CFAI Mock 2: #30 and #41

CFA Level II
#1

#30, cost of interest = 0.5*30k*8.5% YTM on LTD. Does anyone know why they use 0.50 instead of 0.40? The vignette says they use 40% debt financing. Thanks. #41. We shld use beginning BV in calculating residual income, so I used the “clean surplus relation” working backward to get 2006 BV. However, in their answer key, they simply use the current year BV. Does anyone know why? Thanks. sleepy

#2

Been covered extensively here. It was a typo. CFAI goofed

#3

Hi smarshy thanks for your quick response. typo to #31 or to both? can you direct me to the threads? Thanks. sleepy

#4

I took the mock this weekend and e-mailed CFA about those two questions. I’m glad to see others had the exact same issue. Althogh, shouldn’t the 40% be applied to both working capital investment and fixed capital investment for a total of $50K * 40%?

#5

ptrick73 Wrote: ------------------------------------------------------- > I took the mock this weekend and e-mailed CFA > about those two questions. I’m glad to see others > had the exact same issue. Althogh, shouldn’t the > 40% be applied to both working capital investment > and fixed capital investment for a total of $50K * > 40%? Guess what, we not only have the same Q, but I did exactly what you did: applying 40% to both NWC and FCInv. Upon reading the answer key, I forced myself to remember to use only FCInv. It’ll be great if you can share what CFAI say when you get a reply. Thanks.

#6

I’ll let you know, but I doubt they will answer. I e-mailed CFA about a question on the third sample exam all I got back was a reply saying they will forward my question on to the exam department. This was over a week ago.

#7

I had the same issue…I mean are they going to fund the WC with fairy dust and hope?

#8

What is reason to use YTM for LT debt instead of coupon rate to calculate interest expense? This seems to be level 1 material. But I forgot about it.

#9

I think the current YTM would be the cost to you if you went out an issued debt, but I am not sure.

#10

Thanks! I think you are right. Coupon rate is an out dated number. YTM reflects current situation.