2 questions from the CFAI Mock 1

1. 24 years old investor Kelly is planning for retirement. Her annual consumption expenditures are currently 30,000. She assumes her consumption expenditures will increase with the rate of inflation which is 3%, till her retire age 68. With a life expenctancy of 83 years old and constant expenditures in retirement, what would be the amount Kelly must accumulate by her retirement date, assume 8% rate of return on her retirement account? a)320,000 b) 423,000 c)1,176,000 d)1,552,000 2) which of the following would be the most useful to an analyst tryin to assess the credit worthiness of a company? a) Return measures related to net income b)return measures related to CFO c) information related to the scale and diversity of a company’s operation d) information related to the operating efficiency of a company’s operation I was doing decent before question 60… about 80% … then from 60 to 120 totally killed me returned with avg of 63.333%…

I believe the second answer is b. I don’t have my calculator with me to answer the first one.

The answer to 2 is most likely “B” I can’t seem to work out A. Here’s what I’m doing: N=44 PV= (30,000) I/Y=8 Which gives a FV of 110,143.57 That will be the retirement expenditure per year for 15 years of retirement which amounts to a PV of: N=15 PMT= (110,143.57) I/Y=8 PV=942,771.54 which is the amount needed to be accumulated.

Check Errata and see this post http://www.analystforum.com/phorums/read.php?11,768689,768689#msg-768689

Bloody typos man, so I was doing it right. It says the answer is C though, which is 1,176,000 but I get an answer of 1,175,757 using my method (Changing N to 25 in the second step)

What is the answer to 2? both C and D look right…

hey thanks, yeah it’s C for questions one, i didn’t know there is aTYPO on the question, so 25 years it would be… instead of 15 i was calculating with… as for question 2, the answer explanation says “Credit analysis is concerned with a company’s debt-paying ability. Returns to creditors are normally paid in cash, so the company’s ability to generate cash internally is the most important factor in credit analysis.” i thought it would be B, but when it says “ability to generate cash” just kinda confuses me

So Jeffwey, Which one is the answer listed by Sch for Question 2? D?

The answer to the second Q is B. NI is much easier manipulated than CFO. For credit analysis, total cash flow is important for how likely they are to repay their obligations, but you also want to see how much of it is coming from operations to judge whether their ability to repay is going to be sustained over time. Study Session 10-42-c

i think number 2 is d

Number 2 is B, according to the results of the answer key to the mock exam…

the key to the mock exam says to “generate internal cash” AKA liquidity so why isn’t t D?

Hmm I’m approaching this question all wrong. I would think that you have to take the capital expenditures and increase them by 3% to find out how much she is going to spend come retirement.

never mind I read that other post, makes complete sense. You are supposed to adjust for inflation.

Cash flow is the best measure for creditworthiness. Why do you guys think Wall Street is tanking? Because they don’t have the cash flow to sustain their short term operations but their operations are profitable…