When I was studying for the CFA Level 1 exam I did a lot of practice problems. I started collecting hard ones and I was able to hook 29 of them up to a random number generator in MS Excel so I could do them over and over. I updated that spreadsheet and wrote out some more tips on the eve of the exam.
Muskie, how many hours did you put into Level 1? And: thanks for the spreadsheets - good stuff!
I wrote down my top 10 tips to pass the CFA Level 1 exam, though I think they are too late for some people. Thinking back to some people who were in my study group, it is so obvious why some people fail, they don’t do the readings, they don’t do the practice problems, and even if they can manage to answer a given question they can’t answer it quickly.
Gone in 90 seconds!
Pretty sure question 10 on the spread sheet is wrong.
Question 10 on the generator or question 10 of the problem set? If it is the generator is it wrong all the time or for a particular combination of random numbers which I’ll likely be unable to duplicate. That question dates back to a problem from Schweiser in 2008. Have accounting rules changed, is there a mistake in the arithmatic?
Here is the style of question:
At 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:
Here are some possible answers:
The exact answer is?
You have the equation as other comprehensive income = (Ending Retained earn earnings - Beginning Retained earnings) + net incomce - Dividends - (Ending Retained earn earnings - Beginning Retained earnings), which doesn’t make any sense.
If think it should be : Ending Retained earnings - (Beginging retained earnings + net income - dividends)
So in your example it would be 35000, though I might be wrong.
This question came from a Schwesier Practice exam in 2008. Someone in my study group had that book back in the day.
Here is the answer they gave:
First you must subtract the beginning retained earnings from the end retained earning. 50000 Next add back net income 75000 You must subtract dividends paid as that is done after net income is calculate. 65000 Now you subtract change in retained earnings to determine the amount of other comprehensive income for the year. 15000
That is the steps to solve it according to them. I just changed the number and then hooked it up to a random number generator. The steps should remain the same. I’m pretty sure those are the correct steps to answer this question. The answer would be D, 15000.
In the olden days there were four choices. Going to three makes it easier to guess the right answer and makes it possible to get through questions quicker, but overall pass rate remains the same year after year so they must determine the passing score every time based on how well the best people do on the exam, or at least that is the theory.
Someone on LinkedIn seems to think question 10 might be wrong. This one I’m pretty confident in, I did it many, many times, it appears fairly regularly hence its inclusion. The formula given for free cash flow in the current book differs from what I used, I may have to consult additional sources, but I did these questions so many times this is the way I learned to solve them…
I went through the list of the 29 questions and I gotta say this is EXTREMELY useful. I would highly recommend it to everyone.
Ya, great info Muskie! I have bookmarked both links!
"First you must subtract the beginning retained earnings from the end retained earning.
Next add back net income
You must subtract dividends paid as that is done after net income is calculate
Now you subtract change in retained earnings to determine the amount of other comprehensive income for the year."
This is the same as (Change in retained earnings) + Net income -Dividends - (Change in retained earnings) = Net Income - Dividends
Other comprehnsive income does not equal Net Income - Dividends.
So what are you saying the answer is? The answer key years ago was as I stated. Question 8 I restated slightly clearer, but in this case, there still seems to be debate.
Don’t confuse comprehensive income with other comprehensive income. These are the cue cards I made, one particularly to solve this question style.
That question has been in my problem set since around 2008, so a lot of people have done it and not objected. I looked for guidance just now on the Internet, best I found was:
The answer key to the old practice exam followed those steps.
I didn’t make any changes to question 10, I did make a slight change to question 8 and I added a 30th question which is a more straight forward free cash flow to firm from CFO question.