Exam WeightingsSections on FinalQuestionsTopicPercentMinutes1 to 18Ethical and Professional Standards15%2719 to 32Quantitative Methods12%2133 to 44Economic Analysis10%1845 to 80FSA & Corporate Finance28%5181 to 114Asset Valuation30%54115 to 120Portfolio Management5%9Sections on your resultsEthical and Professional Standards (total)15%Quantitative Methods12%Economics10%Financial Reporting and Analysis20%Corporate Finance8%Equity Investments10%Fixed Income12%Derivatives5%Alternative Investments3%Portfolio Management5%QuestionTopic1Quantifying Cash Flows2Weighted Average Shares Issued3Retained Earnings4Valuing Inventory5Cost of Equity6WACC7NPV & IRR8NPV & IRR9Bond Equivalent Yield10WACC11Required Rate of Return12Pure Play Method13Operating Cycle14Trade Credit15Stock Market Types16Margin Calls17ROI18Abnormal Return19HHI20Dividend Growth Rate21Stock Valuation22PE Ratio23Bond Duration24Tax Equivalent Bond Yield25Bond Valuation26Bond Valuation Zero Coupon27T-Bill Yield28Bond Dirty Price29Spot Rate Curve30Portfolio Duration31Free Cash Flow32Accounting for Bonds33Diluted Earnings Per Share34Percentage of Completion35Comprehensive Income36Accounting for Lease Expenses37Expected Return38Expected Return and STD39Over/Under Valued40After Tax Cash Flow41Continuously Compounded Return42Standard Error of Sample Mean43EPS44Lease Expenses45Operating Leverage46Bond Yield47Bond Yield48FRA49STD Portfolio50Correlation of Returns51HHI52EPS53Profitability Index54Stock Valuation55Stock Valuation56Yield to Worst57BPS Shift58Gold Futures59Exotic Options60Beta61Net Cash Provided By62Degrees of Freedom63Inventory Turnover64Comprehensive Income65Sustainable Growth Rate66Market Value of Index67Bond Valuation68Deferred Tax Liability69ROE70Market Weighted Index71P/E Estimate72Valuing Calls73Signifigance Level74Accounting for Inventory75Margin Return76Portfolio STD77Equity Risk Premium78FRA79EPS Compound Annual Rate80Weighted Average Shares Issued81WACC82Stock Valuation83Bond Valuation with Forward Rates84Currency Swap8586T-Bill Effective Annual Yield87Probability88Covariance Matrix89FSA90FSA91Weighted Average Shares Issued92After Tax Cost of Debt93Income Tax Expense94Average Investment in Receivables95Estimated Inventory Days96Implied P/E Ratio97Market Value of Index98Future Forward Rate99Swaps100Cash Flows101Roy's Safety First Ratio102T-Statistic103Time Value of Money104Holding Period Return105Elasticity of Demand106Debt breakpoint107CAPM108Bond Valuation109Producer Surplus110Geometric Mean111DuPont Method112Accounting for Bonds113Discounted Payback Period114Evaluating portfolio manager performance115Expected rate of return116Bond Equivalent Yield117Pure expectations theory118Clean price of bond119Foreign Currency Swap120Equity Swap

&CExam Weightings and my color codesAndrew McKay:Question 85 was identical to question 60, so I need a new #85

QuestionsQuestion NumberSourceQuestion1BSAS 2007 MorningUse the following information to answer questions 52 to 53(in millions of US dollars)Cash collections on receivables1300Cash dividends on common stock paid35Cash dividends on preferred stock paid120Cash purchases of inventories750Cash receipts of dividends12Depreciation expense92Interest payments35Payments of expenses300Proceeds from issurance of common stock650Proceeds from bridge financing700Proceeds from sale of equipment200Repurchasing of issued shares300Purchase of land600Purchase of trading securities1752The net cash provided by operating activites is closest to:A$210,000,000B$198,000,000C$222,000,000D$270,000,00053The net cash provided by financing activities is closest to:A$750,000,000B$800,000,000C$850,000,000D$900,000,0002BSAS 2007 MorningTime-Warner had the following information related to its common stock for the year.5431-DecNumber of shares outstanding100,00029-FebNumber of shares issued1500029-Jun3.5% cash dividend declared30-JunNumber of shares reacquired1200030-SepTwo-for-one stock splitWeighted average shares outstanding for the year is closest to:A212,000B213,000C225,000D150,0003BSAS 2007 MorningThe following information was abstracted from the records of the Vancouver Corp:48Total income since incorporation$1,200,000Total cash dividends paid240,000Total par value of 20% stock dividends ditributed (market value of $125,000)75,000Excess of proceeds over par value of stock issued125,000The current balance of retained earnings is closest to:A$775,000B$815,000C$835,000D$855,0004BSAS 2007 MorningThe Yukon Corporation incurred the following transactions for February, 2007. Yukon is unsure of whether to use LIFO, FIFO or the average cost method. The inventory method that shows the highest profits among the alternatives would show ending inventory closest to:62Unit CostFeb. 1stUnits on Hand 400$7.00Feb. 8Received 800 units, total on hand 1200$7.30Feb. 17Units Sold 500, On Hand 700Feb. 25Received 200 units, On Hand 900$7.70Feb. 28Units Sold 400, On Hand 500A$3,700B$3,600C$3,500D$10,1805CFAI Chapter 45Using the following information what is the approximate cost of equity capital for Sears Mining if the company pays a dividend of $2.15 next year, has retention rate of 73 percent, a ROE of 13.5 percent and a stock price of $47?3A4.50%B6.17%C7.96%D9.18%6CFAI Chapter 45John Smith, CFA has been assigned the task by his employer Smothers Brothers Brokerage to determine the weighted cost of capital of Zulu Corp. He has been provided the following information:7Before-tax cost of new debt8.50%Corporate Tax Rate37%Target debt-to-equity ratio0.8Current Stock Price$32Next year's dividend$1.75Estimated growth rate6.73%Estimated Beta1.3WACC is closest to:A5.6%B6.1%C6.5%D7.5%7CFAI Chapter 44Given the following cash flows calculate the NPV and IRR allowing for a required rate of return of 10%.1YearCash Flow0-$80,000.001$17,000.002$17,000.003$50,000.004$25,000.005-$5,000.00NPVIRRA$1,040.6010.55%B$7,249.8113.54%C$4,979.9410.55%D-$7,855.334.34%8CFAI Chapter 44Projects 1 and 2 have similar costs but differing patterns of future cash flows. Given the cash flows as well as the NPV and IRR and a required rate of return of 10 percent which of the two mutually exclusive projects should you invest in?12YearProject 1Project 20-100-100140024003400440200NPV$24.36$33.28IRR22%19%AInvest in Project 1 because it has the larger IRRBInvest in Project 2 because it has the larger NPVCInvest in Project 1 because it has the shorter payback periodDInvest in Project 1 because it has the smooth yearly cash flows9CFAI Chapter 46Calculate the bond equivalent yield for a 185-day U.S. Treasury bill that has price of $9650 and a face value of $10000.4A6.47%B6.91%C7.16%D7.06%102007 BFS AfternoonNBC's capital structure includes $20 million in debt and $10 million in equity. Their bonds currently have a yield-to-maturity of 6.5 percent. The firm's Beta has been estimated at 1.25. The risk free rate is currently 5 percent and NBC must pay a risk premium of 8 percent. If their corporate tax rate is 37 percent, the firm's weighted average cost of capital is closest to:75A7.02%B7.65%C9.71%D11.25%112007 BFS AfternoonVision Critical concluded a market research study on a five-year project. The project's expected net present value is $75,000, its equivalent annual cost is $22,000 and depreciation is $4500 per year. If the firm pays taxes at 35 percent then its required rate of return is closest to:79A5.36%B9.67%C14.29%D22.55%12CFAI Chapter 45An analyst gathered the following information about a private company and its publicly-traded competitor:26Private CompanyPublic CompanyTax Rate32.00%37.00%Debt/Equity0.950.85Equity BetaN.A.1.6Using the pure-play method, the estimated equity beta for the private company is closest to:A1.5B1.7C1.85D1.9513CFAI Chapter 46Given the following financial statement data, calculate the operating cycle for Harley Davidson.2In MillionsCredit Sales$32,000Cost of goods sold$26,000Accounts receivable$3,000Inventory - Beginning balance$2,000Inventory - Ending balance$2,500Accounts payable$1,650The operating cycle for this company is closest to:A70B72C74D7614CFAI Chapter 46Suppose a company uses trade credit with the terms 3/15, net 45. If the company pays its account on the 45th day, the effective borrowing cost of skipping the discount on day 15 is closest to:6A40%B42%C44%D46%15Musk's Memory BanksJimmy James, CFA, has been hired by the government of Kerblackistan to advise them in setting up their first stock market. He recommends a market where a few licensees determine the bid and ask spread and an index made up of the 45 largest companies in Kerblackistan. The index will reflect the importance these large companies have on the Kerblackistani economy. They will be the companies with the most shares issued.Is Jimmy James Recommending:Type of MarketType of IndexACall MarketUnweightedBContinuous Dealer MarketPrice WeightedCContinuous Dealer MarketValue WeightedDContinuous Auction MarketValue Weighted16BFAS Morning SessionSarah Sutherland, an investor, purchases on margin 10,000 share of Beta Corp. for 25 dollars a share. Her broker said there would be zero commision on such a large purchase, however the margin requirement for the purchase would be 50%, the maintenance margin would be 35% and the call money rate is 4.5%. One year later shares of Beta Corp. are trading at 19.50 per share. Which of the following is most accurate?82Initial margin amount ($)Total Return on Investment (%)Received margin call?A$125,000-48.50%NoB$125,000-44%YesC$250,000-24%YesD$250,000-22%No17BFAS Morning Session90Jill purchased a stock for $35 last year and it currently trades at $40. During her investment horizon, she received $1.50 in dividends. If the stock's Beta is 1.25, her return during the year is closest to:A16 percentB17 percentC18 percentD19 percent18Schweiser = Reading 54Jill Smith CFA has gathered the following data about a stock:10Estimated Beta1.37Actual Return10.90%Market Rate of Return6%Risk Free Rate3.50%Compute the stock's abnormal rate of return.A3.55%B3.975%C4.25%D4.375%19CFAI 58An analyst gathered the following information about market shares in two industries:3Market Share in Industry 1Market Share in Industry 2The top firm has 42%The top three firms all have 21%The next two each have 9%The next two have 8% eachThe other eight all have 5%The last three have 7% each.Which industry has the highest:four frim concentration rationHefindahl IndexA11B12C21D2220BFAS Morning87A company released its latest financial statements:Net Income$2,500,000Dividends declared$850,000Total Equity$6,500,000Total Debt$4,500,000Total Assets$14,000,000The company's dividend growth rate is closest to:A24%B25%C26%D27%21BFAS Morning89Yakamichi Corp. paid $1.75 annual dividend last year and distributed 67 percent of its earnings to shareholders. The firm's projected ROE is 12.5 percent. If investors require 14 percent rate of return on this stock, the estimated value of Yakamichi's stock is closest to:A$17.00B$17.75C$18.50D$19.2522BFAS Afternoon87The market equilibrium rate on the stock of Williams Brothers is 8.5%. Its expected return on equity is 12.5% and its expected earnings per share is $4.50. If the firm's plowback ratio is 37.5%, its price to earnings ratio will be closest to:A15.9B16.4C16.8D17.223CFAI 63Jimmy James, CFA has been tasked with estimating the interest rate risk of a bond using duration. The current price is 83. An internal computer valuation model has predicted that if interest rates decline by 25 basis points, the price will increase to 85 and if interest rates increase by 25 basis points the price will decline to 81.5The duration of this bond is closest to?A10B11C12D1324CFAI 6518Arnold Palmer is a taxable investor who is currently in the 30% income tax bracket. He is considering the purchase of a tax-exempt bond issued by Palm Beach Municipal Authority with a yield of 4%. The tax equivalent yield of this bond is closest to:A5.25%B5.75%C6.25%D6.75%25CFAI 677What is the value of a 4 year 7% coupon bond selling at a yield of 6% assuming the coupon payments are made semiannually?A$100.00B$102.25C$103.50D$104.7526CFAI 678What is the value of a zero-coupon bond paying semiannually that matures in 15 years, has a maturity of 2.5 million and is selling at a yield of 6.75%?A$777,349.23B$876,000.00C$900,000.00D$923,579.6027CFAI 6715A Treasury Bill with 72 days from settlement to maturity is selling for $0.997 per $1 of maturity value. What is the yield on a discount basis?A1.37%B1.50%C1.69%D1.77%28CFAI 67For a bond trading on the Korean Stock Exchange, using the "actual days/actual days" convention calculate it's dirty price.19The bond has a coupon rate of 6%Pays Coupons SemiannuallyIs quoted at 102 and 13/32nds percent of parThe Par Value is $10,000Settlement takes place on April 8th.The next coupon will be paid on July 15th, which is 98 days after settlement.There are 181 days between January 15 and July 15.The Dirty Price is Closest to:A$10,000.00B$10,240.62C$10,378.19D$10,403.0629CFAI 6834Use the following spot rate curve to calculate the implied forward rate for a six-month loan beginning 18 months from now.MaturitySpot RateSix months5.00%Twelve months6.00%Eighteen months7.00%Twenty-four months8.00%Thirty months9.00%Thirty-six months10.00%A10.56%B10.78%C11.22%D11.64%30CFAI 6922An investor holds three bonds in their portfolio.BondMarket ValueDuration6.2% 3 year$300,0002.57.3% 4 year$200,0002.757.1% 5 year$500,0008.02The portfolio duration is:A5.31B4.42C4.21D4.1131Schweiser 2008 Exam 3 Afternoon Session50An analyst gathered the following information about a company:Cash flow from operations$700Purchase of Plant$50Sale of Land$27Interest Expense$75Depreciation and Amortization$110The company has a tax rate of 35% and prepares its financial statement under U.S. GAAPThe company's free cash flow to the firm is closest to:A625B675C715D86532Schweiser 2008 Exam 3 Afternoon Session54A company issues $5,000,000 of 5-year annual, 7% coupon bonds. Upon issurance their YTM was 6.5%. Based on this information, the initial balance sheet valuation and the first year's income statement amortization are:Initial BalanceAmortizationA$5,000,000.00$0.00B$5,350,000.00$22,750.00C$5,103,891.99$18,247.02D$5,325,000.00$27,083.3333Schweiser 2008 Exam 3 Afternoon Session55An analyst gathered the following data about a company:1,500,000 shares of common stock are outstanding at the beginning of the year.10,000 6% convertible bonds (conversion ratio 20 to 1) were issued at par June 30 of this year.The company has 250,000 warrants outstanding all year with an exercise price of $25 per share.The average stock price for the period is $20, and the ending stock price was $30.If the convertible bonds are considered dilutive, the number of shares of common stock that the analyst should use to calculate diluted earnings per share is:A1,500,000B1,600,000C1,700,000D1,750,00034Schweiser 2008 Exam 3 Afternoon Session59A research analyst has collected the following information regarding a long-term construction project. The company uses the percentage-of-completion methodology to account for this project:Invoiced AmountsA/R CollectionsConstruction Expenses2004$1,000$800$7002005$500$600$5002006$500$600$400Total$2,000$2,000$1,600Given this information, the net constuction-in-progress balance sheet value at the end of 2005 equals:A0B400C500D60035Schweiser 2008 Exam 3 Afternoon Session64At the end of its last fiscal year, Vintner's Supply Corp. reported retained earnings of $200,000. This year, Vintner's reported year-end retained earnings of $250,000 and net income of $25,000, paid dividends of $10,000, paid interest expense of $5,000, and received dividends of $5,000. Vintner's other comprehensive income for this year is closest to:A50000B25000C20000D1500036Schweiser 2008 Exam 3 Afternoon Session66A company leased an airplane under the following terms:The lease is a 10-year capital leaseThe present value of the lease payments discounted at the appropriate interest rate (10%) is $5,000,000The company uses the straight-line depreciation method.The company does not own the asset or have a purchase option at the end of the lease.In the first year, the reported lease related expense is:A$1,000,000.00B$500,000.00C$50,000.00D$0.0037BFAS Morning115An investor wants to achieve a portfolio risk (standard deviation) of 0.037. The expected return on the market portfolio is 0.12 with a standard deviation of 0.1. If the risk free rate is .042, the best expected return the investor can achieve is closest to:A4.44%B7.00%C8.00%D12.00%38BFAS Afternoon117Expected returns on the Fidelity S&P 500 Index fund and the Prudential Low Priced Stock fund are 8% and 13.5%, respectively, and they have standard deviations of 6.5% and 14%, respectively. The correlation of returns between these funds is 0.75. A portfolio with 15% Prudential and 85% S&P index fund would have an expected return and standard deviation closest to:Expected ReturnStandard DeviationA8.825%7.30%B8.825%7.65%C10.75%7.30%D10.75%7.65%39BFAS Afternoon118Expected returns on Fidelity S&P 500 Index fund and the Prudential Low Priced Stock fund are 8% and 13.5%, respectively, and they have betas of 1.0 and 1.375, respectively. The risk free rate is 4.5% and the expected return on the market is 8%. The required return on the Prudential fund is therefore ________ and it is ________.Expected ValueValuationA9.3 percentovervaluedB9.3 percentundervaluedC11 percentovervaluedD11 percentundervalued40CFAI 7626An investor gathered the following information about a real estate investment:Amount financed by mortgage loan$600,000Interest rate on mortgage loan10%Term of mortgage loan25 yearsYear 1 gross potential rental income$150,000Year 1 estimated vacancy and collection loses5%Year 1 estimated insurance, taxes, and electricity$30,000Year 1 estimated repairs and maintenance$22,000Annual straight line depreciation$29,000Investor's Tax Rate32%The mortgage loan requires level end-of-year annual payments of $63,450 and interest on the loan is tax-deductible. The investment's expected after-tax cash flow in year 1 is closest to:A$5,550.00B$26,570.00C$66,640.00D$69,000.0041BFAS Morning26Over the past year a common stock had a holding period return of 10%. Its continuously compounded return is closest to:A9.25%B9.50%C10%D10.25%42BFAS Morning28A population has a mean of 7 and a standard deviation of 11. A sample population of size 120 is taken from this population. The standard error of the sample mean is closest to:A0.05B0.10C0.50D1.0043BFAS Morning55Edmund Fitzgerald Inc. reported Net Income of $600,000 for the year. EFI did not pay any dividends last year but paid dividends of $200,000 to the preferred stock (includes dividends in arrears) and $50,000 to the common stock in the current year. The number of outstanding shared throughout the year was as follows:Common stock, $1 par100,00010% Preferred stock, $100 par, cumulative10,000The basic earnings per share (rounded to the nearest penny) is closest to:A4.75B5.00C5.25D5.5044BFAS Morning65On January 1st, 2006 Immobile Company entered into a 10-year capital lease agreement for machinery in exchange for equal, annual year-end payments of $50,000 and a guaranteed residual value of $5,000 at the end of the lease. The capital lease has a present value of $337,820 based on an implicit interest rate of 8%. Assuming the company uses the straight-line method of depreciation, the total amount of lease related expenses in 2007 is closest to:A$58,470B$58,970C$60,308D$60,80845BFAS Morning80If a company's percentage change in sales is 15 percent, its operating margin is 22 percent, its percentage change in operating cash flows is 14 percent, and it pays taxes at 40 percent, its operating leverage is closest to:A0.56B0.72C0.93D1.0746BFAS Morning99Kiev Industries' 7% pound sterling denominated bond (maturing March 14th, 2015) pays interest on an annual basis. On March 14th 2007 the bond is trading at par. The company then issues a press release to announce an expected earnings shortfall, and the bond's yield immediately widens (increases) 50 bps. The price change is closest to:AIncrease 2.63BIncrease 2.93CDecrease 2.63DDecrease 2.9347BFAS Morning100What is the value of a four year 10% coupon bond using an 8% discount rate, calculated assuming annual and semi-annual compounding?Annual CompoundingSemi-Annual CompoundingA106.23106.23B106.23106.73C108106.23D108106.7348BFAS Morning105Boeing expects to receive 50 million in 60 days. Boeing expects short term rates to rise during the next 2 months. Boeing decides to use a FRA that expires in 60 days and is based on the 60-day LIBOR. It's quoted at 4.75% and at expiration LIBOR is 5%. Based on a notional principal of 50 million, which of the following is most accurate?AThis is a 2 X 4 contract.BBoeing should go long the Forward Rate Agreement.CThe long position had a gain of approximately20661.15DThe long position had a gain of approximately20833.3349BFAS AfternoonAn investor has a portfolio of two mutual funds, A and B, 25% invested in A. The following table shows the expected return and the covariance matrix for the two mutal funds:24Expected Return of A12%Expected Return of B8%FundABA400121B121169The standard deviation of the portfolio is closest to:A7.75%B12.86%C60.13%D165.44%50BFAS Afternoon26The covariance between the returns of stock A and stock B is -125. The standard deviation of the rates of return is 20 for stock A and 10 for stock B. The correlation of the rates of return between A and B is closest to:A-0.625B-0.375C0.375D0.625512008 BSASM39Consider the following market share data for two industries each containing 6 firms:FirmIndustry AIndustry B135%65%225%12%317%9%417%5%53%5%63%4%According to the four-firm concentration ratio and the Herfindahl-Hirschman Index, Industry A's concentration relative to Industry B indicates Industry A is:Four-firm Concentration RatioHHIAless concentratedless concentratedBless concentratedmore concentratedCmore concentratedless concentratedDmore concentratedmore concentrated522008 BSASUse the following information to answer Questions 58 & 59Common stock, $0.50 par, 1,000,000 shares outstanding$500,0008% noncumulative preferred stock, $100 par, 20,000 shares$2,000,0009% convertible bonds$1,000,000Each $1,000 bond is convertible into 65 shares of common stock. In addition, the company had 100,000 options outstanding the entire year. Each option allows the holder to acquire one share of common stock at a price of $5. The average market price of common stock for the year was $20.Net income for the year was $600,000 and the income tax rate is 40%. The company paid dividends to common stock of $60,000 for the year.M58Basic earnings per share for the year is closest to:A$0.38B$0.44C$0.54D$0.60M59Diluted earnings per share for the year is closest to:A$0.41B$0.43C$0.44D$0.56532008 BSASM75Management estimates that a project will require an initial investment of $30,000. This project is expected to generate after-tax cash flow of $9,000 per year for five-years. If the project has no salvage value at the end of the project and the firm's hurdle rate is 11%, what is the project's Profitability Index?A0.99B1.03C1.07D1.11542008 BSASM84Giants Company is expected to pay a $1.50 dividend in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The risk-free rate of return is 6% and the equity market is expected to return 11%. The stock as a beta of 0.85. The intrinsic value of this stock is closest to:A$63B$66C$69D$75552008 BSASM85A stock is not expected to pay dividends of $1.35 per share until two years from now. At this time, the dividend distribution is going to be 40 percent of net income, earnings growth is projected to be 8%, and the return on equity is expected to be 17 percent. If the required rate of return is 10 percent for the first two years and 12% thereafter, what is an approximate value of the stock today?A$56B$59C$62D$65562008 BSASM94Burlington Corp. has a bond with the following relevant information:Par value$100Maturity4 yearsCoupon6% semi-annualMarket Price$104.21Callablein 2 years at 101Yield to worst for this bond is closest to:A4.11%B4.27%C4.69%D4.82%57BSAS 2008M99Use the following information to answer the question:ABC CorpEffective duration6Convexity adjustment for a 150 bps shift in yield1.80%If interest rates increase 150 bps, the approximate percentage change in price is:A-7.20%B-4.10%C4.10%D7.20%58BSAS 2008108A gold futures contract requires the seller to deliver 100 troy ounces of gold. An investor sells an August gold future contract at a price of $855 per ounce, posting a $3,375 initial margin. If the required maintenance margin is $2,500, the price per ounce at which the investor would first receive a maintenance margin call is closet to:A$805B$835C$865D$89559BSAS 2008M110Ginormous Yield fund bought put options expiring in 30 days on 90-day LIBOR with an exercise rate of 4.5% and a notional principal of $100 million. On the expiration day, the 90-day LIBOR rate is quoted at 3.75%. Which of the following is the most accurate description of the payoff for the options held by the Ginormous Yield fund?A$75,500 lossB$125,500 profitC$187,500 profitDThe options expired worthless60BSAS 2008M120An analysis of PG and S&P 500 returns data over the past 3 years indicates that the covariance is .0024, the standard deviation of PG is 12% and the standard deviation of the S&P 500 is 10%. If the S&P 500 is a good proxy for the market as a whole, the beta of PG is closest to:A0.16B0.25C0.38D0.5561BSAS 2008Use the following information to answer questions 67-69Balance sheet and income statement for a U.S. firm is as follows:20072006Cash$540$766AR30413320Inventory45923550Prepaid Expenses1166786Investments27753292Property, Plant and Equipment1568013268Less: Accumulated depreciation-8425-7799Total Assets$19,369.00$17,183.00Liabilities and Stockholders' EquityAP32382849Accrued Liabilities581988Current portion of long term debt19311310Long-term Debt60134966Common Stock54325373Retained Earnings21741697Total Liabilities & Stockholders' Equity$19,369.00$17,183.00Income Statement for the year ended December 31, 2007Sales$36,151.00COGS$34,003.00Gross Profit$2,148.00Selling and Administrative Expense$1,064.00Income from Operations$1,084.00Other Revenue and Expenses:Loss of Sale on Equipment-$24.00Interest Expense-$342.00Income Before Income Taxes$718.00Income Tax Expense$223.00Net Income$495.0067Net cash provided (used) by operating activities is closest to:A$(16.00)B$(64.00)C$(642.00)D$605.0068Net cash provided (used) by investing activities is closest to:A$(1,269.00)B$(1,895.00)C$(1,919.00)D$(2,412.00)69Net cash provided (used) by financing activities is closest to:A$1,088B$1,106C$1,709D$1,72762BSAS 2008A32A research analyst would like to construct a confidence interval for the mean monthly return of ABC stock. He assumes that monthly returns follow a normal distribution. Over the past 24 months, the mean monthly return was 1.50% with a sample standard deviation of monthly returns of 2.30%. When finding the reliability factor based on the t-distribution, he calculates degrees of freedom as:A22B23C24D2563BSAS 2008A61Wobegon had the following abbreviated financial statements (in 000)Year 2Sales$12,262Costs and expenses:COGS8304Other expenses174510049Operating Income2213Income taxes (30%)664$1,549Year 2Year 1Cash164028Receivables1296886Inventories1329962Property and equipment75606692Total Assets$11,825$8,568Accounts Payable961699Notes Payable88093Long-term debt39743397Common stock20861416Retained Earnings39242963Total liabilities and stockholders' equity$11,825$8,568An examination of the footnotes related to inventories revealed that the company follows the LIFO method and provided the following information:Year 2Year 1Replacement cost16371032Less: Valuation allowance30870LIFO inventories$1,329$962If the company had used FIFO,inventory turnover for year 2 would have been closest to:A5.07B6.04C6.40D7.0464BSAS 2008A66Russian Liberation Front Inc. reported the following items at the end of the year:Expenses700000Cash Dividends75000Foreign currency translation loss125000Revenues1250000Unrealized holding gain on available for sale securities50000Unrealized holding loss on derivative contracts25000RLFI's comprehensive income for the year is closest to:A$375,000B$450,000C$475,000D$550,00065BSAS 2008A86Big Shiney Company has equity capitalization of $400,000 and debt capitalization of $200,000. The company reported earnings of $70,000 for the year and distributed $30,000 of its earnings to shareholders. If the company's leverage multiplier is 2 and they pay taxes at 40% what is their sustainable growth rate?A9.50%B9.75%C10%D10.25%66BSAS 2008A87You project next year's stock index retention rate to be 37% and EPS to be $325. You also forecast that ROE will be 15% and the required rate of return on the market will be 13%. What is the approximate market value of the index?A$2,891.95B$3,101.27C$3,209.66D$3,532.1767BSAS 2008A91Value a 3 year 6% bond with the following spot rates. The bond pays interest once per year.1 year spot rate5.11%2 year spot rate5.22%3 year spot rate5.33%A$99.49B$101.15C$101.84D$102.7468Schweiser Exam 1An analyst gathered the following data about a deprechiating asset:M64Acquisition cost $8000Four year useful life and no salvage valueThe asset will generate $5000 per year in revenue.The company's tax rate is 40%For tax purposes the asset can be depreciated (straight line) for two years.For financial accounting purposes the asset can be depreciated (straight line) for four years.Assuming a constant tax rate, what is the deferred tax liability at the end of the second year?A0B$400C$800D$1,60069Schweiser Exam 1An investor has obtained the following information about Mega Corp.M73Net Profit Margin8.70%Total Asset Turnover2.4Dividend Payout Ratio35%Tax Rate35%Total Sales120,000,000Equity as a percentage of total assets40%Based on this information, Mega Corp's ROE is closest to:A8.40%B14.50%C20%D52.20%70Schweiser Exam 1M85Jim Craig, CFA is working for a small exchange and has been asked to set up an index. He is interested in examining the difference between price-weighted and market-weighted index. Here is the information that was provided by the exchange:DayOneTwoThreeStock APrice $6Price $2Price $7Shares 200Shares 200Shares 50Stock BPrice $95Price $100Price $51Shares 500Shares 500Shares 1000Stock CPrice $10Price $12Price $16Shares 1000Shares 1000Shares 1000Prices are shown for the last trade on each day.Prior to the start of trading on Day 3 a 1 to 4 reverse stock split was executed on Stock A, and a 2 for 1 stock split will be reflected for Stock B.The market-weighted is to be standardized to 500 on Day 1.The initial divisior for the price-weighted index was set at 3.The percentage change in the market-weighted index on Day 2 is equal to:A6.30%B8.30%C12.74%D14.74%71Schweiser Exam 1M92An analyst is asked to calculate the trailing P/E for AdMicro Systems (AMS) on November 15th 2003, when the share price is $27.50. The company's fiscal year ended on December 31st 2002. Financial statements indicate that the EPS for the year was $1.27, which included a non-recuring element amounting to $0.12 per share. As of October 31st the 12 month trailing EPS was $1.45 based on three quarters in 2003 and one quarter in 2002. When various nonrecurring and extraordinary items are taken into account, the adjusted EPS for the most recent 12 months is $1.10. Based on this information the most appropriate P/E estimate an analyst should us for AMS is:A18.97B21.44C23.91D2572Schweiser Exam 1M116What are the minimum price for an American-style and European-style 3-month call option with a strike price of $80 on a non-dividend paying stock trading at $86 if the risk-free interest rate is 3%.AmericanEuropeanA$6.00$6.00B$6.00$5.96C$6.59$6.00D$6.59$6.5973Stella WorkshopL1-00346The records of a national mutal fund association indicate that the average mutual fund achieves annualized returns or 9.0%. Due to recent market fluctuations, the association believes the annualized returns are higher than 9.0%. In a study of 100 randomly selected funds, it was found that the average annualized return was 9.4% with a standard deviation of 2.2%. At the 5% significance level:AThe analyst can conclude that the annualized return has decreased.BThe analyst can conclude the annualized return is 9.0%.CThe analyst can conclude that the annualized return has increased.DThe analyst cannot conclude that the annualized return has increased.74Stella WorkshopL1-03200Zeta Corp. uses LIFO inventory accounting. The footnotes to the 20X9 financial statements contain the following inventory information:20X820X9Raw Materials$292,675.00$369,725.00Finished Product$501,342.00$377,104.00$794,017.00$746,829.00Less adjustments toLIFO basis$(46,000.00)$(50,000.00)$748,017.00$696,829.00Tax rate is 35%If FIFO had been used for both years, the 20X9 net income would have changed by:A$(2,600.00)B$1,400.00C$2,600.00D$4,000.0075Stella WorkshopL1-01318An investor buys 100 shares of GHG Technologies for $50 dollars a share. The investor pays $4000 of the purchase cost and uses his margin, borrowing to buy the rest. The investor pays 8% on the margin balance. One year later, GHG announces poor earnings and the price falls to $25 dollars per share. What is the investor's one-year rate of return, with the use of margine borrowing and without?Margined ReturnUnmargined ReturnA-64.50%-37.50%B-64.50%-50.00%C-62.50%-37.50%D-62.50%-50.00%76Stella WorkshopL1-02134Dr. Filly plans to invest $100, with a portion in a risky asset and a portion in a risk-free asset. The risky asset has an expected return of 12% and a standard deviation of 15% while the risk-free asset has an expected return of 5%.What percentages of Dr. Filly's money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06?A30% and 70%B70% and 30%C60% and 40%D40% and 60%77Stella WorkshopL1-01968XYZ industries is a mature company that is growing at 4%, which is equal to the nominal growth rate of the economy. Assuming XYZ's P/E ratio is 8, its payout ratio is 20%, the real risk-free rate of return is 1.0%, and the inflation rate is 1.5%, the estimated equity risk premium for the Company's shares is closest to:A2.50%B4.00%C6.50%D7.50%78Stella WorkshopL1-02223Suppose two parties agree to a $100,000,000 1x4 FRA contract on LIBOR at a rate of 2.5%. In one month's time the following LIBOR rates are observed:LIBOR# of days in Period1 month2.50%302 months2.60%603 months2.70%904 months2.80%1205 months2.90%1506 months3.00%180What is the closest amount due to the FRA buyer?A$74,478.65B$49,664.76C$50,000.00D$625,00079BFS December 2008Morning 21Over the last five years, the earnings per share data for a firm were as follows:2003$3.002004$3.502005$4.002006$4.502007$5.00Over this period, the EPS compound annual rate was closest to:A10.76%B13.62%C16.32%D66.67%80BFS December 2008Morning 57An examination of a company's statement of stockholders' equity revealed the following transactions:Common shares outstanding, January 1150,000Issued shares, March 112,000Reacquired shares, July 1-60002-for-1 split, September 30156,000Common shares outstanding, January 1312,000The weighted average outstanding shares from the years is closest to:A196,000B312,000C313,000D314,00081BFS December 2008Morning 77Zipper's capital structure includes $6 million in debt and $9 million in equity. The bonds currently trade at 7 percent. The firm's Beta is 1.2, the expected return on the market is 10 percent, and the risk-free rate is 4 percent. Ignoring taxes, what is the firm's approximate weighted average cost of capital?A8.70%B9.20%C10.10%D9.50%82BFS December 2008Morning 85A stock is not expected to pay dividends of $1.50 per share until two years from now. At that time, the dividend distribution is going to be 40 percent of net income, earnings growth is projected to be 8%, and the return on equity is expected to be 15 percent. If the required rate of return is 10 percent for the first two years and 12% thereafter, what is an approximate value of the stock today?A$41B$25C$21D$5083BFS December 2008Morning 101Carrot Corp. has a three-year 5.25% bond that pays interest annually. Using the following forward rates, determine the approximate value of this bond.YearsForward Rate14.40%24.75%35.00%A98.75B99.13C100.52D101.4984BFS December 2008Morning 105Siemans Company expects to receive $100,000,000 in 90 days. A dealer provides a quote of 0.6897 Euro per $ for a currency forward contract to expire in 90 days. Suppose that at the end of 90 days, the rate is 0.6826 Euro per $. Assume that settlement is in cash. Which of the following statements is closest to the net cash receipt at expiration if Siemens enters into a forward contract expiring in 90 days to buy eruo at 0.6897 per $?A68050000EurosB68260000EurosC68615000EurosD68970000Euros86BFS December 200826A treasury bill with a face value of $100000 and 90 days until maturity is selling for $99000. The T-bill's effective annual yield is closest to:A1%B2%C3%D4%87BFS December 200930The probability of negative Returns for stock A is .12 and stock B is .19. Assuming the returns of A and B are independent, what is the probability that the return of either A or B is negative?A0.03B0.29C0.31D0.0788BFS December 200932You have in your portfolio 2 funds: 25% in the Alpha Fund and 75% in the Beta Fund. Given the data below, the standard deviation of the return of the portfolio is closet to:Expected Return Alpha17Expected Return Beta32Covariance MatrixAlphaBetaAlpha21598Beta98177A12.20%B4.80%C3.33%D27%89BFS December 200950When a company borrows $500,000 to buy equipment costing $100,000 and pay wages of $70,000, the most likely effect on the financial statements is:AAssets +500K, Liabilities +430K, Equity + 70K, Expenses +70KBAssets +430K, Liabilities +500K, Equity +70K, Expenses -70KCAssets + 430K, Liabilities + 500K, Equity -70K, Expenses +70KDAssets +600K, Liabilities +500K, Equity -70K, Expenses + 70K90BFS December 2009Kent Corporation, Adjusted Trial Balance Data, December 31, 2008Accounts Payable12000Accounts Receivable13000Accumulated Depreciation-Building6000Accumulated Depreciation-Furniture & Fixtures9000Building60000Capital Stock40000Cash24000Copyrights22000Dividends Declared12000Funiture & Fixtures15000Land25000Note Payable (10%, due in 5 years)40000Office Supplies1000Prepaid Insurance3000Retained Earnings (January 1, 2008)23000Salaries Payable2000Service Revenue85000Salaries Expense28000Utilities Expense2000Depreciation Expense5000Insuarance Expense2000Office Supplies Expense1000Interest Expense4000Total assets at December 31, 2008 is closest to:A$148,000B$163,000C$178,000D$203,00091BFS December 200964On December 31, 2008, a company had common stock shares outstanding of 77 million. During 2008, the following stock transactions took place:30-JunIssued 10 million shares of common stock29-SepDistributed a 10% common stock dividendWeighted average shares outstanding for 2008 is closest to:A71500000B72000000C90200000D8970000092BFS December 200974Last year, a firm issued $5 million in $1000 par value bonds with a 7 percent coupon rate paid annually. The bonds mature 29 years from today and now sell at 95 percent of their par value. If the firm's corporate tax rate is 35 percent, what is the after-tax cost of debt?A4.82 percentB6.95 percentC7.42 percentD9.45 percent93BFS December 200857The Whatever Corporation had a balance on January 1, 2008 of $6000 in its deferred tax liability account relating to a temporary difference that is expected to reverse in 2010. In 2008, Congress enacted an increase in tax rates from 30% to 40% effective 2009. Financial statement pre-tax income for 2008 was $250000, which included $50000 in depreciation expense. For tax purposes, the company deducted $90000 of depreciation. There are no other difference between financial statement and tax income. The amount of income tax expense for 2008 is closest to:A$75,000B$79,000C$81,000D$100,00094BFS December 200875Bad Company has an average collection period of 35.5 days compared to industry average of 40.2 days. If sales were $401000, what is the average investment in receivables?A$9,975B$11,296C$39,001D$44,16595BFS December 200878Waves Coffee Ltd. Has $368 in inventory at the end of the year. Revenue for the year was $4788, COGS was $2453 and Net Income was $156. If there were no write-offs, what is the company's estimated inventory days?A55 daysB28 daysC34 daysD7 days96BFS December 200884If a stock has the following characteristics, what is the approximate implied price/earnings ratio?Beta coefficient1.2Risk-free rate7%Required Rate of Return12%Dividends$1,500,000Net Income$5,000,000Expected dividend growth rate10%A10B15C17D2097BFS December 200887You project next year's stock index retention rate to be 40% and EPS to be $350. You also forecast that ROE will be 16% and the required rate of return on the market will be 13%. What is the approximate market value of the index?A$2,174B$3,182C$4,118D$6,17698BFS December 200899Determine the 6-month forward rate 1 year from now.PeriodYearsSpot rate (BEY%)Forward Rate (BEY%)10.54.10%4.10%214.35%4.60%31.54.50%A4.70%B4.75%C4.80%D4.85%99BFS December 2008108A mutual fund manager manages a portfolio consisting of mid-cap stocks. He is concerned about the short term outlook of the stock market and decides to enter into an equity swap with a dealer for a notional value of $1 billion. The mutal fund manager agress to pay the dealer the total return on the mid-cap stock index, and the dealer agrees to pay the mutual fund manager a fixed rate of 5.5%. The payment settles on the basis of 183 days in the six months period and a 365 days in a year.Mid-Cap Price1153When Swap Initiated1090Price six months laterWhich of the following statements most acurately describes the cash flow of the first payment?AThe dealer pays the mutual fund manager $27.58 millionBThe mutual fund manager pays the dealer $54.64 millionCThe dealer pays the mutual fund manager $82.22 millionDThe mutual fund manager pays the dealer $109.64 million100BFS December 200951-53AFC Corporation Balance Sheet December 31, 2007 and 2008 (in millions)20072008$13$25Cash and cash equivalents4440Accounts receivable4660Inventory25Prepaid Expenses$105$130Total curent assets265255Net plant and equipment$370$385Total assets$45$30Accounts payable34Salaries payable41Income Tax Payable$52$35Total current liabilities88100Bonds Payable$140$135Total liabilities7080Common Stock160170Retained Earnings$230$250Total shareholders' equity$370$385Total liabilities and shareholders' equityAFC Corporation Income Statement For the year ending December 31, 2008 (in millions)Sales$100Expenses and losses:COGS$46Salaries expense27Depreciation expenses$5Income tax expense3Other operating expenses$4Loss on sales of equipment2Total Expenses and Losses$87Net Income$13Cash flows from OperationsA-$10B-$12C-$18D-$20Cash flows from InvestingA$3B$5C$8D$10Cash flows from financingA$9B$19C$22D$25101BSAS 2009 Afternoon20You have $200,000 which you plan to invest in one of three portfolios seen below. At the end of the year, you will require $5000 for a tax payment and would like to take this from your portfolio without invading the initial $200,000 investment.Portfolio APortfolio BPortfolio CExpected Annual Return9.50%12.70%18.10%Standard Deviation of Return7.80%15%16.70%Using Roy's safety-first criterion, which portfolio do you select?ABC102BFA 2009 December Afternoon30The number of stocks in the S&P 500 with negative performance in the first half of each year appears to be significantly different from the second half of the year. Below is a table with test results for the last 50 years. The pooled estimate of the variance for both sets of results is 144.09.Number of ObservationsNumber of stocks with negative returnsStandard DeviationsFirst Half of Year5017611.72nd Half of Year5021812.3What is the value of the t-statistic for this test?A-17.49B-7.28C17.49103Kaplan IncJim purchased a home for $300,000, made a down payment of $100,000. He obtained a 30 year mortgage to finance the rest. He pays a fixed annual rate of 6%. If he makes regular fixed monthly payments, after 48 months, how much does he still owe?A$186,109B$189,229C$192,444104Kaplan IncAn investor purchases a $10,000 5-year corporate note for $10,444. The note pays an annual coupon of $600. Over the past year the note's annual yield-to-maturity has dropped 100 basis points. What total return did the investor earn in this year?A8.50%B9.00%C9.50%105Kaplan IncIf the price of Product X increases from $2.00 per unit to $2.25, the demand will decrease from 7.5 million units to 6.7 million units. The price elasticity of demand is closest to:A-0.96B-1.00C-1.04106Kaplan IncEvil Inc. has a target capital structure of 40% debt and 60% equity. Evil Inc's cost of debt will remain at 9% until the firm raises more than $200,000 in new debt capital, at which point the cost of debt increases to 9.5%. Evil Inc's cost of equity will increase when more than $400,000 in equity capital is raised.Evil Inc's breakpoint of debt capital is closest to:A$200,000B$500,000C$666,667107Kaplan IncA stock has a beta of 0.9 and an estimate return of 10%. The risk-free rate is 7% and the expected return on the market is 11%.According to CAPMAOvervaluedBUndervaluedCProperly valued108Kaplan IncA compnay has two $1000 face value bonds outstanding both selling for $701.22. The first issue has an annual coupon of 8% and 20 years to maturity. The second bond has the same yield to maturity as the first bond but only has five years remaining until maturity. The second issue pays interest annually as well.What is the annual interest payment of the 2nd bond?A$18.56B$27.18C$37.121092012 CFA Level 1 Book 2Assume a market supply function is given by the equationQ = -7 + 0.6PWhere Q s is the quantity supplied and P is the price. If P equals 15, the value of the producer surplus is closest to:A3.3B41C67.5110Kaplan Inc.An investor in a mutual fund earns 25% in year one, loses 25% in the second year, gains 30% in year 3 and then loses 30% in the fourth year.The average annual compound growth rate of this investment is closest to:A-3.90%B0%C5.60%111Kaplan Inc.Joe Blow, CFA, is analyzing Blue Inc. by projecting pro forma financial statements. Joe expects Blue to generate sales of $3 billion and a return on equity of 15% in the next year. Joe forecasts that Blue's total assets will be $5 billion and that the company will maintain its financial leverage ratio of 2.5. Based on these forecasts, Mr. Blow projects Blue Inc. to have a net income of:A$100 millionB$300 millionC$500 million112Kaplan Inc.A company issues $10 million in 8% annual-pay, 5 year bonds, when the market rate is 8.25%.The initial balance sheet liability and liability one year from the date of issue are closest to:Initial LiabilityLiability One Year LaterA$9,900,837$9,917,656B$10,000,000$9,975,000C$10,099,163$10,082,344113Kaplan IncAn analyst identifies the following cash flows for an average-risk project:Year 0($5,000)Year 1 & 2$1,900Year 3$2,500Year 4$2,000If cost of capital is 12%, the project's discounted payback period is closest to:A2.5 yearsB3 yearsC3.9 years114Kaplan IncPeter Parker, CFA, has managed the retirement account funds for Staal Industries for the last two years. Contributions and withdrawals from the account are decided by Staal's CFO Mark. The account history is as follows, with account values calculated before same-date deposits and withdrawals:Jan 1, 20X1Beginning account value$10,000,000Jul 1, 20X1Account value$11,200,000Jul 1, 20X1Deposit$1,200,000Jan 1, 20X2Account value$12,500,000Jan 1, 20X2Withdrawal$600,000Dec 31, 20X2Account value$15,000,000The appropriate annual return to use in evaluating Peter's performance is closest to:A9%B19%C22%115Kaplan IncAn analyst forecasts the following for a stock:The normalized trailing price earnings (P/E) ratio to be12The stock price currently is$100The stock is expected to pa a$5divident this coming year on projected earnings of$10If the analyst were to buy and hold the stock for the year, the projected rate of return based on these forecases is closest to:A15%B20%C25%116Kaplan IncAn investor has a 1-year, semiannual 10% coupon bond which is priced at $1025. If the 6-month spot rate on a bond-equivalent basis is 8%, the 1-yaer theoretical spot rate as a BEY is:A6.40%B7.30%C8.00%117Kaplan IncThe 3-year annual spot rate is 7%, the 4-year annual spot rate is 7.5% and the 5-year annual spot rate is 8%. Based on the pure expectations theory of interest rates, the 1-year implied forward rate in four years is closest to:A7%B9%C10%118Kaplan IncA $1000 par, semi-annual-pay bond is trading for 89.14, has a coupon rate of 8.75% and accrued intrest of $43.72. The clean price is:A$847.69B$891.40C$935.12119Kaplan IncA 3-year annual pay currency swap takes place between a New Zealand company with New Zealand dollars (NZD) and U.S. company with U.S. dollars (USD). The New Zealand company swaps NZD for USD on which it makes end-of-period payments based on the rate in effect at the beginning of each period. The U.S. company makes fixed-rate payments in NZD.The fixed swap rate at the initiation of the swap was 7%; at the end of the swap it was 8%.The variable rate at the end of year 1 was 6% at the end of year 2 it was 8%, and at the end of year 3 it was 7%.At the beginning of the swap, one million USD were exchanged at a NZD/USD rate of 2At the end of the swap period, the exchange rate was NZD/USD 1.5At the end of year 2, the:ANew Zealand company gives the U.S. company USD 60,000BU.S. company gives New Zealand company USD 80,000CNew Zealand company gives the U.S. company USD 80,000120Kaplan IncA dealer arranges an equity swap with a mutual fund. The notational princial on the swap is $50 million and quarterly payments have been scheduled. The mutual fund agrees to pay the dealer the return on the S&P 400 Midcap Index, which is currently at1038.4Three months later it is1052.5The dealer pays a fixed rate of5.50%with payments made on the basis of 91 days in the period and 365 days in the year.What is the net payment and who makes it?ADealer pays $6687BDealer pays $1364546CMutual fund pays $6687

&CQuestions cooked up by Muskie McKay from various sourcesNo guarantee of 100% accuracyAndrew McKay:This is actually an easy question. I typed out by mistake, hopefully it builds your confidence.Andrew McKay:This one is a bit tough, three calculations required, maybe add to generator.

AnswersQuestion NumberSourceQuestionAnswer1BSAS 2007 Morning Questions52AReference:Reading 35, The statement of cashflows, pp 99-100, 109-112; Reading 36 Analysis of Cash Flows pp. 124-128Cash collections on receivables$1,300.00Cash purchase of inventories$(750.00)Cash receipts of dividends$12.00Interest payments$(35.00)Payments of expense$(300.00)Purchase of trading securities$(17.00)Operating cash flows$210.0053DReference:Reading 35, The statement of Cash flows pp 99-100, 109-112; Reading 36 Analysis of Cash flows pp 124-128Cash dividends on common stock paid$(35.00)Cash dividends on preferred stock paid$(120.00)Proceeds from the issuance of common stock$650.00Proceeds from bridge financing$700.00Repurchasing of issued shares$(300.00)Financing Cash flows$895.002BSAS 2007 Morning Questions54BReference:Dilutive Securities and Earnings per Share pp 279-28331-DecBeginning balance 100000 X 12/1210000029-FebNew Shares issued: 15,000 X 10/121250029-Jun3.5% Cash dividend30-JunReacquired shares: -12000 X 6/12-600030-Sep2-for-1 split (100+12.5-6) X 12/12106500Weighted average shares outstanding2130003BSAS 2007 Morning Questions48CTotal income since incorporation$1,200,000Less: total cash dividends paid$(240,000)Market Value of 20% stock dividends distributed*$(125,000)Retained Earnings Balance$835,000*Large stock dividends (generally greater than 20-25%) are valued at par value but small stock diidends (20-25% or less) are valued at market.4BSAS 2007 Morning62The key thing to notice here and what saves you all your precious time is that unit costs are rising. In a situation where unit costs are rising FIFO will provide the highest profits.AYou must still calculate the FIFO ending Inventory but the first time I did this question I calculated all three.FIFO200 units * 7.70 and 300 units * 7.303730LIFO100 units * 7.30 and 400 units * 7.003530Average Cost36365CFAI Chapter 453DFirst calculate g which is equal to the divedend retention rate times the ROE.g = .73 * 13.59.855Next take the dividend in year one over the current stock price and add the growth rate gr = 2.15/47 + 9.85514.436CFAI Chapter 457First determine the cost of equity using the dividend discount model. Beta is of no use in this question.DCost of Equity = ((1.75/32)*100) + 6.7312.20Next use the targe debt-to-equity ratio to work out the weighting for debt and equity.Wd = .8 / 1.80.44We = 1 -Wd0.56Finally use the WACC formula and the corporate tax rate and the before tax cost of debt.WACC = (.56)(12.19) + (.44)(8.5)(1 - .37)9.18267CFAI Chapter 441These questions are all button pushing using CF, NPV, and IRR buttonsAHere are the key presses:CFCF0-80000C0117000F012C0250000F021C0325000F031C04-5000NPVI10Then compute the NPV and IRR.NPV$1,040.60IRR10.55%8CFAI Chapter 4412Whenever you see a question like this, the answer is almost always the one with the larger NPV. NPV is the preferred evaluation method over IRR and Payback PeriodB9CFAI Chapter 464This is one of many yeild formulas you have to remember. Some use a 360 day year while some use a 365 day year.CFirst calculate the dollar return: 10000 - 9650350Then determine the yearly return: 350/96503.63%Finally work out the return for only 185 days by multiplying the above by 365/1857.16%102007 BFS Afternoon75We are given the amount of debt and equity so it is simple to work out the weightings for the WACC calculationBWe = 10/(10 + 20)33.33%Wd = 20/(10 + 20)66.67%Now we can calculate k using the CAP/M formulak = 5 + 1.25(8)15We are given the cost of debt and the corporate tax rate so now we can solve for WACC:WACC = (.33)(15) + (.66)(6.5)(1-.37)7.6527112007 BFS Afternoon79This might be the most difficult question of the last seven. It is actually a time value of money question. Put the following values into your calculator. (Note depreciation expense is a red herring and is included in the 22,000.)CPV75000N5PMT-22000FV0ICPT14.29%Tax rate is also unneeded information.12CFAI Chapter 4526First determine the asset beta for the publicly traded company by unlevering it:Bunlevered beta = 1.6/[1 + (1 - 0.37)(0.85)]1.042Next relever to reflect the target debt ratio of the private firm:levered beta = 1.042 * [1 + (1 - 0.32) * (.95)]1.71513CFAI Chapter 462First determine the number of days of inventoryA2500 / (26000 / 365)35.10Next determine the number of days of receiveables3000 / (32000 / 365)34.22Operating cycle = 35.10 + 34.2269.31Note: there was some debate over why the ending inventory balance was used instead of the average.14CFAI Chapter 466The cost of trade credit formula:CCost = (( 1 + 0.03/0.97)^365/30) - 144.86%15Musk's Memory BanksCThese two part questions are very popular with the CFAI. Often times if you work from the second criteria, in this case the Stock Market Index you can save time.AA Call Market is one where the bids and asks are accumulated and then the price is determined that will match the most buyers with sellers. An Unweighted Index does not give greater emphasis to large companies, this answer is definitely wrong.BA dealer market is one where licensees make the market by setting the bid and ask prices they are willing to accept at a given time. However a price weighted index gives greater emphasis to the companies with the higher stock price, not the companies with most shares trading on the exchange.DAlthough this answer does have a Continuous Market it does not have Dealers/Specialists/Market Makers all prices are determined by live auction. The Index however is correct, Value Weighted indices give greater weight to stocks with a large amount of publicly issued shares regardless of their price or revenue.16BSAS 2007 Morning82AMarginequals 50% of $25 * 10000$125,000.00ROIWhere there is a decline of five and a half dollars per share is:equals ((10000 shares * -5.5)-(4.5%*125,000))/125000equals (-55000 - 5625)/125000equals (-60625)/125000equals -48.5%Margin call, where P is equal to share price at which 35% maintenance margin requirement is breached:equals ((10000P - 125000)/10000P = .35equals 10000P - 125000 = 3500Pequals 6500P = 125000equals 19.23P equals 19.23 therefore, no margin call17BFAS 2007 Morning90This is a holding period return question which is chapter 59 last year, but the math is simple enough that you should be able to do it if you studied the Quant section.DHolding Period Returnequals [dividends + (end price - begin price)] / begin priceequals ( 1.50 + (40 - 35)) / 350.1918Schweiser = Reading 54You take the actual return and subtract the result of the CAP/M formula.10BEquals 10.9 - (3.5 + 1.37(6-3.5))3.97519CFAI Chapter 58First work out the four firm concentration ratio3Industry 1: .42+.09+.09+.040.64Industry 2: .21 + .21 + .21 + .080.71Industry 2 has the higher four firm concentration ratioNext work out the Herfindahl IndexIndustry 1: .42^2 + 2(.09^2) + 8(.05^2)0.2126Industry 2: 3(.21^2) + 3(.08^2) + 3(.07^2)0.1662Industry 1 has the higher Herfindahl Index.So the answer is:C20BFAS 2007 Morning87Sustainable growth rate is the same as dividend growth rate:Bg=ROE * (1 - dividend payout ratio)g=(2.5/6.5) * (1 - ( 850000/2500000 ))25%21BFAS 2007 Morning89First you need to calculate the dividend growth rate before solving for the stock's intrinsic value:CDividend Growth Rate:g=ROE * (1 - dividend payout ratio)g=.125 * (1 - .67)4.13%Stock's Intrinsic Value:P=d0(1+g)/(k-g)P=1.75*(1 + .0413)/(.14 - .0413)18.462765957422BFAS 2007 Afternoon87P/E = dividend payout ratio / (k - g)BP/E = 0.625 / (0.085 - (0.125 * 0.375))16.3923CFAI #635This is actually an easier bond question, there is a formula similar to weighted average:Aduration = price if yield declines - price if yield rises / 2 * initial price * change in yield in decimalduration = 85 - 81 / (2 * 83 * 0.0025)9.638554216924CFAi # 6518This another easier bond question which you need to memorize a simple formula or just use deductive reasoning.Btaxable equivalent yield = tax exempt yield / (1 - marginal tax rate)taxable equivalent yield = 4 / (1 - .3)5.714285714325CFAI # 677This is a simple TVM question you have the option of adjusting your calculator to two payments per period or doubling N and halfing the yield and coupon. Some study guide thinks you should do the latter and having failed once that is what I'm now doing, the danger is you'll leave your calculator set on two payments per period in you haste to do the next TVM question.CN8PMT3.5I3FV100CPT PV-103.526CFAI# 678This is a TVM question but you don't have to use the TVM buttons on your calculator. You can use the actual formula is to calculate the Time Value of Money.DThese zero-coupon bonds sell at a discount, so you only get one payment which you must discount back to today to find out the current price.Again they've made the bond have two payments a year so you have to double N or in this case T and half I.PV = Future Value / (1 + I)^TPV = 2500000 / ( 1 + .03375)^30$923,579.6027CFAI # 6715This is another type of fixed income instrument that has its own formula you need to memorize in order to value it.BYield on a Discount Basis = (1 - P) * (360/NSM)P is PriceNSM is Number of days between settlement and maturity.This question gives you NSM, a trickier version would make you calculate it.D = (1 - .997) * (360/72)0.01528CFAI # 67This question is evil.19I don't know if it is realistic to be asked this, but it could be worse they give you the days and several hints on how to do it in the question. Here is how you solve it.CThe first thing you need to do is desipher the date information. In this year for this bond there are 181 days between January 15th and July 15th the time of the next coupon.This is the denominator of the actual/actualThe numerator you have to work out, the coupon is paid on July 15th and Settlement ie the date the bond changes hands is April 8th. The question further tells you that of the 181 days in this period, the buyer has to compensate the seller 181 - 98 days of interest.That is the numerator of the actual/actualNow the formula to use appears to be:Percentage of Par + (Coupon Payment * (Actual/Actual))Now the coupon rate is 6% but is halved due to semi-annual payments.102 + (13/32) + ((6/2) * (83/181))103.7819406077That gives you the percentage of par, you're not done yet.You take the percentage of par, multiplied by the par value to get the dirty price.$10,378.19Another way to think about this is the dirty price is the par price plus a percentage of the next coupon payment. The next coupon payment is 300 dollars, it is split between the buyer and the seller. The seller gets 98 of 181 days. Then add that number to the price per bond over par multiplied by amount invested to get the final desired number.29CFAI # 68Scarily this question could be worse.34I couldn't solve it at first but I reverse engineered it.DWhat makes it decent is they give you all the spot rates at nice six month intervals and they increase one percent every six months. You need to go ahead 18 months in time and note down that interest rate and the one six more months into the future after that.The spot rate must be a yearly yield thus you need to divide in half because you have a six month loan.You also need to remember to discount everything back to the present, you have to think in six month intervals in this question.Interest rate 24 months from now is 1.04^4 today1.16985856Interest rate 18 months from now is 1.035^3 today1.105507304Now you take the 24 month rate over the 18 month rate and then subtract 1.0.0582097068That gives you the semi-annual yield I guess so you then need to double it.11.64%30CFAI #69This is actually an easy question, you just need to know how to do weighted averages. It is possible to use the DATA and STAT worksheet on BA II Plus to solve this but it seems like more work and would be slower22Look at the portfolion again:ABondMarket ValueDuration6.2% 3 year$300,0002.57.3% 4 year$200,0002.757.1% 5 year$500,0008.02The first column is irrelevent. I made the total portfolio a nice even million dollars at current market value so:BondPercentage of PortfolioDuration130.00%2.5220.00%2.75350.00%8.02You then multiply the percentages by the durations5.3131Schweiser 2008 Exam 3 Afternoon Session50BThis was one of many questions I got wrong, this one though I could not remember the correct formula which is:Free Cash Flow = Net Cash Flow from Operating Activities - Dividends - (Purchases of Plant Assets - Sales of Plant Assets)I assumed Cash flow from operations is "Net Cash Flow from Operating Activities"Free Cash Flow = 700 - (50 - 27)67732Schweiser 2008 Exam 3 Afternoon Session54First you need to calculate the PV.CFV-$5,000,000.00PMT-$350,000.00N5I6.5%PV$5,103,891.99Then you calculate the Interest Expense, which is the PV * YTM:$331,752.98Then the Ammortization which is the difference between PMT and Interest Expense$18,247.0233Schweiser 2008 Exam 3 Afternoon Session55There are three sources of potential common shares: existing shares, convertible bonds, and warrants. We are told the bonds are dilutive and the strike price for the warrants is $25. This is above the average stock price so they are not considered dilutive, as they weren't in the money on average.BThe key data point is the bonds were issued half way through the year.Existing Common Shares1,500,000Convertible bonds 10,000 * 20 * 6/12100000Common Shares for Dilutive purposes1,600,00034Schweiser 2008 Exam 3 Afternoon Session59This question is very difficult and there appear to be two ways to do it. Both are given in the official answer keyAThe construction in progress amount is 1200 (700 + 500) added to the percentage of expenses completed 1200/1600 times construction expenses remaining 400.1500The amount of expenses invoiced by the end of 2005 is 1000 + 5001500Thus the difference is zero.35Schweiser 2008 Exam 3 Afternoon SessionD64First you must subtract the beginning retained earnings from the end retained earning.50000Next add back net income75000You must subtract dividends paid as that is done after net income is calculate.65000Now you subtract change in retained earnings to determine the amount of other comprehensive income for the year.1500036Schweiser 2008 Exam 3 Afternoon Session66Calculate the effects of a capital lease on the income statement.ADeprechiation Charge = 5000000/10500000Interest Expense = 5000000* .10500000Total100000037BFAS 2007 Morning115The official solution to this problem confused me, but I managed to get it right as it is basically an algebra problem.BThe standard deviation of the portfolio is equal to the percentage of the portfolio invested in the market times the return on the market.STDport = (1 - Wrf) * STDmarketBecause the STDmarket is a nice easy 10% you can quckly see that the portfolio is 63% risk free asset.Now you use the following formula to calculate the portfolios expected return.E(Rport) = Wrf * RFR + (1 - Wrf)* E(Rm)equals .63 * .042 + (1 - .63) * .127.09%38BFAS 2007 Afternoon117First you must work out the expected return which is simply a weighted average calculation.AExpected Return = 0.15 * 13.5% + 0.85*8%8.825The STD of a Portfolio formula even a two investment formula is lengthy, but you must memorize it.STDport = (w1^2*std1^2 + w2^2 *std2^2 + 2*w1*w2*std1*std2*cor1,2)^(1/2)The part I've forgotten is to take the square root at the end, don't forget this.First term = .15^2 * .14^20.0004412nd Term = .85^2 * .065^20.00305256253rd Term = 2*.15*.85*.14*.065*.750.001740375Variance of Portfolio0.0052339375STDport0.07234595739BFAS 2007 Afternoon118This is another CAP/M question.BExpected Return = RFR + beta*(Rm - RFR)Expected Return = 4.5 + 1.375*(8-4.5)9.3125However since we are forcasting a return of 13.5% this asset is undervalued currently.40CFAI 76B26Net rental income .95 * 150000$142,500.00Insurance, taxes and electric-30000.00Repairs and maintenance-22000.00Depreciation-29000.00Interest .10 * 600000-60000.00Before Tax Income1500.00Taxes .32 * 1500-480.00After-tax income1020.00Add back depreciation29000.00Subtract principal payment (63450 - 60000)-3450.00After-tax cashflow$26,570.0041BFAS 2007 Morning26You take the natural logorith of 1 + the holding period return.Bln(1 + .10) equals9.53%42BFAS 2007 Morning28The standard error of the sample mean is calculated as follows:Dstd/ sqr of n eqals 11/120^1/21.004158022143BFAS 2007 Morning55Basic EPS = (Net Income - Preferred Stock dividends)/weighted average shares outstandingBequals (600000 - [10% * 100 * 10000]/1000005.0044BFAS 2007 MorningA65Depreciation expense (337,820 - 5000)/1033282Interest expense 2007:Lease payment 200650000Interest expense, 2006(337820 * 8%)27026Reduction of lease obligation 200622974Lease obligation 1/1/2006 balance337820Lease obligation 1/1/2007 balance314846times Interest Rate* 8%25188Total lease-related expense 20075847045BFAS 2007 Morning80Degree of Operating Leverage measures the relationship between the changes in sales to the changes in operating cash flow.CDOL = % change in OCF / % change in salesequals 0.93 = .14 / .1546BFAS 2007 MorningD99First value the bond now. Since it is trading at par (100) we know that yield = coupon. Then add 50 basis points to the yield to determine the new price.Price before newsChangePrice after newsPV100$97.07FV100100I7%0.50%7.50%PMT77N88Change in value-2.93%47BFAS 2007 Morning100BAnnualSemi-AnnualFV100100I8%4PMT105N48PV$106.62106.7348BFAS 2007 MorningC105Boing should go long the FRA and the payoff is:50 million * (.0025 * (60/360)) / (1 + (.05 * (60/360)))Payoff20661.157024793449BFAS 2007 Afternoon24We first solve for the portfolio variance using the two asset formula.BThe key thing to remember is from the covariance matrix it is the return multiplied by the standard deviation of the asset squared.Thus (.25)^2(400) + (.75)^2(169) + 2(.25)(.75)(121)The Covariance is the number that appears twice in the covariance matrix.The variance is then 165.44 you need to take the square root of that to get the standard deviation.12.8650BFAS 2007 AfternoonA26The formula you need is r = Cov(A,B) / StdA * StdBEquals -125/(20 * 10)-0.62551BSAS 2008M39Industry A:Four-firm35% + 25% + 17% + 17%94HHI35^2 + 25^2 + 17^2 + 17^2 + 3^2 + 3^22446Industry B:Four-firm65% + 12% + 9% + 5%91HHI65^2 + 12^2 + 9^2 + 5^2 + 5^2 + 4^24516By the four-firm concentration ratio Industry A is more concentrated but by the HHI Industry A is less concentrated so the answer is:C52BSAS 2008M58Basic EPS = (Net Income - Preferred Stock dividends)/weighted average shares outstandingBBasic EPS = (600,000 - [8% * $100 * 20,000])/1,000,000$0.44M59Options are dilutive because the average stock price is above the exercise price.A100,000 * (20 - 5)/20 = 75,000 incremental sharesPer share bond effect: 1,000,000 * 9% * (1-40%)/(1,000 * 65) = 54,000/65,0000.83Bonds are antidilutive.EPS with options: 440,000/1,075,000$0.4153BSAS 2008M75First determine the present value of all future cash flows:DPMT9000N5I11PV$33,263.07Profitability Index = PF of future cash flows / Initial investmentPI = 33,263/30,0001.1154BSAS 2008M84Required Rate of ReturnBk = Rf + Beta(Rm - Rf)k = .06 + 0.85(.11 - .06)0.1025Dividend Discount ModelP0 = d0(1 + g) / k - gP0 = $1.50 / (.1025 - .08)$66.6755BSAS 2008M85Dividend Growth RateCg = ROE * (1 - dividend payout ratio)g = .17 * (1 - .4)0.102Dividend Discount ModelP2 = d0(1 + g) / (k - g)P2 = 1.35 / (.12 - .102)75Time Value of MoneyFV75N2I0.1PV$61.9856BSAS 2008M94Yield to maturity:BPV-104.21FV100PMT = 6/23N = 4 * 28I2.41%Annual Yield4.83%Yield to call:PV-104.21FV101PMT = 6/23N = 2 * 24I2.13%Annual Yield4.27%The lower of the two yields (I.e. the worst for the investor) is 4.27%, so this is the yield to worst.57BSAS 2008M99Effective duration is always stated in terms of 100 bps shift. Here we have a a 150 bps shift or 1.5X the duration effect, which is 1.5 * 6 = 9AInterest rate increases bond price goes down. So must be A or B.Estimated change using duration-9%Convexity Adjustment1.80%Total estimate price change-7.20%58BSAS 2008M108Let IM = Initial MarginCLet MM = Maintenance Margin(FT-F0)*100=IM-MMFT = F0 +(3375-2500)/100FT = 855 + 8.75863.7559BSAS 2008CM110Payoff = Notational Principal * (Exercise - Price of the Uderlying)* 90/360$187,500.0060BSAS 2008M120BBeta = Cov(I,m)/variance of m.0024/(0.1)^20.2461BSASM67There are two ways to do this question, I'm not clever enough to learn both, I need to just get it rightAOperating ActivitiesNet Income$495Less: Changes in current assets:Decrease in accounts receivable (3041-3320)279Increase in inventory (4592-3550)-1042Increase in prepaid expenses (1166-786)-380Add: Change in current liabilities:Increase in accounts payable (3238-2849)389Decrease in accrued liabilities (581-988)-407-1161Add: Depreciation expense (8425-7799)626Add: Loss on sale of long-term investments24Cashflow from operating activities($16)M68CSale of investments ([3292-2775] -24)493Purchase of equipment (15680-13268)-2412Cashflow from investing-$1,919.00M69CProceeds from debt (1931-1310) + (6013-4966)1668Proceeds from stock issue (5432-5373)59Dividends paid (495 - (2174-1697))-18$1,709.0062BSAS 2008BA32When estimating the population mean using the t-distribution, the appropriate degrees of freedom are n-1. Since n = 24, degrees of freedom are 24-1 =232363BSAS 2008A61BInventory turnover = CGS/Average InventoryCGS FIFO = CGS LIFO - Change in LIFO Reserve8066Ending Inventory FIFO = Ending Inventory LIFO + LIFO Reserve End1637Beginning Inventory FIFO = Beginning Inventory LIFO + LIFO Reserve Beginning1032Inventory turnover6.0464BSAS 2008A66BRevenues1250000Expenses700000Net Income550000Other comprehensive income:Less: Foreign currencey translation loss-125000Add: Unrealized holding gain on available for sale securities50000Less: Unrealized holding loss on derivative contracts-25000-100000Comprehensive income$450,00065BSAS 2008A86CSustainable Growth Rate = ROE * ( 1 - dividend payout ratio)g = 70K / 400K * (1 - 30K/70K)g =0.100066BSAS 2008A87ADividend Growth Rateg = ROE * (1 - dividend payout ratio)g = .15 * (.37)g0.0592Price Earnings MultipleP/E = dividend payout ratio / (k - g)P/E = .63 / (.13 - g)8.90Earnings Multiple ApproachPrice = EPS * P/EPrice = $325 * P/E$2,891.9567BSAS 2008A91CIf you just do a TVM calculation you would still get C but it would be off by 3 cents approximately.Year 16 / (1 + .0511)5.71Year 26 / (1 + .0522)^25.42Year 3106 / (1 + .0533)^390.71$101.8468Schweiser Exam 1M64DAnnual straight line deprechiation 8000/42000Annual tax deprechiation 8000/24000Annual difference 2000 * .04800Deferred Tax Asset after two years$1,600.0069Schweiser Exam 1M73Since equity is 40% of assets the leverage ratio is 1/0.4 = 2.5DUsing the dupont formula ROE = 8.7 * 2.4 * 2.552.270Schweiser Exam 1M85Correct AnswerADay 1(6 * 200) + (95 * 500) + (10 * 1000) =58700Day 2(2 * 200) + (100 * 500) + (12 * 1000) =62400(62400/58700) * (500) =531.5161839864((531.52 - 500)/500) * 100 =6.30471Schweiser Exam 1M92Correct AnswerDUnderlying earnings should be used in the calculation. These are transitory, nonrecurring components of earnings that are specific to the company. Also, the most recent earnings information should be used in the calculation. Therefore we getP/E = 27.50 / 1.10 =2572Schweiser Exam 1M116Correct AnswerDThe minimum value for a European-style call option, C , is given by:max[0, Stock Price - [Strike Price / (1 + RFR)^T] = max [0, 86 - [80 / (1.03)^3/12] = $6.59An American-style call option must be worth at least as much as an otherwise identical European-style call option and has the same minimum value. Note that this fact alone limits the possible correct responses to A and D. Since the American-style call is in the money and therefore must be worth more than the $6 difference between the strike price and the exercise price, you can eliminate response A and select response D without calculating the exact minimum value.73Stella WorkshopL1-00346Correct AnswerCThis is a test to determine if the mean is greater than 9.0%If the analyst can reject Ho, then Ha is accepted. Because the analyst believe that the mean is higher than 9.0% she writes:Hou 9.0%This test is one-tailed because Ho includes an inequality.The sample is random and the sample size is greater than 30 so we use the z-statistic.Xmax =uo + Z.051(std/root N)Xmax =9+1.65*(2.2/10)9.363Since 9.4 is greater than 9.36 the analyst rejects Ho and accepts Ha. In other words the analyst concludes that the mean has increased.74Stella WorkshopL1-03200CNet Income Change=Change in LIFO Reserve x (1- Tax Rate)(50,000 - 46,000) x (1 - .35)$2,600.0075Stella WorkshopL1-01318BReturn MarginEnd Value - Initial Value - Int-64.50%Intial Value - Value BorrowedUnmargined ReturnEnd Value - Initial Value-50.00%Initial Value76Stella WorkshopL1-02134CRiskyRisk-FreeStandared Deviation15%0%Weight in Portfoliow11-w10.06^2=w1^2(0.15)^2 + w2^2(0)^2 + 2w1w2r(0.15)(0)w1^2=.0036/.02550.16w1=0.4w2=0.677Stella WorkshopL1-01968BP/E1=payout ratio/(r - g)8=20%/(r - 4.0%)r=6.50%Risk Free=rrF + E(Inflation)Risk Free=1.0% + 1.5%Risk Premium=r - rfRisk Premium=6.5% - 2.5%4.00%78Stella WorkshopL1-02223BThe payment on a 1x4 FRA is based on the three-month LIBOR rate one month from now.2.70%The difference between the agreed and realized rate is (0.027 - 0.025)0.002Since the deposite is for 90 days and the notational principal is:$100,000,000The payment due to the FRA buyer before discounting is:100,000,000 * 0.002 * (90/360)$50,000To arrive at the correct payment, this amount must be discounted back from the three-month LIBOR deposit maturity date to expiration on the FRA, using the three-month LIBOR (2.70%) and discounting 90 days.50,000/((1+ 0.027)^(90/360))$49,668.0879BFS December 2008Morning 21In order to calculate the compound growth rate, we only need the beginning and the ending EPS values of $3.00 and $5.00.BUsing your financial calculator:N4PV-3FV5PMT0Compute I/Y13.62%80BFS December 2008Morning 57DJanuary 1 balance: 150,000 X 12/12150000March 1 issued shares: 12,000 X 10/1210000July 1 reacquire shares: -6000 X 6/12-3000September 30 2-for-1 split: (150+10-3) X 12/12157000Weighted average common shares outstanding:31400081BFS December 2008Morning 77Need to calculate the required rate of return using CAPM before solving for WACC.DCAPM =.04 + 1.2(.10 - .04)0.112WACC =((E/V) * RE) + ((D/V) * RD)9.52%82BFS December 200885Dividend Growth RateAg=ROE * (1- Dividend payout ratio)g=.15 * (1 - .4)0.09Dividend Discount ModelP2=d0(1+g)/(k-g)P2=1.5/(.12 - .09)50Time Value of MoneyFV-50N2I0.1PV$41.3283BFS December 2008101Simply string together forward rates to create a discount rate for each period.D1 year coupon2 years coupon3 years coupon1 + 1f0(1 + 1f0) * (1 + 1f1)(1 + 1f0) * (1 + 1f1) * (1 + 1f2)Plugging in values:5.255.25105.251+ .044(1 + .044) * (1 + .0475)(1 + .044) * (1 + .0475) + (1 + .050)$101.4984BFS December 2008Moring 105Don't think too much on this question!DCash =$100000000 * 0.68976897000086BFS December 2008DMorning 26First calculate the holding period yield (HPY)HPY =(P1 - P0 + D1)/PoHPY =100000-99000/990000.0101010101In order to calculate the effective annual yeild (EAY) compound the 90-day HPY forward to one year using:EAY =((1+HPY)^365/t) -1EAY =((1+ .0101)^365/90) - 10.041601773887BFS December 2009B=.12 + .19 - (.12)(.19)0.287288BFS December 2009AFirst determine the variance then take the square rootVAR =(.25)^2 * 215 + (.75)^2 * 177 + 2 * .25 * .75 * 98VAR =149.75STD =12.2372382505%89BFS December 2009CAssetsLiabilitiesEquityExpenses50000050000000100000-100000-70000-7000070000430000500000-700007000090BFS December 2009AAccounts Receibable13000Accumulated Depreciation - Building-6000Accumulate Depreciation - Furniture & Fixtures-9000Building60000Cash24000Copyrights22000Furniture & Fixtures15000Land25000Office Supplies1000Prepaid Insurance3000Total Assets$148,000.0091BFS December 2009AThis is trickier than the other one in some ways, as you kinda have to work backwards. These little twists you sometimes miss when you're rushing through the exam.Calculate first the number of common shares outstanding at each of the transaction points during the year, starting from the balance at the end of the year:Oct. 1 - Dec. 31 2008Ending Balance77000000July 1 - Sept. 30, 2008Pre-10% stock dividend (77 m/1.10)70000000Jan. 1 - June 30, 2008Pre-issuance of new shares (70m - 10m)60000000We can then calculate the weighted average shares outstanding for the year:Jan. 1 beginning balance60,000,000 * 12/1260000000July 1 issue10,000,000 * 6/125000000Sept. 30 stock dividend(60000000 + 5000000) * 10% * 12/126500000Weighted average shares outstanding7150000092BFS December 2009A74First calculate the YTM using the time value of money buttons on your calculator.PMT70PV-950FV1000n29I7%After tax cost is I * 1- tax rate4.83%93BFS December 2008C57Financial statement income250000Less: Excess tax depreciation (90000 - 50000)40000Taxable Income210000* current year tax rate30%Income tax payable63000Change in defered tax liability:Restatement of 1/1/08 liability (6000 * 40%/30% - 6000)2000Add: Current year temporary difference (40000 * 40%)16000Increase in deferred tax liability in 200818000Income tax expense (63000 + 18000)8100094BFS December 2008C75Avg investment in receivables =sales/(365/collection period)Avg investment in receivables =401000 / (365/35.5)Avg investment in receivables =39001.369863013795BFS December 2008A78Inventory Turnover =COGS/InventoryInventory Turnover =$2453/$368Inventory Turnover =6.7Inventory Days =365/ inventory turnoverInventory Days =365/6.7Inventory Days =5596BFS December 2008BP/E =dividend payout ratio / (k-g)15 =(1.5M/5M)/(.12 -.10)97BFS December 2008BDividend Growth Rateg =ROE * (1 -Dividend Payout Ratio)g =.16 * .4g =0.064Price Earnings MultipleP/E =dividend payout ratio / (k-g)P/E =.60 / (.13 - .064)P/E =9.0909090909Earnings Multiple ApproachPrice =EPS * P/EPrice =$350 * 9.09Price =$3,181.8298BFS December 2008C99To determine the 6-month forward rate in one year, divide the 1.5 year spot rate by the 1 year spot rate:1.5 Year Spot Rate =(1 + (.045/2))^31.06903014061 Year Spot Rate =(1 + (.0435/2))^21.0439730625BEY =(1.06/1.04 - 1) *24.80%99BFS December 2008C108Dealer Pays =$1000m*0.055*183/365 =$27,575,342.47Manager Pays =$1000m*(1090/1153 -1) =-$54,640,069.38Net:Dealer pays fund manager=$27.58m - (-54.64m) =$82,215,411.85100BFS December 200951-54Cash Flow from OpperationsNet Income$13Plus Deprechiation5Minus Change in Accounts Receivables4Minus Change in Inventory-14Minus Change in prepaid expenses-3Plus Changes in accounts payable-15Plus changes in salaries payable1Plus changes in income tax payable-3Plus loss on sale of equipment2Operating Cash Flows($10)ORCash collections (100 - 4)$104Minus Cash payments for inventoriesCOGS46Plus Change in Inventory14Minus change in accounts payable1575Minus cash payments for expensesOperating expenses (27 + 3 + 4)34Plus change in prepaid expenses3Minus change in salaries payable-1Minus change in income tax payable339Operating cash flows($10)Cash Flow from InvestingPlant & equipment (net), beginning + purchases - Book value of disposals - Depreciation expense = Plant & Equipment (net), ending265 + Purchases - BV of Disposals - 5 =255The problem mentions no purchases but because of the loss on sale of equipment, we know there has been a disposal. Hence: 260 - BV of disposals = 255 -> BV of disposals =5Investing cash flows = Proceeds from sale of equipment = BV of disposals - loss on sale5-2$3Cash flows from FinancingFincancing cash flows:Issuance of bonds payable (100-88)12Issuance of common stock (80-70)10Minus Dividends paid (160+13-170)-3$19101BFA Afternoon 200920First we need to calculation the minimal level of riskminimum level of risk = 5000/2000002.50%SFR (A)(9.5-2.5)/7.80.8974358974SFR (B)(12.7-2.5)/15.00.68SFR ( C )(18.1-2.5)/16.70.9341317365Select Portfolio C because the SFRatio is the highestC102BSAS 2009 Afternoon30t = ((176-218) - 0) / SQR ROOT ((144.09/50)+(144.09/50))-17.4945338121C103Kaplan IncFirst we need a monthly rate 6%/12 =0.50%Next need the montly paymentPV200000FV0N360I/Y0.50%PMT($1,199.10)Now calculate PV after 48 paymentsN312PV$189,229.06The answer is B104Kaplan IncFirst find the yield at the time of the purchasePV-10444FV10000PMT600N5I/Y4.9752%Now assume interest rate is a whole percent, ie 100 basis points lower.I/Y3.9752%N4PV$10,735.42Finally calculate the holding period of return using the following formula:Pt - Pt-1 + Dt / Pt-18.54%A105Kaplan IncPrice Elasticity of Demand = %change in quantity over %change in price%change in quantity = (6.7-7.5)/((7.5+6.7)/2)-11.27%%change in price = (2.25 - 2)/((2+2.25)/2)11.76%Now take the first number over the second number-0.96A106Kaplan IncCapital component breakpoint =value at which component's cost of capital changesWACCDebt Breakpoint = $200000/.4$500,000.00B107Kaplan IncE( R ) = 7 + 0.9(11-7)10.6Because the expected return of 10% is less than the required return of 10.6% the security isOvervaluedA108Kaplan IncFirst find the YTM for the first bondPV-$701.22FV$1,000.00PMT$80.00N20I/Y12%Next use that rate to calculate payment for the second bond.PV-$701.22FV$1,000.00N5I/Y12%PMT$37.12C1092012 CFA Level 1 Book 2AWith a linear supply curve, producer surplus is equal to the area of a triangle with base equal to the market clearing price minus the price intercept, height equal to the market clearing quantity, and bounded by the supply curve as the hypotenuse. Given a (market clearing) price of 15, quantity is 2:Q = -7 +0.6(15) =2Next find the inverse supply functionP = (1/0.6)7+(1/0.6)QP = 11.67 + 1.67QNote that the price intercept is 11.7 and the quantity intercept is -7. Thus producer surplus is 1/2 Base X Height = (1/2)(2)(15-11.7)3.3110Kaplan Inc.AThis is a geometric mean question, but I often manage to get them wrong even remembering that it is the nth root of the products.There are four years to average out so on the BA II Plus you do the fourth root with the y^x button and .25Finally you need to remember to subtract one!(1 + .25)(1 - .25)(1 +.3)(1 -.3)0.853125fourth root of products0.9610658979Subtract on-3.89%111Kaplan Inc.BI thought this question needed the five part DuPont method, at first.But you actually only need the 3 part DuPont method, solve for net income.ROE =(net income/revenue) * (revenue/total assets) * (total assets/ total equity)You also need to remember total assets/total equity is financial leverage.0.15 =(net income/ $3 billion) * ( $3 billion/ $5 billion) * 2.5Net income =(0.15 / ((.6)*2.5))*3000000000$300,000,000.00112Kaplan Inc.AI knew how to do half this question, that in of itself is a valuable lesson as some questions are more time consuming and if you can get away with only doing half the work, you may want to select your answer and move on.Sometimes you can determine the answer without pressing a single button on your calculator just by using logic.Here are the buttons to press, first find PVFV($10,000,000)PMT($800,000.00)N5I/Y8.25%PV$9,900,836.51That is enough to select A.Interest expense is equal to PV * I/Y$816,819.01Year end adjustment equals interest expense - PMT$16,819.01Year end debt equals PV + adjustment$9,917,655.52Since this is a discount bond, the answer had to be A113Kaplan IncBThis is one of the worst styles of problems asked on the level 1 CFA exam. It requires a lot of button pressing to properly answer and few companies use discounted payback period. The math isn't that hard, but you can try to reason your way to B or you can calculate it as follows:12%YearNet Cash FlowNet Cash flow discounted at 12%Commulative discounted net cash flow0($5,000)($5,000)($5,000)1$1,900$1,696.43($3,303.57)2$1,900$1,514.67($1,788.90)3$2,500$1,779.45($9.45)4$2,000$1,271.04$1,261.58Discounted payback period= 3 + 9.45 /1271.043.01114Kaplan IncBThis is another difficult question, not because of the math, but because of all the text, numbers, and dates. I solved this using half year returns and averaging.This is the official solution:Since the portfolio manager is not directing the flow of cash into and out of the account, the time-weighted annual rate of return is the appropriate performance measure.Caculate 2 year holding period return + 1, take square root, then subtract 1.[(11.2/10)(12.5/12.4)(15/11.9)]^(1/2) - 119.30%115Kaplan IncCPrice =EPS * (P/E) = 10(12) =120Expected return =(dividend + (ending price - beginning price))/beginning priceExpected Return25.00%116Kaplan IncBThis question actually requires you to know quite a lot about bond pricing.You need to know that BEY is twice the semi-annual yield. You also need to know about par value, but ultimately it is a time value of money question.BEY8%6-month discount rate4.00%PV = cash flow in six month + cash flow in 12 months1025 =50/1.04 + 1050/(1+r)^2We want r, the unknown spot rate 12 months from now.1025 - 48.08 =1050/(1+r)^2(1+r)^2 =1050/976.921.0748065348r =((1.0748)^0.5) - 10.0367256146BEY7.35%117Kaplan IncCI bet if they had 8.5% as an answer a lot of people would guess it, as it is most people would guess between 7 and 9 based on some kinda logic, the real answer is to discount the five year rate over the four year rate back to now.Forward rate =((1+R5)^5 / (1+R4)^4) - 110.02%118Kaplan IncBThis is one of those CFA questions where when you see the answer you get upset. The clean price is the quoted price.Clean Price =89.14 percent of par value of $1000$891.40119Kaplan IncAThis question looks intimidating.It has exchange rates, interest rates, dates, fixed, and variable rates.The official explination is as follows:In foreign currency swaps, both parties exchange full interest payments. The New Zealand company pays 6% variable on USD (USD 60000). The U.S. company pays 7% fixed on NZD (NZD 140,000).That answer seems explination seems rather in sufficient.Both companies pay at the end of every year, the New Zealand company pays in USD and the US company pays in NZD.That fact alone eliminates B. Now you only need to know how much the New Zealand company pays."The New Zealand company swaps NZD for USD on which it makes end-of-period payments based on the rate in effect at the beginning of each period."That makes their interest rate6%Payment =notational principal times interest rate$60,000.00There is a lot of information you don't need provided in this question.120Kaplan IncAThis question is easier than some, as the question spells out most everything you need to know: quarterly = 91 days, who pays fixed, who pays float, net payment.One thing that confuses me in some of the formulas you need to memorize is whether they get a portion of yearly rate or they get the entire yearly rate in a reduced time frame.In this question the fixed rate is assumed to be yearly so the dealer pays 91/365th or it.Dealer payment =(5.5%)(91/365)($50 million)$685,616.44Mutual fund payment =((1052.5/1038.4) - 1)($50 million)$678,929.12Net Payment is difference$6,687.32Dealer's payment is larger so he actually pays just the net difference.

&CAnswers and ExplinationsNo guarantee of 100% AccuracyAndrew McKay:I got burnt the first time thinking it was a cash dividendAndrew McKay:The Bond