# Some Questions

Taking a quick stab at it: A A D

Q2: I think D would be the answer Short Run: Rising prices, CR FIFO > CR LIFO LIFO: FIFO EI 20 COGS: 20 COGS 30 EI: 30 So CR Fifo > CF Lifo Long Run: Falling prices: CR LIFO > CR FIFO LIFO: FIFO EI 30 COGS: 30 COGS 20 EI: 20 So CR Lifo > CF Fifo So from the short run to the long run – The CR LIFO would rise. and this difference would continue to increase as Inv prices in the future would keep dropping. Am I wrong in the analysis somewhere?

The correct answers are: A/A/A Kevin even I got D for the third one here is the explanation of Schweser: “Lang violates Standard III(B), Fair Dealing, which imposes the requirement to start trading on the clients’ portfolios only after the information is disseminated to all clients.” Why it is not A? Also could you more explanation for your answer to question number 1. Thanks.

Hari, for Q#3, I would still stick with D. Not really sure why its A :S For Q1 this is what I did: So you essentially run two hypothesis tests: Note: Z table is used because you are given the population std deviation. Std error = 1.5 / 100^0.5 = 0.15 1) Avg turnover <30 -> Test statistic is equal to : (24.2-30)/0.15 = -38.666 This was not mentioned anywhere in the answers, so I moved on to the other test. 2) Avg turnover <25 -> Test statistic is = -5.3333 The critical value from the Z-table was 1.289 I believe… So since -5.3333 is < 1.289, Brickley achieves a turnover rate of less than 25% and gets the 50% bonus. Hope this helps.

On second thoughts the answer is definitely A. I totally missed the part of the question where it mentioned that Lang is also from the same firm. This totally rules out the question of independence and objectivity, since they are most likely on the same team. This only leaves out A as the most correct answer. cpk…I’m trying to figure out an easy way to explain Q2. You got the first part right for sure, but the second part is not exactly correct. I would see it like this: The rate at which FIFO ending inventory grows will be obviously slower, thus bringing down the FIFO Current Ratio, and the LIFO would actually climb slightly higher (or even possibly not change so much) since it will hold inventory at relatively higher prices than the current prices. So the GAP between the two different ratios are actually narrowing. I’m sure my explanation lacks clarity, but I hope it helps you -somewhat- to understand what’s happening.

For Q2, it says lower inflation and not falling prices. So prices are still increasing but at a lower rate. I think that A will be true assuming rising inventory levels. If the inventory levels are stable, it may not be true: For eg. Rising inventory levels: Assuming Sales Price of 200 BI Period 1: 1 unit @ 100: Period 1: Purchase 1 unit @104 Sell 1 unit LIFO FIFO COGS 104 100 EI 100 104 „»FIFO Inventory more by 4 For simplicity If you assume a liability of 104 (just purchase, which is probably a simplistic assumption) you get Cr of .96 and 1 Period 2: Purchase 2 unit at 105 Sell 1 unit LIFO FIFO COGS 105 104 EI 205 210 „»FIFO Inventory more by 5 Applying same logic from Step 1, you get CR of .97 and 1 „» gap is reducing Stable: Period 2: Purchase 1 unit at 105 (not 2) Sell 1 unit LIFO FIFO COGS 105 104 EI 100 105 „»FIFO Inventory more by 5 so gap is increasing not decreasing) Applying same logic from Step 1, you get CR of .95 and 1 „» gap is increasing Am I missing something?