Ethic SUsan Roberts, CFA, a portfolio manager for Howard Investment Counsel, received a call from Marvin Moore, an institutional broker. Moore called to recommend buying Megamove, an obscure common stock traded over the counter, as a takeover ccandidate. In the past, Moore has demonstrated an ability to pick takeover candidagtes. If she buys the Megamove stock, is Roberts violating the CFA Institute Standard of Professional Conduct that relates to trading on material nonpublic information? A. Yes, because Roberts did not reserach the stock herself D No Answer is D, why not A? ==================================================== Quant A analyst is analyzing the performanc eo fa sample of investment amangers in an attempt to understand the influence of incentive paymetns on excess returns. the analyst has a sample of 250 managers with incentive contracts, and are testing the hypothesis: H0: Population excess return <=2% H1: Population excess return >2% The mean and S.D. of the sample of excess returns are 5% and 15%. The test statistic for this test is equal to: A.0.2 C3.16 answer is C, how to get this? what is the a test statistics? ============================================ Real estate investment has the following chara: annual rental income 18m, annual operating expenses 1.2m, available mortgage rate 6% , financing percentage 90%, required rate of return 15% ,estimated holding period 5 years, investor’s tax rate 25%, Based on the income approach, the value of the investment is closest to: A.4000k How to get this? Thanks!
Q1. She has no reasonable knowlege of Moore having mat. private info. So, she may go ahead and buys it. (Any thoughts?) For Q2. 5 (sample return) -2 (H0)/ (std. dev. / square root of N) 3/ (15/15.81) = 3.16. That’s test statistics.
For the ethics question, Susan most likely violated the code of ethics regarding due diligence, but the point here is that she did not violate the code regarding trading on MNPI. Moore didn’t give her the information based on MNPI, but on his gut feeling (presumably, since the problem doesn’t say otherwise). If, however, Moore worked at Megamove, then she would be in violation of this standard as well. For the quant question, if you don’t know what a test statistic is at this point you have some serious review for statistics to catch up on. The two most common test statistics you should know fairly well are : z-test - http://en.wikipedia.org/wiki/Z-test t-test - http://en.wikipedia.org/wiki/T-test However, these two don’t nearly cover the major items in the LOS for SS2.
So for ethics, I understand there is no MNPI invovled, what I donot understand is why she is not violating due diligence, since her buy has no reasonable basis. That why I thought the answer should be A. For the real estate question, following the fomula, NOI/Require rate of return, I simplly get (18m-1.2m)/15%. however the answer is incorrect. Any of you know why? Thanks!
Answer is D because…the last line of the question states “If she buys the Megamove stock, is Roberts violating the CFA Institute Standard of Professional Conduct that relates to trading on MATERIAL NONPUBLIC INFORMATION?”
Good point. that is sneaky. Thanks
singlesong, for the real estate question, was the cost of the building given in the problem?
It is not given. I do not think you need the information by using income approach. I thought about it again, and i believe there is a typo in the question. If 18m changes to 1.8 m, then everything will make sense. (1.8-1.2)/0.15=4000k the point is we do not care about tax or the way of financing or holding period by using income approach. always assume it is perpetuity.