Which exam are you hoping for...?

Of course the one you pass. But given the 2007, 2008, and 2009 exams that have been officially released, which one was “easiest” in retrospect? I’d have to say that 2009 was pretty flipping tough. I looked at it for the umpteenth time today and still am baffled at how people passed it. Beyond that, 2007 and 2008 were reasonably passable.

really? I would have said that 2009 was the easiest. Guess it depends on your strengths

I bombed 2007… but it was my first time looking at real IPS questions It did markedly better on 2008 (though i still failed by 2 points) and i haven’t taken 2009 yet. But after looking over 2008 I see what I did wrong and it doesn’t seem to terribly difficult so i vote for that.

2009 def have some tough questions. WACC, Derv, Econ, etc. The pension stuff was and foundation stuff was pretty straight forward. Portfolio rebalancing was pretty ez imo. They did make 2009 AM though and PM much easier. I’m guessing most of the people who got 60s on AM and killed PM passed.

I scored highest on 09, but probably would feel most comfortable with the 07 style.

I actually thought 08 was pretty straight forward… going to re-take 09 tomororw though as I have not taken it in about a month, so I will see how that goes…

If I open the paper, and it’s ‘beginners german 1’ I’ll be delighted.

Would we pass Level 1 if we sat it this year?

I think it really has more to do with what topics come up. I find derivatives and FI sooo much easier to handle in MC format so for me, I will be thrilled to see see GIPS, equity, performance eval, monitoring/rebalancing, or econ/CME in the morning sections. Alternatives, FI, derivatives, and risk management tend to give me fits when they show up in AM so I’d be quite happy to see those later on. Looks like 2009 fits that bill pretty well so we’ll see how I do on that tomorrow! :slight_smile:

WACC really isnt that bad. I spent a while teaching myself how to do it back in February when I read it for the first time (and had no idea what was going on. Its actually just algebra for the most part: For example, you are given operating assets of 5mm, debt of $3mm and equity of 2mm. The equity beta = 2, debt beta will always be 0, so on the right side of the equation, you have L + E = 5mm beta on the right side of your balance sheet = (3/5) * debt beta of 0 + (2/5) equity beta of 1 = beta of 0.8 This effectively unlevers equity beta, leaving you an asset beta of 0.8 If the risk free rate is 3% and the equity risk premium is 5%, WACC in this scenario is 3 + .8*(5) = 7% excluding the pension fund. Now, you decide to bring in a fully funded pension plan with debt and equity of 5mm. your balance sheet will add pension assets and pension liabilities (pension liabilities will again have a beta of 0). If we assume that the pension assets have a beta of .5, we will again have to unlever the equity beta and back into operating assets. The right side of the balance sheet will now have debt of $3mm, pension liabilities of $5mm and equity of $2mm. Equity now comprises $2mm out of $10mm (debt+pension liab+ equity), meaning that unlevered beta has lowered to (2/10)*2 = 0.4 Solving again for operating assets: Pension assets beta = 0.5, total asset beta =0.4 (from above). Solve for 0.4 = 5/10 * 0.5 + 5/10 * op asset beta operating asset beta = 0.3; as such, the new WACC = 3% + 0.3 *( 5%) = 4.5%, which is lower than the 7% shown above. Without accounting for pension beta, the company has used a hurdle rate which is too high, and as such they have rejected some potentially profitable projects. Hopefully this clicks with you guys…i kind of did this on the fly, so if something doesnt make sense, let me know.

willispierre Wrote: ------------------------------------------------------- > WACC really isnt that bad. I spent a while > teaching myself how to do it back in February when > I read it for the first time (and had no idea what > was going on. Its actually just algebra for the > most part: > > For example, you are given operating assets of > 5mm, debt of $3mm and equity of 2mm. The equity > beta = 2, debt beta will always be 0, so on the > right side of the equation, you have > > L + E = 5mm > beta on the right side of your balance sheet = > (3/5) * debt beta of 0 + (2/5) equity beta of 1 = > beta of 0.8 > > This effectively unlevers equity beta, leaving you > an asset beta of 0.8 > > If the risk free rate is 3% and the equity risk > premium is 5%, WACC in this scenario is 3 + .8*(5) > = 7% excluding the pension fund. > > Now, you decide to bring in a fully funded pension > plan with debt and equity of 5mm. your balance > sheet will add pension assets and pension > liabilities (pension liabilities will again have a > beta of 0). If we assume that the pension assets > have a beta of .5, we will again have to unlever > the equity beta and back into operating assets. > > The right side of the balance sheet will now have > debt of $3mm, pension liabilities of $5mm and > equity of $2mm. Equity now comprises $2mm out of > $10mm (debt+pension liab+ equity), meaning that > unlevered beta has lowered to (2/10)*2 = 0.4 > > Solving again for operating assets: Pension > assets beta = 0.5, total asset beta =0.4 (from > above). Solve for 0.4 = 5/10 * 0.5 + 5/10 * op > asset beta > > operating asset beta = 0.3; as such, the new WACC > = 3% + 0.3 *( 5%) = 4.5%, which is lower than the > 7% shown above. > > Without accounting for pension beta, the company > has used a hurdle rate which is too high, and as > such they have rejected some potentially > profitable projects. > > Hopefully this clicks with you guys…i kind of > did this on the fly, so if something doesnt make > sense, let me know. I agree, I really hope their is a pension / wacc beta question…it is sooo much easier if you just draw the balance sheet and put the pension asset and pension liabilities…like Willispierre said…it all algebra after that.

“beta on the right side of your balance sheet = (3/5) * debt beta of 0 + (2/5) equity beta of 1 = beta of 0.8” Think that equity beta should be 2 in this problem. Otherwise, great job Willis. I was really clueless on that but it 100% clicks after seeing what you wrote. I doubt it will come up again this year, but thanks for the help if it does. I might be able to scratch out a few points on the problem.

Will, that’s some great stuff. I’m going to take my time to read that through later tonight. I don’t think that they will test it this year (know I’m going to eat my words).

CFAdreams Wrote: ------------------------------------------------------- > “beta on the right side of your balance sheet = > (3/5) * debt beta of 0 + (2/5) equity beta of 1 = > beta of 0.8” > > Think that equity beta should be 2 in this > problem. > > Otherwise, great job Willis. I was really > clueless on that but it 100% clicks after seeing > what you wrote. I doubt it will come up again > this year, but thanks for the help if it does. I > might be able to scratch out a few points on the > problem. yes, you a right, should be an equity beta of 2…went back and changed it and obviously missed this spot.

2006 seemed relatively easy 2007 seemed fair 2008 was super long 2009 was the lowest pass rate ever Pick your poison. All of them will seem really difficult on game day. The pressure at level III is unlike the other levels.

I actually thought about this today - I have a friend taking level I. I’d have to say yes, but it might be close. a_thinking_ape Wrote: ------------------------------------------------------- > Would we pass Level 1 if we sat it this year?

I think we would pass today… Look at it this way, Ethics and GIPS would be lay-ups, and thats like 20% of the exam. Then Fixed Income and Derivatives have only built on level one concepts, so we’d be pretty money there… The problems would come in Financial statements and quant, but i bet we would fair pretty well. You never forget that dupont equation.

CFAdreams Wrote: ------------------------------------------------------- > I think we would pass today… Look at it this > way, Ethics and GIPS would be lay-ups, and thats > like 20% of the exam. > > Then Fixed Income and Derivatives have only built > on level one concepts, so we’d be pretty money > there… The problems would come in Financial > statements and quant, but i bet we would fair > pretty well. You never forget that dupont > equation. I would smoke level I right now… I’d bomb level two. Screw FS Synthesis.

Yeah, thank the man up above that I am not taking LII. I’d bomb it like those kamikaze pilots over Pearl Harbor on Dec 7th.

Would definitely pick '08 out of the bunch. Thought it had the easiest (relatively) IPS - indiv and instit. Would looove to get DB pension for institutional IPS on saturday (don’t think it’s gonna happen tho) I think '07 was the hardest…that life insr question was pretty tough I thought. There were some questions in that exam that I’m pretty sure I would get wrong regardless of how much I studied… not the case for '08.