DD, are you really busy at work today? If possible, can we do a Big Three lunch crunch (Ethics, FSA, Equity)?
Does anyone know the best way to get the item set only in Qbank? Here is a whopping 30 Qs. Go Time! Question 1 - 93520 Carl Weather, CFA, is the chief financial officer of Talbot Enterprises. Based on inside information about Talbot’s favorable prospects, Weather concludes that Talbot’s common stock price is substantially undervalued in the market. With the approval of Talbot’s Board of Directors, Weather announces a program for his firm to repurchase $100 million of its own stock in the market. Talbot’s stock price rises immediately after the announcement of the repurchase program. Reese Winter, a CFA Institute member, is Weather’s assistant. While waiting in Weather’s office, Winter reads an internal memo marked “confidential” from Talbot’s chief accountant to Weather. The memo states that Talbot sustained an unexpected substantial profit during the past quarter, and its earnings projections show a substantial increase compared with previous estimates. Winter uses her cell phone to call her brother and discloses this information to him. Her brother immediately buys 1000 shares of Talbot’s stock. Did the actions of Weather and Winter violate Standard II(A): Material Nonpublic Information? Weather Winter A) Yes No B) Yes Yes C) No Yes -------------------------------------------------------------------------------- Question 2 - 94588 Arthur Harrow, CFA, is a pharmaceuticals analyst at Dominion Asset Management. His supervisor directs him to prepare separate research reports on Miracle Drug Company and Wonder Drug Company. Harrow’s former college roommate and close friend is the president of Miracle. Harrow owns 2000 shares of Wonder, which currently sells for $25 a share. Harrow’s supervisor is unaware of these facts. According to CFA Institute Standards of Professional Conduct, which of the following action, if any, is Harrow required to take if he writes the research reports? A) Harrow must disclose to Dominion both his relationship with the president of Miracle and his ownership of shares in Wonder. B) Harrow must disclose to Dominion his ownership of shares in Wonder but not his relationship with the president of Miracle. C) Harrow must disclose to Dominion his relationship with the president of Miracle but not his ownership of shares in Wonder. -------------------------------------------------------------------------------- Question 3 - 94803 Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. Calaveccio places a trade with Quantco Brokerage. While Calaveccio’s part of the transaction was conveyed correctly to Quantco, there was a trading error made in Calaveccio’s account due to a slip up within Quantco. Calaveccio realizes that the error has taken place, and informs his contact at Quantco. Calaveccio allows Quantco to cover the error, with no cost to TrustCo. This is: A) permissible under CFA Institute Standards since some trading errors are a fact of life in the securities industry. B) a violation of Calaveccio’s duty to his employer. C) a violation of Calaveccio’s fiduciary duties. -------------------------------------------------------------------------------- Question 4 - 94694 Tony Calaveccio, CFA, is the manager of the TrustCo Small Cap Venture Fund in Toronto. He places trades for the fund with Worldwide Brokerage. Worldwide is holding a conference in Amsterdam and has offered to pay for Calaveccio’s airfare, meals, and accommodations associated with his attendance of the conference. The conference concerns European small cap securities and the EASDAQ. He decides that he will accept their offer and attend the conference. In order to comply with the Code and Standards, he: A) should not attend unless he pays for the trip himself. B) may attend, but he must disclose the arrangement to TrustCo’s clients and prospects as required under Standard IV.B. C) may attend, but he must disclose the arrangement to his employer as a gift. -------------------------------------------------------------------------------- Question 5 - 94688 A government committee has concluded that investment company fees should be disclosed to clients each quarter and has proposed new legislation to require this. Currently, the legal requirement is to report such data annually. In compliance with current legal requirements, Dolphin Investments discloses its fees annually. Eugene Shin, CFA, Dolphin’s compliance officer, learns of the proposed changes but does not convert Dolphin’s reporting to a quarterly basis. Shin’s decision not to act: A) constitutes professional misconduct as defined in the Code and Standards. B) is not a violation of the Code and Standards. C) is a violation of his duty to employer as defined in the Code and Standards. -------------------------------------------------------------------------------- Question 6 - 94655 An analyst, who is a CFA charterholder, is working in a foreign country. Which of the following statements is TRUE? The analyst is: A) covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards. B) governed by the laws and standards of the country in which he is living and working. C) governed by CFA Institute’s Code and Standards. -------------------------------------------------------------------------------- Question 7 - 86671 When we describe fiduciary duty as being process-oriented and dynamic this means that the fiduciary responsibility will be properly discharged if the manager: A) implements a process that views asset risk in isolation and updates these risk estimates on a regular basis. B) develops an investment policy statement that is suitable for the client and reviews the client’s situation on a regular basis. C) implements a process that yields returns that are above average on a risk-return basis and updates the process over time. -------------------------------------------------------------------------------- Question 8 - 86607 Glenarm Case Study (Refer to CFA Institute Standards of Practice Casebook for details.) Peter Sherman, CFA, has recently joined Glenarm Company after spending 5 years at Pearl Investment Management. He is responsible for identifying potential Latin American investments. Previously, Sherman held jobs as a consultant for many Latin American companies and had plans to continue such consulting jobs without disclosing anything to Glenarm. After resigning, but before leaving his employment at Pearl, Sherman had encouraged Pearl customers to move their accounts to Glenarm. He contacted accounts Pearl had been soliciting for business. He also contacted potential clients that Pearl had rejected in the past as too small or incompatible with the firm’s business. Furthermore, he convinced several of Pearl’s clients and prospects to hire Glenarm after he joined Glenarm. He also identified materials from Pearl to take with him, such as, sample marketing presentations he had prepared, computer program models for stock selection, research materials on companies he had been following, a list of companies recommended by Sherman for potential investment which were rejected by Pearl, news articles for potential research ideas. Part 1) Which of the following statements concerning Sherman’s actions is TRUE? A) Sherman did not violate any Standard by taking away the news articles from his previous employer, Pearl, for potential research ideas. B) Sherman did not violate Standard IV(A) since members can engage in independent consulting practice as long as their employer policy does not specifically prohibit it. C) Sherman did not violate Standard IV(A) by soliciting clients that were rejected by Pearl either because they were too small or unsuitable as long as winning their business did not adversely affect Pearl. Part 2) Sherman’s attempt to lure away clients from Pearl while he was still employed at Pearl is: A) a violation of Standard IV(A) because it undermined Pearl’s business and its profit opportunities and caused damage to Pearl’s business. B) not a violation of Standard V(A) because it was conducted “after hours” on Sherman’s own time. C) not a violation of Standard IV(A) because they would have followed Sherman to his new firm anyway, and no harm to Pearl was done as a result. -------------------------------------------------------------------------------- Question 9 - 86559 A firm has three accounts for which shares of an IPO are suitable. These three accounts have asset size of $2,500,000.00 (A), $3,500,000.00 (B), and $4,000,000.00 ©, and have given advance indications of interest for 2,000 shares, 1,000 shares, and 1,000 shares respectively. There are 1,000 shares available. All of the following allocations are acceptable EXCEPT: A) 500 shares to A, 250 shares to B, and 250 shares to C. B) 333 shares to A, 333 shares to B, and 333 shares to C. C) 250 shares to A, 350 shares to B, and 400 shares to C. -------------------------------------------------------------------------------- Question 10 - 86664 The Standard on portfolio investment recommendation and actions requires a degree of diligence and expertise that is closest to the: A) Prudence Man Rule. B) New Prudent Investor Rule. C) Diligent Person Rule. -------------------------------------------------------------------------------- Question 11 - 86623 When comparing the fiduciary responsibility under the Prudent Investor Rule (PIR) with that under the Prudent Man Rule (PMR), which of the following is TRUE? The PIR does: A) permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties. B) permit the delegation of investment responsibility to third parties; the PMR does not permit the delegation of investment responsibility to third parties. C) not permit the delegation of investment responsibility to third parties; the PMR does permit the delegation of investment responsibility to third parties. -------------------------------------------------------------------------------- Question 12 - 87342 Fiduciary Investors held two portfolios for marketable equity securities: $50 million in Portfolio A was accounted for as available-for-sale. $50 million in Portfolio B was accounted for as trading securities. Part 1) Assume that Fiduciary transferred $10 million in trading securities from Portfolio B into Portfolio A. It was determined that subsequent to the transfer these securities had a market value of $8 million. If no previous write downs were made, Fiduciary must: A) charge $2 million to its income statement. B) do nothing to its income statement or equity section of its balance sheet. C) charge $2 million to the equity section of its balance sheet. Part 2) Fiduciary had an investment in Portfolio A that had a market value of $7 million accounted for as available for sale. It had originally charged $3 million when Portfolio A was marked-to-market in the equity account on Fiduciary’s balance sheet. Now, it has been determined that $1 million of the $3 million charge has been permanently impaired. Fiduciary should: A) reclassify $1 million by charging it against the income statement while recognizing an increase (credit) to the equity section of the balance sheet. B) reclassify $1 million by charging it against the income statement while recognizing a decrease (debit) to the equity section of the balance sheet. C) charge an additional $1 million against the income statement while recognizing an additional charge (debit) to the equity section of the balance sheet. -------------------------------------------------------------------------------- Question 13 - 87426 In reality, what best describes the real value of non-monetary assets and liabilities in a hyperinflationary environment? A) Typically not affected because their local currency-denominated values decrease to offset the impact of inflation. B) All non-monetary accounts are re-measured at the current rate. C) Typically not affected because their local currency-denominated values increase to offset the impact of inflation. -------------------------------------------------------------------------------- Question 14 - 87462 Which of the following general statements is most accurate with respect to the all-current method? Revenues: A) and operating expenses are translated at the current rate. B) are translated at the average rate while operating expenses are translated at the current rate. C) and operating expenses are translated at the average rate. -------------------------------------------------------------------------------- Question 15 - 87451 As compared to an operating lease, which of the following best describes the impact of a capital lease on earnings before interest and taxes (EBIT) and operating cash flow (OCF) according to U.S. generally accepted accounting principles? EBIT OCF A) Lower Higher B) Higher Higher C) Higher Lower -------------------------------------------------------------------------------- Question 16 - 87572 Lucky Strike Mining Corp. (LSMC) reports in a footnote to the financial statements that it is party to a variable interest entity (VIE) through which it leases heavy equipment. LSMC has chosen not to report a residual value guarantee of $120 million for the equipment because it is not required to do so under accounting standards. However, the standards will change next year. What is the appropriate analytical treatment of this residual value guarantee? A) Ignore the liability because current accounting standards do not require it to be included on the balance sheet. Include it in next year’s balance sheet adjustments. B) Increase long-term liabilities by $120 million and decrease equity by $120 million. C) Increase long-term liabilities and long-term assets by $120 million. -------------------------------------------------------------------------------- Question 17 - 87145 If Modigliani and Miller’s dividend irrelevancy theory is correct, what is the impact on a firm’s cost of capital and share price if its dividend payout increases? Cost of Capital Share Price A) None None B) An increase A decrease C) None A decrease -------------------------------------------------------------------------------- Question 18 - 87280 Stargell Industries follows a strict residual dividend policy. The company has a capital budget of $3,000,000. It has a target capital structure that consists of 30% debt and 70% equity. The company forecasts that its net income will be $3,500,000. What will be the company’s expected dividend payout ratio this year? A) 30%. B) 40%. C) 35%. -------------------------------------------------------------------------------- Question 19 - 87499 Oak Industries is considering making a bid for Tidy Trim Makers. The following data applies to the analysis: Oak Ind. Tidy Trim Pre-merger stock price $55 $80 Number of shares outstanding $400m $20m Pre-merger market value $22,000m $1,600m Estimated synergies $700m If Oak Industries is confident that the merger synergies will be at least $700m or greater, the merger price should be between: A) $1,600m and $2,300m and be paid for with stock. B) $700m and $2,300m and be paid for with cash. C) $1,600m and $2,300m and be paid for with cash. -------------------------------------------------------------------------------- Question 20 - 87517 The Larson Trust holds a broad portfolio of firms. One of the Trust’s holdings, Music World, is growing at roughly the same, or slightly slower rate as the overall economy. The Trust is considering selling the firm. What stage of the industry lifecycle is Music World most likely in, and which method of selling the firm is most probable? A) Decline phase, divestiture. B) Stabilization phase, equity carve-out. C) Stabilization phase, divestiture. -------------------------------------------------------------------------------- Question 21 - 104056 Senior analyst James Matin is instructing a room full of new hires in the finer points of equity valuation. He makes two statements: Statement 1: “When the return you expect for a stock doesn’t match the required return, make sure you calculate a convergence yield and build that into your valuation model.” Statement 2: “When you estimate the equity return of a thinly traded company, the Pastor-Stambaugh model is a better option than the Fama-French model.” Do the statements represent good advice? Statement 1 Statement 2 A) Yes No B) Yes Yes C) No Yes -------------------------------------------------------------------------------- Question 22 - 87803 If the three-stage dividend discount model (DDM) results in extremely high value, the: A) growth rate in the stable growth period is lower than that of gross national product (GNP). B) growth rate in the stable growth period is probably too high. C) transition period is too short. -------------------------------------------------------------------------------- Question 23 - 88584 Cognitive Products (CP) designs decision-making software. The book value of its assets is $3.2 billion, which is financed with $2.0 billion in equity and $1.2 billion in debt. Its before-tax cost of debt is 6.5%, while its relevant tax rate is 34%. CP has a cost of equity of 12.46%. Its abbreviated income statement is: Earnings before interest and taxes (EBIT) $213,000,000 Interest expense (30,000,000) Pretax income 183,000,000 Income tax expense (62,220,000) Net income $120,780,000 The residual income (RI) for CP is closest to: A) –$128,471,000. B) –$128,420,000. C) –$128,369,000. -------------------------------------------------------------------------------- Question 24 - 88566 Suppose you have collected the information in the table below for four comparable properties. Property Net Operating Income (NOI) Sales Price A $220,000 $1,150,000 B $240,000 $1,250,000 C $290,000 $1,750,000 D $165,000 ? According to your analysis, real estate investments will generate a 2% appreciation-adjusted return on investment, have a 1.75% liquidity premium, and a 1.25% risk premium. The prevailing rate on government bonds, net of real estate tax savings, is 5%. Using the built-up technique in conjunction with the direct income capitalization valuation technique, the estimated market value for Property D is closest to: A) $1,650,000. B) $1,300,000. C) $1,534,884. -------------------------------------------------------------------------------- Question 25 - 88118 Which of the following statements is most accurate concerning a convertible bond? A convertible bond’s value depends: A) only on interest rate changes. B) on both interest rate changes and changes in the market price of the stock. C) only on changes in the market price of the stock. -------------------------------------------------------------------------------- Question 26 - 88135 How is the price of an interest-only mortgage strip affected by declining mortgage rates in the market below the contract rate? The price of the interest-only strip: A) decreases. B) may increase or decrease. C) increases. -------------------------------------------------------------------------------- Question 27 - 88752 Calculate the no-arbitrage forward price for a 90-day forward on a stock that is currently priced at $50.00 and is expected to pay a dividend of $0.50 in 30 days and a $0.60 in 75 days. The annual risk free rate is 5% and the yield curve is flat. A) $50.31. B) $48.51. C) 49.49. -------------------------------------------------------------------------------- Question 28 - 88311 90 days ago the exchange rate for the Canadian dollar (C) was 0.83 and the term structure was: 180 days 360 days LIBOR 5.6% 6% CDN 4.8% 5.4%. A swap was initiated with payments of 5.3% fixed in C and floating rate payments in USD on a notional principal of USD 1 million with semiannual payments. 90 days have passed, the exchange rate for C$ is $0.84 and the yield curve is: 90 days 270 days LIBOR 5.2% 5.6% CDN 4.8% 5.4% What is the value of the swap to the floating-rate payer? A) $10,125. B) −$2,708. C) $3,472.
if you choose only advanced questions than it spits out only vignette questions.
BlueCollarHero Wrote: ------------------------------------------------------- > if you choose only advanced questions than it > spits out only vignette questions. Want me to edit this crunch?
- C 2) B 3) A 4) A 5) C 6) A 7) B 8) C, A 9) B 10) B 11) B
ditchdigger2CFA Wrote: ------------------------------------------------------- > BlueCollarHero Wrote: > -------------------------------------------------- > ----- > > if you choose only advanced questions than it > > spits out only vignette questions. > > > Want me to edit this crunch? nah this is perfectly fine…you are a good man DD
01 C 02 B 03 A 04 B 05 A 06 A 07 B 08.1 C 08.2 A 09 C 10 C 11 B 12.1 A 12.2 A 13 C 14 C 15 A 16 B 17 A 18 B 19 C 20 A 21 A 22 B 23 B 24 A 25 B 26 A 27 C 28 B
Yea, DD, you been very helpful to the board. 12) B, A 13) C 14) C 15) B 16) C 17) A 18) B 19) C 20) C 21) A 22) B 23) B 24) B 25) B 26) A 27) C 28) B I guess i’ll c ya guys here again next year, sigh, i think imma fail AGAIN.
‘Fail Again’ Did you take the exam last year? I failed too…
Yes, THIS IS MY THIRD TIME. 1st time - I didn’t study at all 2nd time - was going good, then a girl broke my heart around this time and lost all motivation 3rd time - just too stupid
Don’t worry mate, this is going to be the last attempt and then we go and kill L3 straight in 1 go.
Question 1 - #93520 Your answer: C was correct! Weather did not violate Standard II(A) because this prohibition applies to recipients who are not directly or indirectly associated with the firm the material nonpublic information is about. As a corporate insider, Weather can use insider information to benefit his firm’s shareholders. Winter violated Standard II(A) because the information is both material and nonpublic and she is required not to trade or cause others to trade on the information. This question tested from Session 1, Reading 2-II, LOS A… -------------------------------------------------------------------------------- Question 2 - #94588 Your answer: B was incorrect. The correct answer was A) Harrow must disclose to Dominion both his relationship with the president of Miracle and his ownership of shares in Wonder. Standard VI(A) requires that Harrow disclose to Dominion conflicts that reasonably could be expected to interfere with his independence and objectivity. Both Harrow’s relationship with the president of Miracle and his ownership of a substantial dollar amount of Wonder’s shares represent a potential conflict requiring prompt disclosure to Dominion. This question tested from Session 1, Reading 2-VI, LOS A… -------------------------------------------------------------------------------- Question 3 - #94803 Your answer: A was correct! The issue is similar to an allocation of soft dollars. Clearly, if the broker absorbs the loss, they expect to make up the difference in some way. However, since the error was on the part of Quantco Brokerage, Calaveccio is under no obligation to cover the cost of the trading error. Moreover, no reasonable observer expects that there exists any implied future allocation of trades to Quantco in return for correcting their own mistake. There is no violation of Standard III(A), Loyalty, Prudence, and Care. This question tested from Session 1, Reading 2-III, LOS A… -------------------------------------------------------------------------------- Question 4 - #94694 Your answer: B was incorrect. The correct answer was A) should not attend unless he pays for the trip himself. Under Standard I(B) gifts, benefits, compensation, or consideration cannot be accepted if the purpose was to influence or reward. Token items are OK. Worldwide Brokerage is not a client of Calaveccio but an entity that he does business with. As such Worldwide could influence Calaveccio to always do business with them which could be to the detriment of his fund if the execution of their trades starts to deteriorate compared to their competitors. This question tested from Session 1, Reading 2-I, LOS B… -------------------------------------------------------------------------------- Question 5 - #94688 Your answer: A was incorrect. The correct answer was B) is not a violation of the Code and Standards. The potential change in the law is only a proposal at this stage. There is no violation as long as Dolphin is following the regulations currently in force. This question tested from Session 1, Reading 2-I, LOS A… -------------------------------------------------------------------------------- Question 6 - #94655 Your answer: A was correct! The analyst is covered by the strictest of the following laws and rules: his own country’s, the foreign country’s or CFA Institute’s Code and Standards. This question tested from Session 1, Reading 2-I, LOS A… -------------------------------------------------------------------------------- Question 7 - #86671 Your answer: B was correct! Process-oriented means that there is a focus on the investment process, and that this is embodied in an investment policy statement that considers the client’s circumstances and risk-tolerance. Dynamic means that the investment process should change over time to take into account changes in the client’s circumstances. A review of the client’s circumstances is mandated to occur no less frequently than annually–more often if there is a major change in circumstances. This question tested from Session 2, Reading 10, LOS b. -------------------------------------------------------------------------------- Question 8 - #86607 Part 1) Your answer: C was correct! Standard IV(A) addresses Loyalty to the Employer and depriving the employer of profit opportunities is a violation of this standard. Because Pearl had no interest in rejected clients and had turned their profit potential down already, soliciting them is not a violation. Taking away news articles and computer program models is a violation of Standard IV(A) because Sherman took away employer property, which could be used by Pearl or Sherman’s replacement. Engaging in independent consulting practice is a violation IV(A) because Sherman not only compromised his independence and objectivity, but also did not obtain explicit written consent of his new employer, Standard IV(B), Additional Compensation Arrangements. This question tested from Session 2, Reading 5, LOS b. Part 2) Your answer: A was correct! An attempt, successful or not, to lure away existing clients of the current employer is a violation of Standard IV(A) as it causes damage to the employer’s business. Others are incorrect because: “After hours” solicitation is not an excuse if it damages the employer’s business; the fact that Pearl’s clients were agreeable does not absolve Sherman of Standard IV(A) violation; even if Pearl’s clients would have followed Sherman to his new employer anyway, Sherman, by soliciting such clients, damaged his employer’s business. The focus is on Sherman’s actions. This question tested from Session 2, Reading 5, LOS b. -------------------------------------------------------------------------------- Question 9 - #86559 Your answer: C was correct! Allocating shares on the basis of account size effectively discriminates on the basis of larger (i.e., favored) clients of the firm. This question tested from Session 2, Reading 8, LOS a. -------------------------------------------------------------------------------- Question 10 - #86664 Your answer: C was incorrect. The correct answer was B) New Prudent Investor Rule. The Standard requires elements of portfolio theory and expertise that are foundations of the New Prudent Investor Rule. This question tested from Session 2, Reading 10, LOS b. -------------------------------------------------------------------------------- Question 11 - #86623 Your answer: B was correct! Under the PIR, delegation of investment to third parties is permitted, but this is not allowed under the PMR. This question tested from Session 2, Reading 10, LOS a. -------------------------------------------------------------------------------- Question 12 - #87342 Part 1) Your answer: A was incorrect. The correct answer was C) charge $2 million to the equity section of its balance sheet. Reclassifications allow investment managers latitude in transferring investment assets from “trading” to “available-for-sale,” thus realizing losses from the income statement to the equity section of the balance sheet. This question tested from Session 5, Reading 21, LOS d. Part 2) Your answer: A was correct! When there is an impairment of a previously realized charge that only affected the equity section of the balance sheet, a reclassification charge must be made to transfer the permanent impairment charge to the income statement. This accounting entry is a charge against the income statement with a corresponding credit or increase to the equity section. This question tested from Session 5, Reading 21, LOS d. -------------------------------------------------------------------------------- Question 13 - #87426 Your answer: C was correct! Typically not affected because their local currency-denominated values increase to offset the impact of inflation (i.e., real estate values typically rise with inflation). This question tested from Session 6, Reading 24, LOS e. -------------------------------------------------------------------------------- Question 14 - #87462 Your answer: C was correct! The basis for using the all current method is when Functional Currency is NOT the same as Parent’s Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent’s Presentation Currency. As a general rule for the current method (also known as the all-current method), all revenues and operating expenses are translated using the average rate. This question tested from Session 6, Reading 24, LOS c. -------------------------------------------------------------------------------- Question 15 - #87451 Your answer: A was incorrect. The correct answer was B) Higher Higher With an operating lease, rent expense is included in EBIT. In a capital lease, rent expense is replaced by depreciation expense and interest expense. Since EBIT is calculated before interest and taxes, EBIT is higher with a capital lease. In an operating lease, the rent payment is included in operating cash flow. With a capital lease, the rent payment is replaced by principal and interest. Since principal payments are considered financing activities, operating cash flow is higher with a capital lease. This question tested from Session 7, Reading 25, LOS a. -------------------------------------------------------------------------------- Question 16 - #87572 Your answer: B was incorrect. The correct answer was C) Increase long-term liabilities and long-term assets by $120 million. Increase long-term liabilities and long-term assets by $120 million. This question tested from Session 7, Reading 27, LOS a. -------------------------------------------------------------------------------- Question 17 - #87145 Your answer: A was correct! If investors do not consider dividends to be relevant, the dividend payout will not affect the required rate of return. If the required rate of return does not change, the value of a firm will be unchanged despite the change in its dividend payout rate. This question tested from Session 8, Reading 30, LOS m. -------------------------------------------------------------------------------- Question 18 - #87280 Your answer: B was correct! In order to maintain the optimal capital structure, new projects will be financed with the same mix of debt and equity. Therefore, if the capital budget is $3,000,000 for next year the equity portion will be 70% of $3,000,000, or $2,100,000. The remainder will be financed with debt. If Net Income is $3,500,000 then dividends will be $1,400,000. (Dividends = Net Income − Retained Earnings = $3,500,000 − $2,100,000). The dividend payout ratio is equal to dividends divided by net income. $1,400,000 / $3,500,000 = 0.40 or 40%. This question tested from Session 8, Reading 30, LOS j. -------------------------------------------------------------------------------- Question 19 - #87499 Your answer: C was correct! The merger price should fall within the range of the pre-merger value of the target ($1,600m) and the pre-merger value plus the estimated synergies ($2,300m). Since the acquirer is confident that the synergies will be $700m or greater, they will most likely seek to pay in cash so that they capture any upside for themselves. This question tested from Session 9, Reading 32, LOS n. -------------------------------------------------------------------------------- Question 20 - #87517 Your answer: A was incorrect. The correct answer was C) Stabilization phase, divestiture. Music World appears to be in the stabilization phase, as it is growing at approximately the same rate as the overall economy. If it were in the decline phase, growth would be negative. Divestiture, most likely to a firm in a similar line of business, is more likely than an equity carve-out. A divestiture would allow the buyer to consolidate market share. An equity carve-out would involve a public offering of shares with only marginal attractiveness as a stand-alone enterprise. This question tested from Session 9, Reading 32, LOS d. -------------------------------------------------------------------------------- Question 21 - #104056 Your answer: A was incorrect. The correct answer was C) No Yes Statement 1 is not good advice because in some cases market inefficiencies will prevent the price from converging with intrinsic value. As such, Matin’s advice is not sound. Statement 2 is good advice, as the Pastor-Stambaugh model adds a liquidity factor to the traditional Fama-French model. Such a liquidity factor would be useful in the analysis of a thinly traded stock. This question tested from Session 10, Reading 36, LOS d. -------------------------------------------------------------------------------- Question 22 - #87803 Your answer: B was correct! If the three-stage DDM results in an extremely high value, either the growth rate in the stable growth period is too high or the period of growth (high plus transition) is too long. To solve these problems, an analyst should use a growth rate closer to GNP growth and use shorter high-growth and transition periods. This question tested from Session 11, Reading 41, LOS a. -------------------------------------------------------------------------------- Question 23 - #88584 Your answer: B was correct! The dollar-based equity charge is: equity charge = equity capital × cost of equity = $2.0 billion × 0.1246 = $249,200,000. RI is calculated as: Net Income $120,780,000 (Less) Equity charge (249,200,000) RI −$128,420,000 This question tested from Session 12, Reading 45, LOS a, (Part 1). -------------------------------------------------------------------------------- Question 24 - #88566 Your answer: A was correct! C0 = pure rate + liquidity premium + recapture premium + risk premium = 5 + 1.75 + 2 + 1.25 = 10%. MVD = NOID / CD = 165,000 / 0.10 = $1,650,000 This question tested from Session 13, Reading 47, LOS b. -------------------------------------------------------------------------------- Question 25 - #88118 Your answer: B was correct! The value of convertible bond includes the value of a straight bond plus an option giving the bondholder the right to buy the common stock of the issuer. Hence, interest rates affect the bond value and the underlying stock price affects the option value. This question tested from Session 14, Reading 55, LOS j. -------------------------------------------------------------------------------- Question 26 - #88135 Your answer: A was correct! When mortgage rates decline, prepayments are expected to increase. This results in a deterioration of the expected cash flows from an interest-only strip. This question tested from Session 15, Reading 56, LOS j. -------------------------------------------------------------------------------- Question 27 - #88752 Your answer: C was correct! The present value of expected dividends is: $0.50 / (1.0530 / 365) + $0.60 / (1.0575 / 365) = $1.092 Future price = ($50.00 − 1.092) × 1.0590 / 365 = $49.49 This question tested from Session 16, Reading 60, LOS b. -------------------------------------------------------------------------------- Question 28 - #88311 Your answer: B was incorrect. The correct answer was A) $10,125. The present value of the USD floating-rate payments is (1.028 / 1.013) = 1.014808 × 1,000,000 = 1,014,807. The present value of the fixed C payments per 1 CDN is (0.0265 / 1.012) + (1.0265 / 1.0405) = 1.012731 and for the whole swap amount, in USD is 1.012731 × 0.84 × (1,000,000 / 0.83) = $1,024,932. −1,014,807 + 1,024,932 = $10,125. This question tested from Session 17, Reading 63, LOS d.
wow, just wow…I f’ed up this crunch… 20 out of 30
I’m glad to help out during the crunches. You guys/gals are going to see how dumb I really am once I start reviewing and asking questions.
don’t worry ditch - you can easily pull off a clean sweep in 8 weeks.
22/30 most of my mistakes in Ethics … which I have not done yet…