# CFA MOCK EXAM

Afternoon section. question 30 the proposed distribution center were financed 40% by debt, but why the cost of interest is= (1/2 x 30,000 x 8.5% YTM on long-term debt = 1,275) not (0.4x 30,000 x 8.5% YTM on long-term debt = 1,020)? could any explain this to me? Thanks a lot! best wishes, NAT

seriously, I almost read this question and I didn’t do the mock yet. PUT SPOILER IN THE SUBJECT!

sorry jdane, I tried mate… I wrote with all CAP letters

***** Addressed to People who have already taken CFAI Mock Exam ONLY ***** nataa, I was confused when reading the answer, too. I do not know why they are using 0.5 and only 30000 in spite of the fact that the question states that 40% is financed with debt, I was under the assumption that we should use 50000 (30000 + 20000) instead of 30000 as well (accounted for the increase in NWC, too)… Any thoughts guys? Thanks! M.

I am also very confused by CFA i’s answer. the “1/2” is very strange. I think it’s an error, same as last year’s L1 mock exam. I will email CFA i to get confirmation.

hey annexguy, what about using 30000 instead of 50000? the NWC should not be accounted for? Thanks! M.

THE ONLY reasonable explanation of “1/2” is project were financed 50 percent by debt, not 40% , which is typo in question. interest= 1/2 x 30,000 x 8.5%= 1,275

malek_bg Wrote: ------------------------------------------------------- > hey annexguy, > > what about using 30000 instead of 50000? the NWC > should not be accounted for? > > Thanks! > M. at BEG, I had same thought. BAsed on FCFE concept 50K( initial Inv) =30K(FCInv)+20K(WCInv) net borrowing =Debt Ratio*50K Inv=.4*50K=20K … and the result couldn’t match any choice. I looked at the 20K(WCInv) again. it may from inventory increase( the inventory purchase may be financed by interest-bearing short-term notes,long-term loan, or A/P. ONly long-term loan interest % told here. ); A/R increase(no need \$\$ to purchase, no interest expense ); A/P decrease( no need \$\$ to purchase, no interest expense); it’s hardly to determine interest expense here. so I removed 20K(WCInv). I don’t think above explanation is satisfying , I am keeping think other reason.

Ya, it appears to be a typo. The borrowed fraction should be 50% and not 40%.

I also have question about Q10 answer the original statement in vignette: Insurance provides for payment of interest and principal of a specified percentage of the par value at origination should the issuer fail to make the payments. exam explanation: The insurance protection provides for the timely payment of principal and interest payments as due. the words from CFA I text book5 P408: insurer agrees to make timely payment of interest and principal up to a specified amount should the issuer fail to make the payment. the only problem w/statement in vignette is “timely” missed, others are same as CFA I text book. Because of this small word to fail whole statement is too picky. is there any other reason?

CFA i MOCK exam AM Q50. why statement 3 is wrong. Monk wonders about the delta and gamma of a long call option position. Monk makes the following statements Statement 3: Delta is a more precise measure of the change in the option’s value when the gamma of the option is larger.” when call option is far out of the money, gamma is close to 0, option price does not change much for a unit change in stock price. when call option is in the money, gamma close to 1, option price will change almost one-for-one for a unit change in stock price. so when gamma larger, delta is closer to 1, and option price changes match more changes of stock price. statement 3 is correct.

AM Q59 in CFA i text book, active risk squared=active factor risk+active specifice risk. it doesn’t hold for portfolio T. 28 +12 < 85 what’s the reason behind??

AM Q52. u=1.15 , then d=1/1.15=.8696. but it says d=.8. is it a typo?

AM Q 4 why C is not right. C is almost word for word copied from CFA i text book P95, first line of 2nd paragraph.

AM Q 38 equity charge =BV*r BV should use BEG value , not END value : 8125. BEG value is not given, but can be calculated : 8125=BEG BV+NI 975-Div 487.2. BEG BV=7637.2 w/that data, no choice can be found. only w/END value : 8125. some times mock exam Q is extremely simple, and some times extremely complicated. I am totally pissed off.

relax man Q10, I have the same problem. English is my second language, I thought it was my problem.

annexguy Wrote: ------------------------------------------------------- > AM Q59 > in CFA i text book, active risk squared=active > factor risk+active specifice risk. > it doesn’t hold for portfolio T. > 28 +12 < 85 > > what’s the reason behind?? Man, I had this confusion as well when I took it, maybe there is other active factors not in T?

nattaa Wrote: ------------------------------------------------------- > Afternoon section. question 30 > > the proposed distribution center were financed 40% > by debt, but why the cost of interest is= (1/2 x > 30,000 x 8.5% YTM on long-term debt = 1,275) > not (0.4x 30,000 x 8.5% YTM on long-term debt = > 1,020)? > could any explain this to me? Thanks a lot! > > best wishes, > NAT I think this one is questionable as well. I second to the idea that it should be 40% and it should use both NWC + Fix Capital =50k

nattaa Wrote: ------------------------------------------------------- > relax man > Q10, I have the same problem. English is my second > language, I thought it was my problem. here’s my 2nd thought. timely and as due means insurer has to match original payment day . w/o that means insurer can pay that much later. it is very critical for some pension funds, income mutual funds ; they have to distribute div. to their clients. My feeling of CFA i mock exam comparing to schweser one is CFA i one Q is not very complicated, quite straightforward, less calculation, simpler statement, simpler number; however, the Q is testing some minor points at the corner. Schweser notes don’t even mention those minor points.