# Seriously, Exam Writers?

Running through yet another mock today and feeling pretty good about things. Getting lots right and the ones I’m getting wrong are good learning experiences.

Then I hit an equity question in the PM mock that made me question everything I’ve been doing for the past six months.

The first question in the problem set asks for the SGR. No problem - I know the formula for sustainable growth rate! Wait, retention ratio isn’t provided. No problem! I know how to calculate a retention ration from an income statement and there’s an income statement. Let’s get that SGR! Wait a minute, there’s no ROE. No problem - I love the DuPont equation! Let’s plug and chug, baby.

Wait, my calculated SGR doesn’t show up in any of the answer options. Okay, don’t panic, probably made a mistake in the calculations, let’s try them again. Yes! silly error in the first term of the DuPont equation. Now we’ve got this. Let’s fill the bubble and move on.

F*%&! my answer still doesn’t match any of the answer options. WTH?

Okay, maybe I missed some key piece of information in the narrative. Nope, no relevant details in the narrative. Clearly one of my inputs isn’t right. Let’s have another look. They all seem pretty straight forward - dividends, net income, sales, assets… Wait a sec - something weird going on with equity. Assets - liabilities doesn’t equal total equity provided. Hmm… that’s weird. Maybe I’m supposed to calculate equity. Nope, that doesn’t work either.

I’ll save you the pain of the remaining machinations and pretzels I turned myself in to trying to figure out how I could possibly not, after almost six months of studying, cramming, practicing, etc, etc, find the answer to this relatively straightforward question. If I couldn’t answer this one, what chance did I have on the tricky ones? Clearly, I’ve wasted hundreds of hours and thousands of dollars - I’m not cut out for this.

Finally (it was killing me) I had to check the answer key and found that the equity term in the DuPont equation was meant to be not the total equity (given) or the number calculated by subtracting liabilities from assets. NO, they wanted you to use "Common Shareholder’s Equity) - a number provided in the table, but not something I’ve ever seen used in DuPont before.

So, to arrive at the right anser to this question (and get any credit at all), you have to know a) the SGR equation, b) how to calculate the retention ratio, c) the DuPont equation, AND that “equity” in the DuPont equation may mean any of a variety of definitions of equity.

CFA exam writers (mocks and the real things) belong in a special circle of ****.

Are you talking about a Schweser Mock? I’ve found the schweser mocks at L2 are very ambiguous at times.

That is a PM mock exam right?

I couldn’t get it either.

That one was the easiest. No idea why you couldn’t calculate it. I mean ROE = net income / shareholders equity, every wannabe analyst should know this already.

Surely use NI/Eq to calculate ROE?

No need for DuPont in any of the mocks I’ve seen.

Furthermore, this is not appropriate. Please use the industry ROE

What’s wrong with DuPont? It’s a simple concept. Doesn’t matter of short or long equation version. It is straightforward.

I remember that question. It is an annoying trick but now you know and won’t forget if you see it on exam.

I am with Cindy Lauper. I know for this one and also lost 1 minute and half for all mentioned steps until I had realized what was supposed to do.

Agreed - very nuanced and subtle. I’m thankful that they didn’t have the response with total equity in the denominator otherwise I would have chosen that answer… and I hope that’s the case on the actual exam as well!