 1312,000The weighted average outstanding shares from the
years is closest to:A196,000B312,000C313,000D314,00081BFS December
2008Morning 77Zipper's capital structure includes $6 million in
debt and $9 million in equity. The bonds currently trade at 7
percent. The firm's Beta is 1.2, the expected return on the market
is 10 percent, and the risk-free rate is 4 percent. Ignoring taxes,
what is the firm's approximate weighted average cost of
capital?A8.70%B9.20%C10.10%D9.50%82BFS December 2008Morning 85A
stock is not expected to pay dividends of $1.50 per share until two
years from now. At that time, the dividend distribution is going to
be 40 percent of net income, earnings growth is projected to be 8%,
and the return on equity is expected to be 15 percent. If the
required rate of return is 10 percent for the first two years and
12% thereafter, what is an approximate value of the stock
today?A$41B$25C$21D$5083BFS December 2008Morning 101Carrot Corp.
has a three-year 5.25% bond that pays interest annually. Using the
following forward rates, determine the approximate value of this
bond.YearsForward
Rate14.40%24.75%35.00%A98.75B99.13C100.52D101.4984BFS December
2008Morning 105Siemans Company expects to receive $100,000,000 in
90 days. A dealer provides a quote of 0.6897 Euro per $ for a
currency forward contract to expire in 90 days. Suppose that at the
end of 90 days, the rate is 0.6826 Euro per $. Assume that
settlement is in cash. Which of the following statements is closest
to the net cash receipt at expiration if Siemens enters into a
forward contract expiring in 90 days to buy eruo at 0.6897 per
$?A68050000EurosB68260000EurosC68615000EurosD68970000Euros86BFS
December 200826A treasury bill with a face value of $100000 and 90
days until maturity is selling for $99000. The T-bill's effective
annual yield is closest to:A1%B2%C3%D4%87BFS December 200930The
probability of negative Returns for stock A is .12 and stock B is
.19. Assuming the returns of A and B are independent, what is the
probability that the return of either A or B is
negative?A0.03B0.29C0.31D0.0788BFS December 200932You have in your
portfolio 2 funds: 25% in the Alpha Fund and 75% in the Beta Fund.
Given the data below, the standard deviation of the return of the
portfolio is closet to:Expected Return Alpha17Expected Return
Beta32Covariance
MatrixAlphaBetaAlpha21598Beta98177A12.20%B4.80%C3.33%D27%89BFS
December 200950When a company borrows $500,000 to buy equipment
costing $100,000 and pay wages of $70,000, the most likely effect
on the financial statements is:AAssets +500K, Liabilities +430K,
Equity + 70K, Expenses +70KBAssets +430K, Liabilities +500K, Equity
+70K, Expenses -70KCAssets + 430K, Liabilities + 500K, Equity -70K,
Expenses +70KDAssets +600K, Liabilities +500K, Equity -70K,
Expenses + 70K90BFS December 2009Kent Corporation, Adjusted Trial
Balance Data, December 31, 2008Accounts Payable12000Accounts
Receivable13000Accumulated Depreciation-Building6000Accumulated
Depreciation-Furniture & Fixtures9000Building60000Capital
Stock40000Cash24000Copyrights22000Dividends Declared12000Funiture
& Fixtures15000Land25000Note Payable (10%, due in 5
years)40000Office Supplies1000Prepaid Insurance3000Retained
Earnings (January 1, 2008)23000Salaries Payable2000Service
Revenue85000Salaries Expense28000Utilities Expense2000Depreciation
Expense5000Insuarance Expense2000Office Supplies
Expense1000Interest Expense4000Total assets at December 31, 2008 is
closest to:A$148,000B$163,000C$178,000D$203,00091BFS December
200964On December 31, 2008, a company had common stock shares
outstanding of 77 million. During 2008, the following stock
transactions took place:30-JunIssued 10 million shares of common
stock29-SepDistributed a 10% common stock dividendWeighted average
shares outstanding for 2008 is closest
to:A71500000B72000000C90200000D8970000092BFS December 200974Last
year, a firm issued $5 million in $1000 par value bonds with a 7
percent coupon rate paid annually. The bonds mature 29 years from
today and now sell at 95 percent of their par value. If the firm's
corporate tax rate is 35 percent, what is the after-tax cost of
debt?A4.82 percentB6.95 percentC7.42 percentD9.45 percent93BFS
December 200857The Whatever Corporation had a balance on January 1,
2008 of $6000 in its deferred tax liability account relating to a
temporary difference that is expected to reverse in 2010. In 2008,
Congress enacted an increase in tax rates from 30% to 40% effective
2009. Financial statement pre-tax income for 2008 was $250000,
which included $50000 in depreciation expense. For tax purposes,
the company deducted $90000 of depreciation. There are no other
difference between financial statement and tax income. The amount
of income tax expense for 2008 is closest
to:A$75,000B$79,000C$81,000D$100,00094BFS December 200875Bad
Company has an average collection period of 35.5 days compared to
industry average of 40.2 days. If sales were $401000, what is the
average investment in
receivables?A$9,975B$11,296C$39,001D$44,16595BFS December
200878Waves Coffee Ltd. Has $368 in inventory at the end of the
year. Revenue for the year was $4788, COGS was $2453 and Net Income
was $156. If there were no write-offs, what is the company's
estimated inventory days?A55 daysB28 daysC34 daysD7 days96BFS
December 200884If a stock has the following characteristics, what
is the approximate implied price/earnings ratio?Beta
coefficient1.2Risk-free rate7%Required Rate of
Return12%Dividends$1,500,000Net Income$5,000,000Expected dividend
growth rate10%A10B15C17D2097BFS December 200887You project next
year's stock index retention rate to be 40% and EPS to be $350. You
also forecast that ROE will be 16% and the required rate of return
on the market will be 13%. What is the approximate market value of
the index?A$2,174B$3,182C$4,118D$6,17698BFS December
200899Determine the 6-month forward rate 1 year from
now.PeriodYearsSpot rate (BEY%)Forward Rate
(BEY%)10.54.10%4.10%214.35%4.60%31.54.50%A4.70%B4.75%C4.80%D4.85%99BFS
December 2008108A mutual fund manager manages a portfolio
consisting of mid-cap stocks. He is concerned about the short term
outlook of the stock market and decides to enter into an equity
swap with a dealer for a notional value of $1 billion. The mutal
fund manager agress to pay the dealer the total return on the
mid-cap stock index, and the dealer agrees to pay the mutual fund
manager a fixed rate of 5.5%. The payment settles on the basis of
183 days in the six months period and a 365 days in a year.Mid-Cap
Price1153When Swap Initiated1090Price six months laterWhich of the
following statements most acurately describes the cash flow of the
first payment?AThe dealer pays the mutual fund manager $27.58
millionBThe mutual fund manager pays the dealer $54.64 millionCThe
dealer pays the mutual fund manager $82.22 millionDThe mutual fund
manager pays the dealer $109.64 million100BFS December 200951-53AFC
Corporation Balance Sheet December 31, 2007 and 2008 (in
millions)20072008$13$25Cash and cash equivalents4440Accounts
receivable4660Inventory25Prepaid Expenses$105$130Total curent
assets265255Net plant and equipment$370$385Total
assets$45$30Accounts payable34Salaries payable41Income Tax
Payable$52$35Total current liabilities88100Bonds
Payable$140$135Total liabilities7080Common Stock160170Retained
Earnings$230$250Total shareholders' equity$370$385Total liabilities
and shareholders' equityAFC Corporation Income Statement For the
year ending December 31, 2008 (in millions)Sales$100Expenses and
losses:COGS$46Salaries expense27Depreciation expenses$5Income tax
expense3Other operating expenses$4Loss on sales of equipment2Total
Expenses and Losses$87Net Income$13Cash flows from
OperationsA-$10B-$12C-$18D-$20Cash flows from
InvestingA$3B$5C$8D$10Cash flows from
financingA$9B$19C$22D$25101BSAS 2009 Afternoon20You have $200,000
which you plan to invest in one of three portfolios seen below. At
the end of the year, you will require $5000 for a tax payment and
would like to take this from your portfolio without invading the
initial $200,000 investment.Portfolio APortfolio BPortfolio
CExpected Annual Return9.50%12.70%18.10%Standard Deviation of
Return7.80%15%16.70%Using Roy's safety-first criterion, which
portfolio do you select?ABC102BFA 2009 December Afternoon30The
number of stocks in the S&P 500 with negative performance in
the first half of each year appears to be significantly different
from the second half of the year. Below is a table with test
results for the last 50 years. The pooled estimate of the variance
for both sets of results is 144.09.Number of ObservationsNumber of
stocks with negative returnsStandard DeviationsFirst Half of
Year5017611.72nd Half of Year5021812.3What is the value of the
t-statistic for this test?A-17.49B-7.28C17.49103Kaplan IncJim
purchased a home for $300,000, made a down payment of $100,000. He
obtained a 30 year mortgage to finance the rest. He pays a fixed
annual rate of 6%. If he makes regular fixed monthly payments,
after 48 months, how much does he still
owe?A$186,109B$189,229C$192,444104Kaplan IncAn investor purchases a
$10,000 5-year corporate note for $10,444. The note pays an annual
coupon of $600. Over the past year the note's annual
yield-to-maturity has dropped 100 basis points. What total return
did the investor earn in this year?A8.50%B9.00%C9.50%105Kaplan
IncIf the price of Product X increases from $2.00 per unit to
$2.25, the demand will decrease from 7.5 million units to 6.7
million units. The price elasticity of demand is closest
to:A-0.96B-1.00C-1.04106Kaplan IncEvil Inc. has a target capital
structure of 40% debt and 60% equity. Evil Inc's cost of debt will
remain at 9% until the firm raises more than $200,000 in new debt
capital, at which point the cost of debt increases to 9.5%. Evil
Inc's cost of equity will increase when more than $400,000 in
equity capital is raised.Evil Inc's breakpoint of debt capital is
closest to:A$200,000B$500,000C$666,667107Kaplan IncA stock has a
beta of 0.9 and an estimate return of 10%. The risk-free rate is 7%
and the expected return on the market is 11%.According to
CAPMAOvervaluedBUndervaluedCProperly valued108Kaplan IncA compnay
has two $1000 face value bonds outstanding both selling for
$701.22. The first issue has an annual coupon of 8% and 20 years to
maturity. The second bond has the same yield to maturity as the
first bond but only has five years remaining until maturity. The
second issue pays interest annually as well.What is the annual
interest payment of the 2nd bond?A$18.56B$27.18C$37.121092012 CFA
Level 1 Book 2Assume a market supply function is given by the
equationQ = -7 + 0.6PWhere Q s is the quantity supplied and P is
the price. If P equals 15, the value of the producer surplus is
closest to:A3.3B41C67.5110Kaplan Inc.An investor in a mutual fund
earns 25% in year one, loses 25% in the second year, gains 30% in
year 3 and then loses 30% in the fourth year.The average annual
compound growth rate of this investment is closest
to:A-3.90%B0%C5.60%111Kaplan Inc.Joe Blow, CFA, is analyzing Blue
Inc. by projecting pro forma financial statements. Joe expects Blue
to generate sales of $3 billion and a return on equity of 15% in
the next year. Joe forecasts that Blue's total assets will be $5
billion and that the company will maintain its financial leverage
ratio of 2.5. Based on these forecasts, Mr. Blow projects Blue Inc.
to have a net income of:A$100 millionB$300 millionC$500
million112Kaplan Inc.A company issues $10 million in 8% annual-pay,
5 year bonds, when the market rate is 8.25%.The initial balance
sheet liability and liability one year from the date of issue are
closest to:Initial LiabilityLiability One Year
LaterA$9,900,837$9,917,656B$10,000,000$9,975,000C$10,099,163$10,082,344113Kaplan
IncAn analyst identifies the following cash flows for an
average-risk project:Year 0($5,000)Year 1 & 2$1,900Year
3$2,500Year 4$2,000If cost of capital is 12%, the project's
discounted payback period is closest to:A2.5 yearsB3 yearsC3.9
years114Kaplan IncPeter Parker, CFA, has managed the retirement
account funds for Staal Industries for the last two years.
Contributions and withdrawals from the account are decided by
Staal's CFO Mark. The account history is as follows, with account
values calculated before same-date deposits and withdrawals:Jan 1,
20X1Beginning account value$10,000,000Jul 1, 20X1Account
value$11,200,000Jul 1, 20X1Deposit$1,200,000Jan 1, 20X2Account
value$12,500,000Jan 1, 20X2Withdrawal$600,000Dec 31, 20X2Account
value$15,000,000The appropriate annual return to use in evaluating
Peter's performance is closest to:A9%B19%C22%115Kaplan IncAn
analyst forecasts the following for a stock:The normalized trailing
price earnings (P/E) ratio to be12The stock price currently
is$100The stock is expected to pa a$5divident this coming year on
projected earnings of$10If the analyst were to buy and hold the
stock for the year, the projected rate of return based on these
forecases is closest to:A15%B20%C25%116Kaplan IncAn investor has a
1-year, semiannual 10% coupon bond which is priced at $1025. If the
6-month spot rate on a bond-equivalent basis is 8%, the 1-yaer
theoretical spot rate as a BEY is:A6.40%B7.30%C8.00%117Kaplan
IncThe 3-year annual spot rate is 7%, the 4-year annual spot rate
is 7.5% and the 5-year annual spot rate is 8%. Based on the pure
expectations theory of interest rates, the 1-year implied forward
rate in four years is closest to:A7%B9%C10%118Kaplan IncA $1000
par, semi-annual-pay bond is trading for 89.14, has a coupon rate
of 8.75% and accrued intrest of $43.72. The clean price
is:A$847.69B$891.40C$935.12119Kaplan IncA 3-year annual pay
currency swap takes place between a New Zealand company with New
Zealand dollars (NZD) and U.S. company with U.S. dollars (USD). The
New Zealand company swaps NZD for USD on which it makes
end-of-period payments based on the rate in effect at the beginning
of each period. The U.S. company makes fixed-rate payments in
NZD.The fixed swap rate at the initiation of the swap was 7%; at
the end of the swap it was 8%.The variable rate at the end of year
1 was 6% at the end of year 2 it was 8%, and at the end of year 3
it was 7%.At the beginning of the swap, one million USD were
exchanged at a NZD/USD rate of 2At the end of the swap period, the
exchange rate was NZD/USD 1.5At the end of year 2, the:ANew Zealand
company gives the U.S. company USD 60,000BU.S. company gives New
Zealand company USD 80,000CNew Zealand company gives the U.S.
company USD 80,000120Kaplan IncA dealer arranges an equity swap
with a mutual fund. The notational princial on the swap is $50
million and quarterly payments have been scheduled. The mutual fund
agrees to pay the dealer the return on the S&P 400 Midcap
Index, which is currently at1038.4Three months later it is1052.5The
dealer pays a fixed rate of5.50%with payments made on the basis of
91 days in the period and 365 days in the year.What is the net
payment and who makes it?ADealer pays $6687BDealer pays
$1364546CMutual fund pays $6687
&CQuestions cooked up by Muskie McKay from various sourcesNo
guarantee of 100% accuracyAndrew McKay:This is actually an easy
question. I typed out by mistake, hopefully it builds your
confidence.Andrew McKay:This one is a bit tough, three calculations
required, maybe add to generator.
AnswersQuestion NumberSourceQuestionAnswer1BSAS 2007 Morning
Questions52AReference:Reading 35, The statement of cashflows, pp
99-100, 109-112; Reading 36 Analysis of Cash Flows pp. 124-128Cash
collections on receivables$1,300.00Cash purchase of
inventories$(750.00)Cash receipts of dividends$12.00Interest
payments$(35.00)Payments of expense$(300.00)Purchase of trading
securities$(17.00)Operating cash flows$210.0053DReference:Reading
35, The statement of Cash flows pp 99-100, 109-112; Reading 36
Analysis of Cash flows pp 124-128Cash dividends on common stock
paid$(35.00)Cash dividends on preferred stock paid$(120.00)Proceeds
from the issuance of common stock$650.00Proceeds from bridge
financing$700.00Repurchasing of issued shares$(300.00)Financing
Cash flows$895.002BSAS 2007 Morning Questions54BReference:Dilutive
Securities and Earnings per Share pp 279-28331-DecBeginning balance
100000 X 12/1210000029-FebNew Shares issued: 15,000 X
10/121250029-Jun3.5% Cash dividend30-JunReacquired shares: -12000 X
6/12-600030-Sep2-for-1 split (100+12.5-6) X 12/12106500Weighted
average shares outstanding2130003BSAS 2007 Morning
Questions48CTotal income since incorporation$1,200,000Less: total
cash dividends paid$(240,000)Market Value of 20% stock dividends
distributed*$(125,000)Retained Earnings Balance$835,000*Large stock
dividends (generally greater than 20-25%) are valued at par value
but small stock diidends (20-25% or less) are valued at
market.4BSAS 2007 Morning62The key thing to notice here and what
saves you all your precious time is that unit costs are rising. In
a situation where unit costs are rising FIFO will provide the
highest profits.AYou must still calculate the FIFO ending Inventory
but the first time I did this question I calculated all
three.FIFO200 units * 7.70 and 300 units * 7.303730LIFO100 units *
7.30 and 400 units * 7.003530Average Cost36365CFAI Chapter
453DFirst calculate g which is equal to the divedend retention rate
times the ROE.g = .73 * 13.59.855Next take the dividend in year one
over the current stock price and add the growth rate gr = 2.15/47 +
9.85514.436CFAI Chapter 457First determine the cost of equity using
the dividend discount model. Beta is of no use in this
question.DCost of Equity = ((1.75/32)*100) + 6.7312.20Next use the
targe debt-to-equity ratio to work out the weighting for debt and
equity.Wd = .8 / 1.80.44We = 1 -Wd0.56Finally use the WACC formula
and the corporate tax rate and the before tax cost of debt.WACC =
(.56)(12.19) + (.44)(8.5)(1 - .37)9.18267CFAI Chapter 441These
questions are all button pushing using CF, NPV, and IRR
buttonsAHere are the key
presses:CFCF0-80000C0117000F012C0250000F021C0325000F031C04-5000NPVI10Then
compute the NPV and IRR.NPV$1,040.60IRR10.55%8CFAI Chapter
4412Whenever you see a question like this, the answer is almost
always the one with the larger NPV. NPV is the preferred evaluation
method over IRR and Payback PeriodB9CFAI Chapter 464This is one of
many yeild formulas you have to remember. Some use a 360 day year
while some use a 365 day year.CFirst calculate the dollar return:
10000 - 9650350Then determine the yearly return:
350/96503.63%Finally work out the return for only 185 days by
multiplying the above by 365/1857.16%102007 BFS Afternoon75We are
given the amount of debt and equity so it is simple to work out the
weightings for the WACC calculationBWe = 10/(10 + 20)33.33%Wd =
20/(10 + 20)66.67%Now we can calculate k using the CAP/M formulak =
5 + 1.25(8)15We are given the cost of debt and the corporate tax
rate so now we can solve for WACC:WACC = (.33)(15) +
(.66)(6.5)(1-.37)7.6527112007 BFS Afternoon79This might be the most
difficult question of the last seven. It is actually a time value
of money question. Put the following values into your calculator.
(Note depreciation expense is a red herring and is included in the
22,000.)CPV75000N5PMT-22000FV0ICPT14.29%Tax rate is also unneeded
information.12CFAI Chapter 4526First determine the asset beta for
the publicly traded company by unlevering it:Bunlevered beta =
1.6/[1 + (1 - 0.37)(0.85)]1.042Next relever to reflect the target
debt ratio of the private firm:levered beta = 1.042 * [1 + (1 -
0.32) * (.95)]1.71513CFAI Chapter 462First determine the number of
days of inventoryA2500 / (26000 / 365)35.10Next determine the
number of days of receiveables3000 / (32000 / 365)34.22Operating
cycle = 35.10 + 34.2269.31Note: there was some debate over why the
ending inventory balance was used instead of the average.14CFAI
Chapter 466The cost of trade credit formula:CCost = (( 1 +
0.03/0.97)^365/30) - 144.86%15Musk's Memory BanksCThese two part
questions are very popular with the CFAI. Often times if you work
from the second criteria, in this case the Stock Market Index you
can save time.AA Call Market is one where the bids and asks are
accumulated and then the price is determined that will match the
most buyers with sellers. An Unweighted Index does not give greater
emphasis to large companies, this answer is definitely wrong.BA
dealer market is one where licensees make the market by setting the
bid and ask prices they are willing to accept at a given time.
However a price weighted index gives greater emphasis to the
companies with the higher stock price, not the companies with most
shares trading on the exchange.DAlthough this answer does have a
Continuous Market it does not have Dealers/Specialists/Market
Makers all prices are determined by live auction. The Index however
is correct, Value Weighted indices give greater weight to stocks
with a large amount of publicly issued shares regardless of their
price or revenue.16BSAS 2007 Morning82AMarginequals 50% of $25 *
10000$125,000.00ROIWhere there is a decline of five and a half
dollars per share is:equals ((10000 shares *
-5.5)-(4.5%*125,000))/125000equals (-55000 - 5625)/125000equals
(-60625)/125000equals -48.5%Margin call, where P is equal to share
price at which 35% maintenance margin requirement is
breached:equals ((10000P - 125000)/10000P = .35equals 10000P -
125000 = 3500Pequals 6500P = 125000equals 19.23P equals 19.23
therefore, no margin call17BFAS 2007 Morning90This is a holding
period return question which is chapter 59 last year, but the math
is simple enough that you should be able to do it if you studied
the Quant section.DHolding Period Returnequals [dividends + (end
price - begin price)] / begin priceequals ( 1.50 + (40 - 35)) /
350.1918Schweiser = Reading 54You take the actual return and
subtract the result of the CAP/M formula.10BEquals 10.9 - (3.5 +
1.37(6-3.5))3.97519CFAI Chapter 58First work out the four firm
concentration ratio3Industry 1: .42+.09+.09+.040.64Industry 2: .21
+ .21 + .21 + .080.71Industry 2 has the higher four firm
concentration ratioNext work out the Herfindahl IndexIndustry 1:
.42^2 + 2(.09^2) + 8(.05^2)0.2126Industry 2: 3(.21^2) + 3(.08^2) +
3(.07^2)0.1662Industry 1 has the higher Herfindahl Index.So the
answer is:C20BFAS 2007 Morning87Sustainable growth rate is the same
as dividend growth rate:Bg=ROE * (1 - dividend payout
ratio)g=(2.5/6.5) * (1 - ( 850000/2500000 ))25%21BFAS 2007
Morning89First you need to calculate the dividend growth rate
before solving for the stock's intrinsic value:CDividend Growth
Rate:g=ROE * (1 - dividend payout ratio)g=.125 * (1 -
.67)4.13%Stock's Intrinsic Value:P=d0(1+g)/(k-g)P=1.75*(1 +
.0413)/(.14 - .0413)18.462765957422BFAS 2007 Afternoon87P/E =
dividend payout ratio / (k - g)BP/E = 0.625 / (0.085 - (0.125 *
0.375))16.3923CFAI #635This is actually an easier bond question,
there is a formula similar to weighted average:Aduration = price if
yield declines - price if yield rises / 2 * initial price * change
in yield in decimalduration = 85 - 81 / (2 * 83 *
0.0025)9.638554216924CFAi # 6518This another easier bond question
which you need to memorize a simple formula or just use deductive
reasoning.Btaxable equivalent yield = tax exempt yield / (1 -
marginal tax rate)taxable equivalent yield = 4 / (1 -
.3)5.714285714325CFAI # 677This is a simple TVM question you have
the option of adjusting your calculator to two payments per period
or doubling N and halfing the yield and coupon. Some study guide
thinks you should do the latter and having failed once that is what
I'm now doing, the danger is you'll leave your calculator set on
two payments per period in you haste to do the next TVM
question.CN8PMT3.5I3FV100CPT PV-103.526CFAI# 678This is a TVM
question but you don't have to use the TVM buttons on your
calculator. You can use the actual formula is to calculate the Time
Value of Money.DThese zero-coupon bonds sell at a discount, so you
only get one payment which you must discount back to today to find
out the current price.Again they've made the bond have two payments
a year so you have to double N or in this case T and half I.PV =
Future Value / (1 + I)^TPV = 2500000 / ( 1 +
.03375)^30$923,579.6027CFAI # 6715This is another type of fixed
income instrument that has its own formula you need to memorize in
order to value it.BYield on a Discount Basis = (1 - P) * (360/NSM)P
is PriceNSM is Number of days between settlement and maturity.This
question gives you NSM, a trickier version would make you calculate
it.D = (1 - .997) * (360/72)0.01528CFAI # 67This question is
evil.19I don't know if it is realistic to be asked this, but it
could be worse they give you the days and several hints on how to
do it in the question. Here is how you solve it.CThe first thing
you need to do is desipher the date information. In this year for
this bond there are 181 days between January 15th and July 15th the
time of the next coupon.This is the denominator of the
actual/actualThe numerator you have to work out, the coupon is paid
on July 15th and Settlement ie the date the bond changes hands is
April 8th. The question further tells you that of the 181 days in
this period, the buyer has to compensate the seller 181 - 98 days
of interest.That is the numerator of the actual/actualNow the
formula to use appears to be:Percentage of Par + (Coupon Payment *
(Actual/Actual))Now the coupon rate is 6% but is halved due to
semi-annual payments.102 + (13/32) + ((6/2) *
(83/181))103.7819406077That gives you the percentage of par, you're
not done yet.You take the percentage of par, multiplied by the par
value to get the dirty price.$10,378.19Another way to think about
this is the dirty price is the par price plus a percentage of the
next coupon payment. The next coupon payment is 300 dollars, it is
split between the buyer and the seller. The seller gets 98 of 181
days. Then add that number to the price per bond over par
multiplied by amount invested to get the final desired
number.29CFAI # 68Scarily this question could be worse.34I couldn't
solve it at first but I reverse engineered it.DWhat makes it decent
is they give you all the spot rates at nice six month intervals and
they increase one percent every six months. You need to go ahead 18
months in time and note down that interest rate and the one six
more months into the future after that.The spot rate must be a
yearly yield thus you need to divide in half because you have a six
month loan.You also need to remember to discount everything back to
the present, you have to think in six month intervals in this
question.Interest rate 24 months from now is 1.04^4
today1.16985856Interest rate 18 months from now is 1.035^3
today1.105507304Now you take the 24 month rate over the 18 month
rate and then subtract 1.0.0582097068That gives you the semi-annual
yield I guess so you then need to double it.11.64%30CFAI #69This is
actually an easy question, you just need to know how to do weighted
averages. It is possible to use the DATA and STAT worksheet on BA
II Plus to solve this but it seems like more work and would be
slower22Look at the portfolion again:ABondMarket ValueDuration6.2%
3 year$300,0002.57.3% 4 year$200,0002.757.1% 5 year$500,0008.02The
first column is irrelevent. I made the total portfolio a nice even
million dollars at current market value so:BondPercentage of
PortfolioDuration130.00%2.5220.00%2.75350.00%8.02You then multiply
the percentages by the durations5.3131Schweiser 2008 Exam 3
Afternoon Session50BThis was one of many questions I got wrong,
this one though I could not remember the correct formula which
is:Free Cash Flow = Net Cash Flow from Operating Activities -
Dividends - (Purchases of Plant Assets - Sales of Plant Assets)I
assumed Cash flow from operations is "Net Cash Flow from Operating
Activities"Free Cash Flow = 700 - (50 - 27)67732Schweiser 2008 Exam
3 Afternoon Session54First you need to calculate the
PV.CFV-$5,000,000.00PMT-$350,000.00N5I6.5%PV$5,103,891.99Then you
calculate the Interest Expense, which is the PV *
YTM:$331,752.98Then the Ammortization which is the difference
between PMT and Interest Expense$18,247.0233Schweiser 2008 Exam 3
Afternoon Session55There are three sources of potential common
shares: existing shares, convertible bonds, and warrants. We are
told the bonds are dilutive and the strike price for the warrants
is $25. This is above the average stock price so they are not
considered dilutive, as they weren't in the money on average.BThe
key data point is the bonds were issued half way through the
year.Existing Common Shares1,500,000Convertible bonds 10,000 * 20 *
6/12100000Common Shares for Dilutive purposes1,600,00034Schweiser
2008 Exam 3 Afternoon Session59This question is very difficult and
there appear to be two ways to do it. Both are given in the
official answer keyAThe construction in progress amount is 1200
(700 + 500) added to the percentage of expenses completed 1200/1600
times construction expenses remaining 400.1500The amount of
expenses invoiced by the end of 2005 is 1000 + 5001500Thus the
difference is zero.35Schweiser 2008 Exam 3 Afternoon
SessionD64First you must subtract the beginning retained earnings
from the end retained earning.50000Next add back net income75000You
must subtract dividends paid as that is done after net income is
calculate.65000Now you subtract change in retained earnings to
determine the amount of other comprehensive income for the
year.1500036Schweiser 2008 Exam 3 Afternoon Session66Calculate the
effects of a capital lease on the income statement.ADeprechiation
Charge = 5000000/10500000Interest Expense = 5000000*
.10500000Total100000037BFAS 2007 Morning115The official solution to
this problem confused me, but I managed to get it right as it is
basically an algebra problem.BThe standard deviation of the
portfolio is equal to the percentage of the portfolio invested in
the market times the return on the market.STDport = (1 - Wrf) *
STDmarketBecause the STDmarket is a nice easy 10% you can quckly
see that the portfolio is 63% risk free asset.Now you use the
following formula to calculate the portfolios expected
return.E(Rport) = Wrf * RFR + (1 - Wrf)* E(Rm)equals .63 * .042 +
(1 - .63) * .127.09%38BFAS 2007 Afternoon117First you must work out
the expected return which is simply a weighted average
calculation.AExpected Return = 0.15 * 13.5% + 0.85*8%8.825The STD
of a Portfolio formula even a two investment formula is lengthy,
but you must memorize it.STDport = (w1^2*std1^2 + w2^2 *std2^2 +
2*w1*w2*std1*std2*cor1,2)^(1/2)The part I've forgotten is to take
the square root at the end, don't forget this.First term = .15^2 *
.14^20.0004412nd Term = .85^2 * .065^20.00305256253rd Term =
2*.15*.85*.14*.065*.750.001740375Variance of
Portfolio0.0052339375STDport0.07234595739BFAS 2007 Afternoon118This
is another CAP/M question.BExpected Return = RFR + beta*(Rm -
RFR)Expected Return = 4.5 + 1.375*(8-4.5)9.3125However since we are
forcasting a return of 13.5% this asset is undervalued
currently.40CFAI 76B26Net rental income .95 *
150000$142,500.00Insurance, taxes and electric-30000.00Repairs and
maintenance-22000.00Depreciation-29000.00Interest .10 *
600000-60000.00Before Tax Income1500.00Taxes .32 *
1500-480.00After-tax income1020.00Add back
depreciation29000.00Subtract principal payment (63450 -
60000)-3450.00After-tax cashflow$26,570.0041BFAS 2007 Morning26You
take the natural logorith of 1 + the holding period return.Bln(1 +
.10) equals9.53%42BFAS 2007 Morning28The standard error of the
sample mean is calculated as follows:Dstd/ sqr of n eqals
11/120^1/21.004158022143BFAS 2007 Morning55Basic EPS = (Net Income
- Preferred Stock dividends)/weighted average shares
outstandingBequals (600000 - [10% * 100 * 10000]/1000005.0044BFAS
2007 MorningA65Depreciation expense (337,820 -
5000)/1033282Interest expense 2007:Lease payment 200650000Interest
expense, 2006(337820 * 8%)27026Reduction of lease obligation
200622974Lease obligation 1/1/2006 balance337820Lease obligation
1/1/2007 balance314846times Interest Rate* 8%25188Total
lease-related expense 20075847045BFAS 2007 Morning80Degree of
Operating Leverage measures the relationship between the changes in
sales to the changes in operating cash flow.CDOL = % change in OCF
/ % change in salesequals 0.93 = .14 / .1546BFAS 2007
MorningD99First value the bond now. Since it is trading at par
(100) we know that yield = coupon. Then add 50 basis points to the
yield to determine the new price.Price before newsChangePrice after
newsPV100$97.07FV100100I7%0.50%7.50%PMT77N88Change in
value-2.93%47BFAS 2007
Morning100BAnnualSemi-AnnualFV100100I8%4PMT105N48PV$106.62106.7348BFAS
2007 MorningC105Boing should go long the FRA and the payoff is:50
million * (.0025 * (60/360)) / (1 + (.05 *
(60/360)))Payoff20661.157024793449BFAS 2007 Afternoon24We first
solve for the portfolio variance using the two asset formula.BThe
key thing to remember is from the covariance matrix it is the
return multiplied by the standard deviation of the asset
squared.Thus (.25)^2(400) + (.75)^2(169) + 2(.25)(.75)(121)The
Covariance is the number that appears twice in the covariance
matrix.The variance is then 165.44 you need to take the square root
of that to get the standard deviation.12.8650BFAS 2007
AfternoonA26The formula you need is r = Cov(A,B) / StdA *
StdBEquals -125/(20 * 10)-0.62551BSAS 2008M39Industry
A:Four-firm35% + 25% + 17% + 17%94HHI35^2 + 25^2 + 17^2 + 17^2 +
3^2 + 3^22446Industry B:Four-firm65% + 12% + 9% + 5%91HHI65^2 +
12^2 + 9^2 + 5^2 + 5^2 + 4^24516By the four-firm concentration
ratio Industry A is more concentrated but by the HHI Industry A is
less concentrated so the answer is:C52BSAS 2008M58Basic EPS = (Net
Income - Preferred Stock dividends)/weighted average shares
outstandingBBasic EPS = (600,000 - [8% * $100 *
20,000])/1,000,000$0.44M59Options are dilutive because the average
stock price is above the exercise price.A100,000 * (20 - 5)/20 =
75,000 incremental sharesPer share bond effect: 1,000,000 * 9% *
(1-40%)/(1,000 * 65) = 54,000/65,0000.83Bonds are antidilutive.EPS
with options: 440,000/1,075,000$0.4153BSAS 2008M75First determine
the present value of all future cash
flows:DPMT9000N5I11PV$33,263.07Profitability Index = PF of future
cash flows / Initial investmentPI = 33,263/30,0001.1154BSAS
2008M84Required Rate of ReturnBk = Rf + Beta(Rm - Rf)k = .06 +
0.85(.11 - .06)0.1025Dividend Discount ModelP0 = d0(1 + g) / k -
gP0 = $1.50 / (.1025 - .08)$66.6755BSAS 2008M85Dividend Growth
RateCg = ROE * (1 - dividend payout ratio)g = .17 * (1 -
.4)0.102Dividend Discount ModelP2 = d0(1 + g) / (k - g)P2 = 1.35 /
(.12 - .102)75Time Value of MoneyFV75N2I0.1PV$61.9856BSAS
2008M94Yield to maturity:BPV-104.21FV100PMT = 6/23N = 4 *
28I2.41%Annual Yield4.83%Yield to call:PV-104.21FV101PMT = 6/23N =
2 * 24I2.13%Annual Yield4.27%The lower of the two yields (I.e. the
worst for the investor) is 4.27%, so this is the yield to
worst.57BSAS 2008M99Effective duration is always stated in terms of
100 bps shift. Here we have a a 150 bps shift or 1.5X the duration
effect, which is 1.5 * 6 = 9AInterest rate increases bond price
goes down. So must be A or B.Estimated change using
duration-9%Convexity Adjustment1.80%Total estimate price
change-7.20%58BSAS 2008M108Let IM = Initial MarginCLet MM =
Maintenance Margin(FT-F0)*100=IM-MMFT = F0 +(3375-2500)/100FT = 855
+ 8.75863.7559BSAS 2008CM110Payoff = Notational Principal *
(Exercise - Price of the Uderlying)* 90/360$187,500.0060BSAS
2008M120BBeta = Cov(I,m)/variance of
m.0024/(0.1)^20.2461BSASM67There are two ways to do this question,
I'm not clever enough to learn both, I need to just get it
rightAOperating ActivitiesNet Income$495Less: Changes in current
assets:Decrease in accounts receivable (3041-3320)279Increase in
inventory (4592-3550)-1042Increase in prepaid expenses
(1166-786)-380Add: Change in current liabilities:Increase in
accounts payable (3238-2849)389Decrease in accrued liabilities
(581-988)-407-1161Add: Depreciation expense (8425-7799)626Add: Loss
on sale of long-term investments24Cashflow from operating
activities($16)M68CSale of investments ([3292-2775] -24)493Purchase
of equipment (15680-13268)-2412Cashflow from
investing-$1,919.00M69CProceeds from debt (1931-1310) +
(6013-4966)1668Proceeds from stock issue (5432-5373)59Dividends
paid (495 - (2174-1697))-18$1,709.0062BSAS 2008BA32When estimating
the population mean using the t-distribution, the appropriate
degrees of freedom are n-1. Since n = 24, degrees of freedom are
24-1 =232363BSAS 2008A61BInventory turnover = CGS/Average
InventoryCGS FIFO = CGS LIFO - Change in LIFO Reserve8066Ending
Inventory FIFO = Ending Inventory LIFO + LIFO Reserve
End1637Beginning Inventory FIFO = Beginning Inventory LIFO + LIFO
Reserve Beginning1032Inventory turnover6.0464BSAS
2008A66BRevenues1250000Expenses700000Net Income550000Other
comprehensive income:Less: Foreign currencey translation
loss-125000Add: Unrealized holding gain on available for sale
securities50000Less: Unrealized holding loss on derivative
contracts-25000-100000Comprehensive income$450,00065BSAS
2008A86CSustainable Growth Rate = ROE * ( 1 - dividend payout
ratio)g = 70K / 400K * (1 - 30K/70K)g =0.100066BSAS
2008A87ADividend Growth Rateg = ROE * (1 - dividend payout ratio)g
= .15 * (.37)g0.0592Price Earnings MultipleP/E = dividend payout
ratio / (k - g)P/E = .63 / (.13 - g)8.90Earnings Multiple
ApproachPrice = EPS * P/EPrice = $325 * P/E$2,891.9567BSAS
2008A91CIf you just do a TVM calculation you would still get C but
it would be off by 3 cents approximately.Year 16 / (1 +
.0511)5.71Year 26 / (1 + .0522)^25.42Year 3106 / (1 +
.0533)^390.71$101.8468Schweiser Exam 1M64DAnnual straight line
deprechiation 8000/42000Annual tax deprechiation 8000/24000Annual
difference 2000 * .04800Deferred Tax Asset after two
years$1,600.0069Schweiser Exam 1M73Since equity is 40% of assets
the leverage ratio is 1/0.4 = 2.5DUsing the dupont formula ROE =
8.7 * 2.4 * 2.552.270Schweiser Exam 1M85Correct AnswerADay 1(6 *
200) + (95 * 500) + (10 * 1000) =58700Day 2(2 * 200) + (100 * 500)
+ (12 * 1000) =62400(62400/58700) * (500) =531.5161839864((531.52 -
500)/500) * 100 =6.30471Schweiser Exam 1M92Correct
AnswerDUnderlying earnings should be used in the calculation. These
are transitory, nonrecurring components of earnings that are
specific to the company. Also, the most recent earnings information
should be used in the calculation. Therefore we getP/E = 27.50 /
1.10 =2572Schweiser Exam 1M116Correct AnswerDThe minimum value for
a European-style call option, C , is given by:max[0, Stock Price -
[Strike Price / (1 + RFR)^T] = max [0, 86 - [80 / (1.03)^3/12] =
$6.59An American-style call option must be worth at least as much
as an otherwise identical European-style call option and has the
same minimum value. Note that this fact alone limits the possible
correct responses to A and D. Since the American-style call is in
the money and therefore must be worth more than the $6 difference
between the strike price and the exercise price, you can eliminate
response A and select response D without calculating the exact
minimum value.73Stella WorkshopL1-00346Correct AnswerCThis is a
test to determine if the mean is greater than 9.0%If the analyst
can reject Ho, then Ha is accepted. Because the analyst believe
that the mean is higher than 9.0% she writes:Hou 9.0%This test is
one-tailed because Ho includes an inequality.The sample is random
and the sample size is greater than 30 so we use the
z-statistic.Xmax =uo + Z.051(std/root N)Xmax
=9+1.65*(2.2/10)9.363Since 9.4 is greater than 9.36 the analyst
rejects Ho and accepts Ha. In other words the analyst concludes
that the mean has increased.74Stella WorkshopL1-03200CNet Income
Change=Change in LIFO Reserve x (1- Tax Rate)(50,000 - 46,000) x (1
- .35)$2,600.0075Stella WorkshopL1-01318BReturn MarginEnd Value -
Initial Value - Int-64.50%Intial Value - Value BorrowedUnmargined
ReturnEnd Value - Initial Value-50.00%Initial Value76Stella
WorkshopL1-02134CRiskyRisk-FreeStandared Deviation15%0%Weight in
Portfoliow11-w10.06^2=w1^2(0.15)^2 + w2^2(0)^2 +
2w1w2r(0.15)(0)w1^2=.0036/.02550.16w1=0.4w2=0.677Stella
WorkshopL1-01968BP/E1=payout ratio/(r - g)8=20%/(r -
4.0%)r=6.50%Risk Free=rrF + E(Inflation)Risk Free=1.0% + 1.5%Risk
Premium=r - rfRisk Premium=6.5% - 2.5%4.00%78Stella
WorkshopL1-02223BThe payment on a 1x4 FRA is based on the
three-month LIBOR rate one month from now.2.70%The difference
between the agreed and realized rate is (0.027 - 0.025)0.002Since
the deposite is for 90 days and the notational principal
is:$100,000,000The payment due to the FRA buyer before discounting
is:100,000,000 * 0.002 * (90/360)$50,000To arrive at the correct
payment, this amount must be discounted back from the three-month
LIBOR deposit maturity date to expiration on the FRA, using the
three-month LIBOR (2.70%) and discounting 90 days.50,000/((1+
0.027)^(90/360))$49,668.0879BFS December 2008Morning 21In order to
calculate the compound growth rate, we only need the beginning and
the ending EPS values of $3.00 and $5.00.BUsing your financial
calculator:N4PV-3FV5PMT0Compute I/Y13.62%80BFS December 2008Morning
57DJanuary 1 balance: 150,000 X 12/12150000March 1 issued shares:
12,000 X 10/1210000July 1 reacquire shares: -6000 X
6/12-3000September 30 2-for-1 split: (150+10-3) X
12/12157000Weighted average common shares outstanding:31400081BFS
December 2008Morning 77Need to calculate the required rate of
return using CAPM before solving for WACC.DCAPM =.04 + 1.2(.10 -
.04)0.112WACC =((E/V) * RE) + ((D/V) * RD)9.52%82BFS December
200885Dividend Growth RateAg=ROE * (1- Dividend payout ratio)g=.15
* (1 - .4)0.09Dividend Discount ModelP2=d0(1+g)/(k-g)P2=1.5/(.12 -
.09)50Time Value of MoneyFV-50N2I0.1PV$41.3283BFS December
2008101Simply string together forward rates to create a discount
rate for each period.D1 year coupon2 years coupon3 years coupon1 +
1f0(1 + 1f0) * (1 + 1f1)(1 + 1f0) * (1 + 1f1) * (1 + 1f2)Plugging
in values:5.255.25105.251+ .044(1 + .044) * (1 + .0475)(1 + .044) *
(1 + .0475) + (1 + .050)$101.4984BFS December 2008Moring 105Don't
think too much on this question!DCash =$100000000 *
0.68976897000086BFS December 2008DMorning 26First calculate the
holding period yield (HPY)HPY =(P1 - P0 + D1)/PoHPY
=100000-99000/990000.0101010101In order to calculate the effective
annual yeild (EAY) compound the 90-day HPY forward to one year
using:EAY =((1+HPY)^365/t) -1EAY =((1+ .0101)^365/90) -
10.041601773887BFS December 2009B=.12 + .19 - (.12)(.19)0.287288BFS
December 2009AFirst determine the variance then take the square
rootVAR =(.25)^2 * 215 + (.75)^2 * 177 + 2 * .25 * .75 * 98VAR
=149.75STD =12.2372382505%89BFS December
2009CAssetsLiabilitiesEquityExpenses50000050000000100000-100000-70000-7000070000430000500000-700007000090BFS
December 2009AAccounts Receibable13000Accumulated Depreciation -
Building-6000Accumulate Depreciation - Furniture &
Fixtures-9000Building60000Cash24000Copyrights22000Furniture &
Fixtures15000Land25000Office Supplies1000Prepaid Insurance3000Total
Assets$148,000.0091BFS December 2009AThis is trickier than the
other one in some ways, as you kinda have to work backwards. These
little twists you sometimes miss when you're rushing through the
exam.Calculate first the number of common shares outstanding at
each of the transaction points during the year, starting from the
balance at the end of the year:Oct. 1 - Dec. 31 2008Ending
Balance77000000July 1 - Sept. 30, 2008Pre-10% stock dividend (77
m/1.10)70000000Jan. 1 - June 30, 2008Pre-issuance of new shares
(70m - 10m)60000000We can then calculate the weighted average
shares outstanding for the year:Jan. 1 beginning balance60,000,000
* 12/1260000000July 1 issue10,000,000 * 6/125000000Sept. 30 stock
dividend(60000000 + 5000000) * 10% * 12/126500000Weighted average
shares outstanding7150000092BFS December 2009A74First calculate the
YTM using the time value of money buttons on your
calculator.PMT70PV-950FV1000n29I7%After tax cost is I * 1- tax
rate4.83%93BFS December 2008C57Financial statement
income250000Less: Excess tax depreciation (90000 -
50000)40000Taxable Income210000* current year tax rate30%Income tax
payable63000Change in defered tax liability:Restatement of 1/1/08
liability (6000 * 40%/30% - 6000)2000Add: Current year temporary
difference (40000 * 40%)16000Increase in deferred tax liability in
200818000Income tax expense (63000 + 18000)8100094BFS December
2008C75Avg investment in receivables =sales/(365/collection
period)Avg investment in receivables =401000 / (365/35.5)Avg
investment in receivables =39001.369863013795BFS December
2008A78Inventory Turnover =COGS/InventoryInventory Turnover
=$2453/$368Inventory Turnover =6.7Inventory Days =365/ inventory
turnoverInventory Days =365/6.7Inventory Days =5596BFS December
2008BP/E =dividend payout ratio / (k-g)15 =(1.5M/5M)/(.12
-.10)97BFS December 2008BDividend Growth Rateg =ROE * (1 -Dividend
Payout Ratio)g =.16 * .4g =0.064Price Earnings MultipleP/E
=dividend payout ratio / (k-g)P/E =.60 / (.13 - .064)P/E
=9.0909090909Earnings Multiple ApproachPrice =EPS * P/EPrice =$350
* 9.09Price =$3,181.8298BFS December 2008C99To determine the
6-month forward rate in one year, divide the 1.5 year spot rate by
the 1 year spot rate:1.5 Year Spot Rate =(1 +
(.045/2))^31.06903014061 Year Spot Rate =(1 +
(.0435/2))^21.0439730625BEY =(1.06/1.04 - 1) *24.80%99BFS December
2008C108Dealer Pays =$1000m*0.055*183/365 =$27,575,342.47Manager
Pays =$1000m*(1090/1153 -1) =-$54,640,069.38Net:Dealer pays fund
manager=$27.58m - (-54.64m) =$82,215,411.85100BFS December
200951-54Cash Flow from OpperationsNet Income$13Plus
Deprechiation5Minus Change in Accounts Receivables4Minus Change in
Inventory-14Minus Change in prepaid expenses-3Plus Changes in
accounts payable-15Plus changes in salaries payable1Plus changes in
income tax payable-3Plus loss on sale of equipment2Operating Cash
Flows($10)ORCash collections (100 - 4)$104Minus Cash payments for
inventoriesCOGS46Plus Change in Inventory14Minus change in accounts
payable1575Minus cash payments for expensesOperating expenses (27 +
3 + 4)34Plus change in prepaid expenses3Minus change in salaries
payable-1Minus change in income tax payable339Operating cash
flows($10)Cash Flow from InvestingPlant & equipment (net),
beginning + purchases - Book value of disposals - Depreciation
expense = Plant & Equipment (net), ending265 + Purchases - BV
of Disposals - 5 =255The problem mentions no purchases but because
of the loss on sale of equipment, we know there has been a
disposal. Hence: 260 - BV of disposals = 255 -> BV of disposals
=5Investing cash flows = Proceeds from sale of equipment = BV of
disposals - loss on sale5-2$3Cash flows from FinancingFincancing
cash flows:Issuance of bonds payable (100-88)12Issuance of common
stock (80-70)10Minus Dividends paid (160+13-170)-3$19101BFA
Afternoon 200920First we need to calculation the minimal level of
riskminimum level of risk = 5000/2000002.50%SFR
(A)(9.5-2.5)/7.80.8974358974SFR (B)(12.7-2.5)/15.00.68SFR ( C
)(18.1-2.5)/16.70.9341317365Select Portfolio C because the SFRatio
is the highestC102BSAS 2009 Afternoon30t = ((176-218) - 0) / SQR
ROOT ((144.09/50)+(144.09/50))-17.4945338121C103Kaplan IncFirst we
need a monthly rate 6%/12 =0.50%Next need the montly
paymentPV200000FV0N360I/Y0.50%PMT($1,199.10)Now calculate PV after
48 paymentsN312PV$189,229.06The answer is B104Kaplan IncFirst find
the yield at the time of the
purchasePV-10444FV10000PMT600N5I/Y4.9752%Now assume interest rate
is a whole percent, ie 100 basis points
lower.I/Y3.9752%N4PV$10,735.42Finally calculate the holding period
of return using the following formula:Pt - Pt-1 + Dt /
Pt-18.54%A105Kaplan IncPrice Elasticity of Demand = %change in
quantity over %change in price%change in quantity =
(6.7-7.5)/((7.5+6.7)/2)-11.27%%change in price = (2.25 -
2)/((2+2.25)/2)11.76%Now take the first number over the second
number-0.96A106Kaplan IncCapital component breakpoint =value at
which component's cost of capital changesWACCDebt Breakpoint =
$200000/.4$500,000.00B107Kaplan IncE( R ) = 7 +
0.9(11-7)10.6Because the expected return of 10% is less than the
required return of 10.6% the security isOvervaluedA108Kaplan
IncFirst find the YTM for the first
bondPV-$701.22FV$1,000.00PMT$80.00N20I/Y12%Next use that rate to
calculate payment for the second
bond.PV-$701.22FV$1,000.00N5I/Y12%PMT$37.12C1092012 CFA Level 1
Book 2AWith a linear supply curve, producer surplus is equal to the
area of a triangle with base equal to the market clearing price
minus the price intercept, height equal to the market clearing
quantity, and bounded by the supply curve as the hypotenuse. Given
a (market clearing) price of 15, quantity is 2:Q = -7 +0.6(15)
=2Next find the inverse supply functionP = (1/0.6)7+(1/0.6)QP =
11.67 + 1.67QNote that the price intercept is 11.7 and the quantity
intercept is -7. Thus producer surplus is 1/2 Base X Height =
(1/2)(2)(15-11.7)3.3110Kaplan Inc.AThis is a geometric mean
question, but I often manage to get them wrong even remembering
that it is the nth root of the products.There are four years to
average out so on the BA II Plus you do the fourth root with the
y^x button and .25Finally you need to remember to subtract one!(1 +
.25)(1 - .25)(1 +.3)(1 -.3)0.853125fourth root of
products0.9610658979Subtract on-3.89%111Kaplan Inc.BI thought this
question needed the five part DuPont method, at first.But you
actually only need the 3 part DuPont method, solve for net
income.ROE =(net income/revenue) * (revenue/total assets) * (total
assets/ total equity)You also need to remember total assets/total
equity is financial leverage.0.15 =(net income/ $3 billion) * ( $3
billion/ $5 billion) * 2.5Net income =(0.15 /
((.6)*2.5))*3000000000$300,000,000.00112Kaplan Inc.AI knew how to
do half this question, that in of itself is a valuable lesson as
some questions are more time consuming and if you can get away with
only doing half the work, you may want to select your answer and
move on.Sometimes you can determine the answer without pressing a
single button on your calculator just by using logic.Here are the
buttons to press, first find
PVFV($10,000,000)PMT($800,000.00)N5I/Y8.25%PV$9,900,836.51That is
enough to select A.Interest expense is equal to PV *
I/Y$816,819.01Year end adjustment equals interest expense -
PMT$16,819.01Year end debt equals PV + adjustment$9,917,655.52Since
this is a discount bond, the answer had to be A113Kaplan IncBThis
is one of the worst styles of problems asked on the level 1 CFA
exam. It requires a lot of button pressing to properly answer and
few companies use discounted payback period. The math isn't that
hard, but you can try to reason your way to B or you can calculate
it as follows:12%YearNet Cash FlowNet Cash flow discounted at
12%Commulative discounted net cash
flow0($5,000)($5,000)($5,000)1$1,900$1,696.43($3,303.57)2$1,900$1,514.67($1,788.90)3$2,500$1,779.45($9.45)4$2,000$1,271.04$1,261.58Discounted
payback period= 3 + 9.45 /1271.043.01114Kaplan IncBThis is another
difficult question, not because of the math, but because of all the
text, numbers, and dates. I solved this using half year returns and
averaging.This is the official solution:Since the portfolio manager
is not directing the flow of cash into and out of the account, the
time-weighted annual rate of return is the appropriate performance
measure.Caculate 2 year holding period return + 1, take square
root, then subtract 1.[(11.2/10)(12.5/12.4)(15/11.9)]^(1/2) -
119.30%115Kaplan IncCPrice =EPS * (P/E) = 10(12) =120Expected
return =(dividend + (ending price - beginning price))/beginning
priceExpected Return25.00%116Kaplan IncBThis question actually
requires you to know quite a lot about bond pricing.You need to
know that BEY is twice the semi-annual yield. You also need to know
about par value, but ultimately it is a time value of money
question.BEY8%6-month discount rate4.00%PV = cash flow in six month
+ cash flow in 12 months1025 =50/1.04 + 1050/(1+r)^2We want r, the
unknown spot rate 12 months from now.1025 - 48.08
=1050/(1+r)^2(1+r)^2 =1050/976.921.0748065348r =((1.0748)^0.5) -
10.0367256146BEY7.35%117Kaplan IncCI bet if they had 8.5% as an
answer a lot of people would guess it, as it is most people would
guess between 7 and 9 based on some kinda logic, the real answer is
to discount the five year rate over the four year rate back to
now.Forward rate =((1+R5)^5 / (1+R4)^4) - 110.02%118Kaplan IncBThis
is one of those CFA questions where when you see the answer you get
upset. The clean price is the quoted price.Clean Price =89.14
percent of par value of $1000$891.40119Kaplan IncAThis question
looks intimidating.It has exchange rates, interest rates, dates,
fixed, and variable rates.The official explination is as follows:In
foreign currency swaps, both parties exchange full interest
payments. The New Zealand company pays 6% variable on USD (USD
60000). The U.S. company pays 7% fixed on NZD (NZD 140,000).That
answer seems explination seems rather in sufficient.Both companies
pay at the end of every year, the New Zealand company pays in USD
and the US company pays in NZD.That fact alone eliminates B. Now
you only need to know how much the New Zealand company pays."The
New Zealand company swaps NZD for USD on which it makes
end-of-period payments based on the rate in effect at the beginning
of each period."That makes their interest rate6%Payment =notational
principal times interest rate$60,000.00There is a lot of
information you don't need provided in this question.120Kaplan
IncAThis question is easier than some, as the question spells out
most everything you need to know: quarterly = 91 days, who pays
fixed, who pays float, net payment.One thing that confuses me in
some of the formulas you need to memorize is whether they get a
portion of yearly rate or they get the entire yearly rate in a
reduced time frame.In this question the fixed rate is assumed to be
yearly so the dealer pays 91/365th or it.Dealer payment
=(5.5%)(91/365)($50 million)$685,616.44Mutual fund payment
=((1052.5/1038.4) - 1)($50 million)$678,929.12Net Payment is
difference$6,687.32Dealer's payment is larger so he actually pays
just the net difference.
&CAnswers and ExplinationsNo guarantee of 100%
AccuracyAndrew McKay:I got burnt the first time thinking it was a
cash dividendAndrew McKay:The Bond