CFAI Sample two quick questions (warning spoiler)

1st question. The question gives a 10 firm concentration ratio of 20% and a Herfindal of .0032. Nothing else was said about the concentration in the industy Question asks what can be most drawn from the above. 1: There are 313 equal firms in the industry 2: the industry is moderately concentrated Obviously taking 1/.0032 = 313. But answer 1 is an impossible because 10 firms already own 20% of the industry. I think its a goof question on CFAI’s part. 2nd question. For carried interest, does NAV before distributions always have to exceed committed capital to get the carried interest??? I remember that this is one of the provisions that can help the LPs, but I don’t remember reading that it was required. My problem was that nowhere in the passage did it state that this provision was to be carried out. Let me know what you think. Sorry I cannot post the full questions for obvious reasons.

  1. Try 1/H^2 or 1/N, its not impossible the remaining 80% and 303 firms can have an equal fraction, albeit very small 2. The short answer is most likely it does, it should state in the prospectus of the fund how CI is paid, usually after a target IRR per investment or total return in excess of committed capital. hope this helps
  1. the correct answer said how many equal weight/size would have this H index and this is what you calced

pfcfaataf Wrote: ------------------------------------------------------- > 1. the correct answer said how many equal > weight/size would have this H index and this is > what you calced The question asked though what can be most likely drawn about the industry from the given information.

for moderately concentrated - Herfindahl Corp Fin: < 1000 Light Concentration 1000-1800 Moderate Conc. >1800 Highly concentrated Equity: < 0.10 Light 0.10-0.18 Moderate > 0.18 High So Moderate Conc is out. It should be 313 equivalent firms in industry. 10-Firm Concentration does not use all the firms in the industry. 10 Largest firms have a combined market share of 20%. say each has 2% (average) Herfindahl for the 10firms = 10*0.02^2 = 10*0.0004 = 0.0040 > 0.0032 Herfindahl Index however does use all firms in the industry. So all the other firms have a very small market share. I think A) 313 equivalent firms is the answer.

CFABLACKBELT Wrote: ------------------------------------------------------- > pfcfaataf Wrote: > -------------------------------------------------- > ----- > > 1. the correct answer said how many equal > > weight/size would have this H index and this is > > what you calced > > > The question asked though what can be most likely > drawn about the industry from the given > information. yeah, and the answer was that this industry is equivalent (in terms of concentration, using Herfindahl) to industry where 313 firms have equal market shares.