CFAI 2013 Level 1 Mock: Afternoon Questions

CFA Level I
#1

Some of the explanations provided by CFAI was not sufficient for me to understand the concept for the following questions. If you are able to explain the answers to the questions I have, that would be much appreciated! (I may be able to help on other parts of this exam, if anyone posts it)

#8) For this question, I thought that Gupta violated the Professional Conduct by “agreeing to manage the account” given that the Trustees’ wishes were to not invest in companies that sell “sin” products. If the plan trustees state that investing in companies that sell alcohol, tobacco, etc are not aceptable and Gupta says this is not reasonable, shouldn’t Gupta reject the account?

#49) For this question, why isn’t “investments” of 350 included in assets?

#85) I understand the calculation behind dividends, interest paid, and amount borrowed. However, to calculate the price appreciation, I don’t understand why it is “total return - dividend + margin interest.”

I keep thinknig it should be “total return + dividend - margin interest.” Is it because I should back-solve it, and that is why dividend is subtracted?

#92) I thought I understood FRA questions based upon Schewser Q’s, until I saw this Q. How does the formula work?

#2

  1. The question asks if there is a violation of the Standards. There is none as he merely agrees to manage the account according to the Trustee’s wishes and honors their wish to not invest in the companies listed. Gupta said that he cannot execute his strategy given these constraints. C is not right because everymember has the right to opt in or out of the portfolio. B is not right because Gupta tells them before accepting where the execess returns for his other accounts come from.

  2. It is included in non-current assets.

  3. I think thebest way to approach FRA problems is by drawing a timeline instead of memorizing a formula. This is a 6*9 FRA - FRA expires in 180 days and it is based on 90-day LIBOR.

  1. First calculate the value at the end of 270 days : 1,000,000 * (0.028-0.022) * 90/360 = 1500

2.Next to calculate the payoff on FRA i.e. after 180 days, discount 1500 at the market rate of 2.8% = 1500/(1+0.028*90/360) = 1489.57

Since interest rates appreciate, the long loses.

#3

Sorry, the answer is correct but the long receives money here not the other way round