DD, could we have a Dinner Crunch (DC) too? i prolly won’t get home till 10:30 so won’t have access to the qbank until then. cheers mate
Haha, Not a problem. What can I get for you?
how about Alts (real estate mainly) or quant? or any topic others propose.
Question 1 - 100844 Which of the following statements concerning the similarities and differences between commodities and capital assets is FALSE? A) International diversification is meaningful for capital assets, but not for commodities. B) Capital assets can be separated into systematic and unsystematic risk components, but commodities cannot. C) Both capital assets and commodities can be valued based on the present value of their future cash flows. -------------------------------------------------------------------------------- Question 2 - 100871 For commodity futures in a contango market, what is the most appropriate investment in futures for an investor who expects spot prices to remain constant, and how would the futures price change as the contract approaches maturity, respectively: Investor’s position Change in futures price A) long futures appreciate B) short futures appreciate C) short futures depreciate -------------------------------------------------------------------------------- Question 3 - 88558 Assume that a property has an estimated net operating income (NOI) equal to $150,000. Further assume that comparable properties have a capitalization rate of 11%. The direct income capitalization approach provides a market value for this property that is closest to: A) $13,636,363. B) $1,363,636. C) $1,500,000. -------------------------------------------------------------------------------- Question 4 - 100881 The least likely condition for an actively managed commodity basket to yield a positive geometric return is when: A) the average geometric return of each underlying commodity is zero. B) the portfolio prohibits tactical deviations from its stated policy statement but requires annual rebalancing to the portfolio’s strategic asset allocation. C) the prices of commodities with a negative return in the basket are perfectly correlated. -------------------------------------------------------------------------------- Question 5 - 100879 RSM is an established Canadian biotech firm with a significant equity exposure in its investment portfolio. The firm’s CFO, Eileen Jurczak is looking to diversify RSM’s investments by adding other asset classes to the portfolio mix but is unsure which assets to include. She consults Mike Thompson, CFA, the investment portfolio’s portfolio manager, who recommends adding commodity futures. Jurczak is somewhat familiar with commodity futures as a hedging tool but is unsure why they would be considered an asset class. Thompson responds by making the following statements: Statement 1: The commodities underlying a commodity futures contract are considered assets even though they cannot generate cash flows. Statement 2: Commodity futures, on the other hand, have the potential to generate cash flows, both negative and positive. This is the main reason why they are considered an asset class. With respect to the above statements, Thompson is: A) correct on both statements. B) incorrect on both statements. C) correct on only one statement. -------------------------------------------------------------------------------- Question 6 - 100841 Which of the following portfolios will most likely provide the greatest amount of downside protection? A) 55% U.S. stocks, 35% U.S. bonds, and 10% TIPS. B) 55% U.S. stocks, 35% U.S. bonds, and 10% commodities. C) 55% U.S. stocks, 35% U.S. bonds, and 10% foreign stocks. -------------------------------------------------------------------------------- Question 7 - 88576 Which of the following valuation approaches is limited in its application to income producing properties? A) Both the gross income multiplier approach and the direct income capitalization approach. B) Only the direct income capitalization approach. C) Neither the gross income multiplier approach nor the direct income capitalization approach. -------------------------------------------------------------------------------- Question 8 - 104121 The least likely factor affecting venture capital firm valuation is the: A) bargaining power of the venture capital and private equity firms. B) private equity firm’s initial investment. C) probability of failure. -------------------------------------------------------------------------------- Question 9 - 104113 A private equity firm makes a $10 million investment in a portfolio company and calculates that the firm’s investors should hold 1,000,000 shares at a price of $15.00 per share using the IRR approach. The founders of a portfolio company currently hold 300,000 shares. The appropriate post-money (POST) valuation is: A) $15 million. B) $19.5 million. C) $13 million. -------------------------------------------------------------------------------- Question 10 - 104110 The private equity firm Purcell & Hyams (P&H) is considering a $17 million investment in Eizak Biotech. Eizak’s owners firmly believe that with P&H’s investment they could develop their “wonder” drug and sell the firm in six years for $120 million. Given the project’s risk, P&H believes a discount rate of 30% is reasonable. The pre-money valuation (PRE) and P&H’s fractional ownership, respectively, are closest to (in millions): PRE Fractional ownership A) $7.86 0.68 B) $24.86 0.68 C) $7.86 0.14 -------------------------------------------------------------------------------- Question 11 - 88535 A real estate investment is expected to have cash flows after taxes in each of the next four years equal to GBP90,000, GBP55,000, GBP35,000, and GBP25,000, respectively. The initial equity investment in this property is GBP200,000 and the equity reversion after taxes (ERAT) at the end of year-four is estimated to be GBP100,000. Assuming an after tax return on equity of 8.5%, the net present value (NPV) and internal rate of return (IRR) for this investment is closest to: NPV IRR A) GBP47,268 18% B) GBP45,376 16% C) GBP41,399 15% -------------------------------------------------------------------------------- Question 12 - 100883 Gains from rebalancing a portfolio of commodities to its strategic asset allocation when the average return on the underlying commodities is zero may occur under: A) passive but not active portfolio management. B) either active or passive portfolio management. C) active but not passive portfolio management. -------------------------------------------------------------------------------- Question 13 - 88563 When estimating a capitalization rate, which of the following methods is most appropriate for a real estate investment that is financed with both debt and equity? A) Built-up method. B) Comparable-sales method. C) Band-of-investments method. -------------------------------------------------------------------------------- Question 14 - 88556 Assume that a property has a gross annual income equal to $150,000, and that comparable properties have a gross income multiplier equal to 11.25. The gross income multiplier approach provides a market value for this property that is closest to: A) $1,625,000. B) $1,687,500. C) $1,333,333. -------------------------------------------------------------------------------- Question 15 - 104123 A private equity investor is considering an investment in a venture capital firm, and is looking to calculate the firm’s terminal value. The investor determines that there is equal likelihood of the following: 1. Expected firm earnings are $2.5 million with a P/E ratio of 8. 2. Expected firm earnings are $3.0 million with a P/E ratio of 10. The firm’s expected terminal value, and the analysis used by the investor, respectively, is: Terminal value Analysis A) $2.75 million Sensitivity B) $50 million Scenario C) $25 million Scenario
Question 1 - 100844 C) Both capital assets and commodities can be valued based on the present value of their future cash flows. -------------------------------------------------------------------------------- Question 2 - 100871 A) long futures appreciate -------------------------------------------------------------------------------- Question 3 - 88558 B) $1,363,636. -------------------------------------------------------------------------------- Question 4 - 100881 C) the prices of commodities with a negative return in the basket are perfectly correlated. -------------------------------------------------------------------------------- Question 5 - 100879 B) incorrect on both statements. -------------------------------------------------------------------------------- Question 6 - 100841 B) 55% U.S. stocks, 35% U.S. bonds, and 10% commodities. -------------------------------------------------------------------------------- Question 7 - 88576 A) Both the gross income multiplier approach and the direct income capitalization approach. -------------------------------------------------------------------------------- Question 8 - 104121 C) probability of failure. -------------------------------------------------------------------------------- Question 9 - 104113 B) $19.5 million. -------------------------------------------------------------------------------- Question 10 - 104110 A) $7.86 0.68 -------------------------------------------------------------------------------- Question 11 - 88535 A) GBP47,268 18% -------------------------------------------------------------------------------- Question 12 - 100883 C) active but not passive portfolio management. -------------------------------------------------------------------------------- Question 13 - 88563 C) Band-of-investments method. -------------------------------------------------------------------------------- Question 14 - 88556 B) $1,687,500. -------------------------------------------------------------------------------- Question 15 - 104123 C) $25 million Scenario
Q1.C (no CF’s) Q2.A Q3.B 1363636.363636363 Q4.C Q5.C Q6.B Q7.A Q8.A Q9.B 1300*15=19500 Q10.A 7.86114532396040531 0.6837979416 Q11.A 47,268 and 18% Q12.C Q13.C Q14.B 1687500 Q15.C 20+30/2 = 25
Question 1 - #100844 Your answer: C was correct! Commodities do not provide a claim on a stream of cash flows the same way that stocks and bonds do. As a result, commodities are valued based on supply and demand forces and not the present value of future cash flows. Note that while some alternative assets such as hedge funds simply provide a new means to invest in existing asset classes, commodities are an alternative investment that qualifies as a distinct asset class. This question tested from Session 13, Reading 49, LOS c. -------------------------------------------------------------------------------- Question 2 - #100871 Your answer: A was incorrect. The correct answer was C) short futures depreciate A long position in futures contracts in a contango market would result in a negative roll yield and return to the investor as the future price approaches the spot price closer to maturity. If spot prices are assumed to remain constant, an investor taking a short (¡°sell¡±) position in futures would realize a positive roll yield and profit as the futures price depreciates in value the closer it is to maturity. This question tested from Session 13, Reading 49, LOS b. -------------------------------------------------------------------------------- Question 3 - #88558 Your answer: B was correct! This question tested from Session 13, Reading 47, LOS c. -------------------------------------------------------------------------------- Question 4 - #100881 Your answer: C was correct! The geometric return of an actively managed basket of commodities will be positive if each commodity in the basket has a positive return, regardless of their correlation with each other. The basket can still produce a positive return if the individual commodity returns are close to zero, assuming commodity returns are not perfectly correlated and the portfolio is rebalanced periodically (e.g. annually) to its strategic asset allocation. This question tested from Session 13, Reading 49, LOS d. -------------------------------------------------------------------------------- Question 5 - #100879 Your answer: C was correct! Thompson is correct on Statement 1 but incorrect on Statement 2. Although commodities do not generate cash flows, they are assets since they are valuable as a store of value and as inputs in a production process. Commodity futures, however, are generally considered an asset class only if they can generate positive cash flow (positive roll yield or return). This question tested from Session 13, Reading 49, LOS c. -------------------------------------------------------------------------------- Question 6 - #100841 Your answer: B was correct! Studies indicate that a portfolio with 10% allocated to commodities (with 55% to U.S. stocks and 35% to U.S. bonds) provides the largest amount of downside protection compared to the other portfolios. This question tested from Session 13, Reading 49, LOS e. -------------------------------------------------------------------------------- Question 7 - #88576 Your answer: A was correct! Both valuation approaches are limited to use with income producing properties. Neither approach can provide an accurate value estimate for owner-occupied properties because the benefit derived by the owner is difficult to measure in monetary terms. This question tested from Session 13, Reading 47, LOS d. -------------------------------------------------------------------------------- Question 8 - #104121 Your answer: A was incorrect. The correct answer was B) private equity firm¡¯s initial investment. The probability of failure is often factored in to adjust the discount rate (IRR) which could significantly affect firm valuation. The bargaining power between the two parties affects the final price paid for the venture capital firm. The private equity firm¡¯s initial investment has no direct bearing on venture capital firm valuation. This question tested from Session 13, Reading 48, LOS m. -------------------------------------------------------------------------------- Question 9 - #104113 Your answer: B was correct! Since we have no information on exit value or the IRR rate, but the share price and number shares held by each party is given, the post-money valuation (POST) is calculated as: POST = shares price x total number of shares = $15 ¡Á (1,000,000 + 300,000) = $19.5 million. This question tested from Session 13, Reading 48, LOS l. -------------------------------------------------------------------------------- Question 10 - #104110 Your answer: A was correct! Step 1: The exit value must first be discounted at the appropriate discount rate to its present value to arrive at the post-money (POST) valuation (all dollar figures in millions): POST = ($120) / (1.30)6 = $24.86 million. Step 2: The pre-money valuation is Eizak¡¯s current value without P&H¡¯s investment: PRE = $24.86 million − $17 million = $7.86 million. Step 3: P&H¡¯s fractional ownership is the value of its investment as a fraction of Eizak¡¯s POST valuation: f = INV / POST = $17 / $24.86 = 0.68. This question tested from Session 13, Reading 48, LOS k. -------------------------------------------------------------------------------- Question 11 - #88535 Your answer: A was correct! Using your TI BAII Plus: [CF] [2nd] [CLR WORK] -200,000 [+/¨C] [ENTER] [¡ý] 90,000 [ENTER] [¡ý] [¡ý] 55,000 [ENTER] [¡ý] [¡ý] 35,000 [ENTER] [¡ý] [¡ý] 125,000 (note: CF3 = 25,000 + 100,000) [NPV] {8.5} [ENTER] [¡ý] [CPT] = GBP 47,267.91 [IRR] [CPT] = 18.39% This question tested from Session 13, Reading 46, LOS b. -------------------------------------------------------------------------------- Question 12 - #100883 Your answer: C was correct! Commodities in a passively managed portfolio are not rebalanced periodically and are allowed to deviate from their initial allocation. A passively managed portfolio would thus yield a zero return when the underlying commodities average a zero return. Commodities in an actively managed portfolio, on the other hand, are rebalanced periodically to their initial strategic asset allocation. This ensures that even when the average commodity gain is zero, the overall portfolio may yield a positive return. This question tested from Session 13, Reading 49, LOS d. -------------------------------------------------------------------------------- Question 13 - #88563 Your answer: C was correct! The band-of-investments method recognizes the relative costs of debt and equity. Under this method, the capitalization rate, C0, is represented as: C0 = (mortgage weight ¡Á mortgage cost) + (equity weight ¡Á equity cost). This question tested from Session 13, Reading 47, LOS b. -------------------------------------------------------------------------------- Question 14 - #88556 Your answer: B was correct! Gross income multiplier technique: MV = gross income ¡Á income multiplier. MV = $150,000 ¡Á 11.25 = $1,687,500 This question tested from Session 13, Reading 47, LOS c. -------------------------------------------------------------------------------- Question 15 - #104123 Your answer: C was correct! The investor is using scenario analysis to determine the venture capital firm¡¯s terminal value. The terminal value under each scenario is calculated by multiplying the expected earnings by the P/E ratio: Scenario 1: $2.5 million ¡Á 8 = $20 million Scenario 2: $3.0 million ¡Á 10 = $30 million The expected terminal value is then the weighted value under each scenario: Expected terminal value = (0.50)($20 million + $30 million) = $25 million. This question tested from Session 13, Reading 48, LOS m.
- A 2) A 3) B 4) B 5) A 6) A 7) A 8) A 9) B 10) A 11) C (random guess, forgot what to do with CFAT/ERAT etc.) 12) C 13) C 14) B 15) C EDIT - damn, DD posted answers already
12 / 15 nuked --> 2, 5 and 8…
equity reversion after tax is like your terminal value niraj
right on Ali demoralizing - 7/15. and to think that i read this last week…
A real test of coherence & fatigue factor would be to take a crunch at 1.00 AM and see how many we get correct.
Good point. Chugging through SS12…what a confidence killer. I should sleep in on June 6th. Ugh! Are you pulling late nights SG? I think a pal of yours once said sleep is for the birds, we are men, that precious 2 hours of sleep could cost you 1 more year of L2 agony?
Nopes not yet. It’s too early to start the sprint 2 months in advance. Just killed Taxes (Port Mgmt) and I think you have got competition here 