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2017 CFA level 2 DerivativesDescription complète
Click the button to modify questions and answers. No guarantee of 100% accuracy. Created by Muskie McKay Random Number Integer Integer Integer Integer
Below Below Below Below
Ten Hundred Thousand Ten Thousa
0.727622628 7 53 478 4032
Small Decimal Medium Decimal Large Decimal
0.09 0.31 0.69
Second Small Decimal Second Medium Decimal Second Large Decimal
0.06 0.23 0.67
Between Between Between Between Between
1-7 8-12 13-24 75-95 1-96
Less Than 250 Less Than 500 A Couple Hundred Less than 15000
1 10 13 77 56 157 316 951 7394
Financial Reporting Analysis Based on Question 1 in Muskie's problem set
Use the following information to calculate the cashflow from operating activities and cashflow from financing activities. (in millions of US dollars) Cash collections on receivables Cash dividends on common stock paid Cash dividends on preferred stock paid Cash purchases of inventories Cash receipts of dividends Depreciation expense Interest payments Payments of expenses Proceeds from issurance of common stock Proceeds from bridge financing Proceeds from sale of equipment Repurchasing of issued shares Purchase of land Purchase of trading securities
Cash dividends on common stock paid Cash dividends on preferred stock paid Proceeds from the issuance of common stock Proceeds from bridge financing Repurchasing of issued shares Financing Cash flows
$ $ $ $
690.00 737.00 (471.00) 740.00
Financial Reporting Analysis Based on question 2 in Muskie's Problem Set
Calculated the weighted average shares for the year. 1-Jan 1-Mar 30-Jun 1-Jul 1-Oct
Number of shares outstanding Number of shares issued 3.5% cash dividend declared Number of shares reacquired Two-for-one stock split
530,000 23000 31000
1-Jan 1-Mar 30-Jun 1-Jul 1-Oct
Beginning balance X 12/12 New Shares issued 10/12 3.5% Cash dividend Reacquired shares: X 6/12 X -1 2-for-1 split Weighted average shares outstanding
530000 19167 -15500 533667 1067333
Corporate Finance Based on question 5 from Muskie's Problem Set
Using the following information what is the cost of equity capital for Sears Mining? Next Year's Dividen Retention rate of ROE Stock Price
$3.66 0.81 7.89 $73
First calculate g which is equal to the dividend retention rate times the ROE. g= Next take the dividend in year one over the current stock price and add the growth rate g Cost of Equity r =
Corporate Finance Based on question 6 in Muskie's Problem Set
John 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: Before-tax cost of new debt Corporate Tax Rate Target debt-to-equity ratio Current Stock Price Next year's dividend Estimated growth rate Estimated Beta
10.67 % 0.41 per dollar 0.8 $63 $1.67 9.69 % 1.23
First determine the cost of equity using the dividend discount model. Beta is of no use in this question. Cost of Equity = Next use the targe debt-to-equity ratio to work out the weighting for debt and equity. Wd = .8 / 1.8 We = 1 -Wd Finally use the WACC formula and the corporate tax rate and the before tax cost of debt. WACC =
Corporate Finace Based on Question 9 in Muskie's Problem Set
Calculate the bond equivalent yield for a U.S. Treasury bill with the following characteristics: Days Price Face Value
153 $9,761.00 $10,000.00
This is one of many yeild formulas you have to remember. Some use a 360 day year while some use a 365 day year. This one has a 365 day year! First calculate the dollar return by subtracting the price from the face value: Then determine the yearly return: Finally work out the return for only the days you hold the bond
Equity Investment Based on question 21 in Muskie's Problem Set
Yakamichi Corp paid $1.69 annual dividend last year and distributed 61 percent of its earnings to shareholders. The firm's ROE is 23.09 percent. If investors require 17 percent rate of return on this stock, the estimated value of Yakamichi's stock is:
First you need to calculate the dividend growth rate before solving for the stock's intrinsic value: Dividend Growth Rate: g= ROE * (1 - dividend payout ratio) g=
Stock's Intrinsic Value: P= d0(1+g)/(k-g)
Fixed Income Based on question 25 of Muskie's Problem Set
What is the value of a 5 year 5 percent coupon bond selling at a yield of 3 percent assuming the coupon payments are made semiannually?
This 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. N PMT I FV CPT PV
10 2.5 1.50% 100 ($109.22)
Financial Reporting Analysis Based on question 31 from Muskie's question set
An analyst gathered the following information about a company: Cash flow from operations Purchase of Plant Sale of Land Interest Expense Depreciation and Amortization The company has a tax rate of 35% and prepares its financial statement under U.S. GAAP
The company's free cash flow to the firm is?
$951 $478 $316 $77 $69
This 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
Financial Reporting and Analysis Based on question 32 in Muskie's Problem set
A company issues $1,000,000 of 7 year annual, 9.50% coupon bonds. Upon issurance their YTM was 6.00% Based on this information, the initial balance sheet interest expense and the first year's income statement armortization are?
First you need to calculate the PV. FV -$1,000,000.00 PMT -$95,000.00 N 7 I 6.0% PV $1,195,383.35 Then you calculate the Interest Expense, which is the PV * YTM: $71,723.00 Then the Ammortization which is the difference between PMT and Interest Expense $23,277.00 1st 2nd 3rd 4th
Financial Statement Analysis Based on question 35 Muskie's Problem set
At the end of its last fiscal year, Vintner's Supply Corp. reported retained earnings of $770,000 This year, Vintner's reported year-end retained earnings of $1,570,000 paid dividends of $100,000 paid interest expense of $10,000 and had net income of $130,000 Vintner's other comprehensive income for this year is?
First you must subtract the beginning retained earnings from the end retained earning. Next add back net income You must subtract dividends paid as that is done after net income is calculate. Now you subtract change in retained earnings to determine the amount of other comprehensive income for the year.
$800,000 $930,000 $830,000
Financial Statement Analysis Based on question 44 Muskie's Problem Set
On January 1st, 2006 Immobile Company entered into a 10 year capital lease agreement for machinery in exchange for equal, annual year-end payments of $31,000 and a guaranteed residual value of $10,000 at the end of the lease. The capital lease has a present value of $337,820 based on an implicit interest rate of 9% . Assuming the company uses the straight-line method of depreciation, the total amount of lease related expenses in 2007 is?
Quantitative Based on question 49 from Muskie's Problem set
An 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:
Expected Return of A Expected Return of B Fund A B
B 100 64
The standard deviation of the portfolio is?
We first solve for the portfolio variance using the two asset formula. The key thing to remember is from the covariance matrix is it is the return multiplied by the standard deviation of the asset squared. The Covariance is the number that appears twice in the covariance matrix.
Variance Standard Deviation
Equity Investments Based on question 55 Muskie's problem set
A stock is not expected to pay dividends of $1.69 per share until two years from now. At this time, the dividend distribution is going to be 61% of net income, earnings growth is projected to be 9% , and the return on equity is expected to be 13% If the required rate of return is 11.0% for the first two years and 15% thereafter, what is the approximate value of the stock today?
Accounting Based on Question 14 from Muskie's Problem Set
Suppose a company uses trade credit with a 6% discount on the 10 th day and the full amount due 53 days after the close of the sale. The effective borrowing cost of skipping the discount on day 10 is?
Discount Difference Days to close Discount Period Interest Paid Days Exponential Cost 1st 2nd 3rd 4th 5th
6% 94% 53 10 43 8.488372093
Determine the difference between discount and full price 94% Determine the how many days of credit usuage 43 Determine the simple interest rate 6.38% One plus simple interest rate raised to 365/days of credit u 1.690833242 Subtract one 69.08%
Equity Valuation Based on question 22 in Muskie's Problem Set
The market equalibrium rate on the stock of Williams Brothers is 10.00% . Its expected return on equity is 13.50% and its expected earnings per share is $1.23 . If the firm's plowback ratio is ### , its price to earnings ratio will be?
Dividend Payout Ratio Market Equalibrium Rate ROE Plowback ratio P/E
0.84 10.00% 13.50% 16.00%
Accounting Inventory Adjustment Based on Question 74 from Muskie's Question Set
Theta Corp. uses LIFO inventory accounting. The footnotes to the 20X9 financial statements contain the following information: 20X8 20X9 Raw Materials $130,000 $140,000 Finished Product 478,000 530,000 $608,000 $670,000 Less adjustments to LIFO basis $ (35,000) $ (42,000) $ 573,000 $ 628,000 Tax rate is 35% If FIFO had been used for both years, the 20X9 net income would have changed by?
Net Income Change= Change in LIFO Reserve x (1- Tax Rate) Change in LIFO Reserve $ 7,000.00
Net Income Change
Portfolio Theory Based on Question 76 from Muskie's Question Set
Dr. Filly plans to invest $157 with a portion in a risky asset and a portion in a risk-free asset.The risky asset has an expected return of and a standard deviation of 31% while the risk-fre asset has an expected return of 6% 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
Risky Standared Deviation Weight in Portfolio
Risk-Free 31% 0% w1 1-w1
STD^2 w1^2(std1)^2 w2^2(std2)^2 2w1w2Cov(r1,r2) 0.0081 w1^2(std1)^2 0 0 It is easy to see how the second term is zero'ed out, but the final term is also unnecessary because we are using the risk-free asset as one of our portfolio members. w1^2= 0.0081 divided by (std1)^2 std1^2= 0.0961 w1^2= 0.0842872008 w1= 0.2903225806 Risky w2= 0.7096774194 Risk Free I seem to solve these ones by assuming all the deviation comes from the risky asset and then figuring out what portion of the portfolio I should put into it to get the desired portfolio STD.
Forward Rate Agreement so Derivatives Based on question 78 in Muskie's problem set
$53,000,000 1X4 FRA contract Suppose two parties agree to a 3.00% In one month's time the on the LIBOR at a rate of following LIBOR rates are observed: # of days in LIBOR Period 3.00% 30 1 month 3.09% 60 2 months 3.18% 90 3 months 3.27% 120 4 months 3.36% 150 5 months 3.45% 180 6 months What is the paymet amount due to the FRA buyer?
Derivatives Based on Question 78 from Muskie's Problem Set
The payment on a 1x4 FRA is based on the three-month LIBOR rate one month from now. The difference between the agreed and realized rate is Future Rate - Contract Rate Since the deposite is for 90 days and the notational principal is: The payment due to the FRA buyer before discounting is: Principal * Rate Difference * Number of Days/360
3.18% 0.18% $53,000,000
To 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 threemonth LIBOR and discounting 90 days. $23,664.07
Quantitative Based on Question 79 Muskie's Problem Set
Over the last five years, the earnings per share data for a firm were as follows: 2003 2004 2005 2006 2007 Over this period, the EPS compound annual rate was?
$1.00 $1.50 $2.00 $2.50 $3.00
Quantitative Based on Question 79 from Muskie's Problem Set
In order to calculate the compound growth rate, we only need the beginning and the ending EPS values. Using your financial calculator: N PV FV PMT
4 -1 3 0
Financial Statement Analysis Based on question 52 from Muskie's Problem Set
Common Stock Noncumulative 10% Preferred Stock 12% convertible bonds
$0.69 par $100 par ###
1000000 oustanding 5000 outstanding 500
Each ### bond is convertible into shares of common stock. In addition, the company had options outstanding the entire year. Each option allows the holder to acquire one share of common stock at a price of $3 The average market price of the common stock for the year was
$690,000 $500,000 $500,000 77 700,000
Net Income for the year was $1,400,000 and the income tax rate is 45% The company paid dividends to common stock of $140,000 for the year.
Calculate the basic earnings per share and diluted earnings per share for the year.
Financial Statement Analysis Based on Question 52 in Muskie's Problem Set
Basic EPS Basic EPS = Basic EPS =
(Net Income - (preferred stock dividend rate X par rate X preferred shares issued))/common shares outstanding
$1.35 Diluted EPS
Number of Options Issued X (Average Share Options are Dilutive Price - Exercise Price)/Average Share Price Per share bond effect: EPS with options:
Rate)/(Bonds Issued X Share Conversion Rate) Net Income - Preferred Shares Dividends Option Adjusted Shares Issued
Diluted EPS =
If-Converted Method Convertible Bond Only Basic EPS If-Converted Net Income $1,400,000.00 $1,400,000.00 Preferred Dividends 50000 50000 After-Tax Cost of Interest 33000 Numerator $1,350,000.00 $1,383,000.00 Weighted Average Shares Outstanding If Converted Denominator
1000000 0 1000000
1000000 38500 1038500
Bonds are antidilutive Options Only Basic EPS If-Converted Net Income $1,400,000.00 $1,400,000.00 Preferred Dividends 50000 50000 Numerator $1,350,000.00 $1,350,000.00 Weighted Average Shares Outstanding If Converted Denominator
1000000 0 1000000
1000000 538462 1538462
0.86 1350000 1538462
Quantitative Based on Example in Schweiser
Calculate a 95% confidence interval for the mean of a sample of size 23 drawn from a normal distribution with mea 10 and standard deviatio 3 .
Quantitative Based on example in Schweiser
First calculate the standard deviations of the mean for sample size Standard Deviation over square root of sample size
A ### confidence interval will extend 1.96 standard deviat above and below the mean, so our confidence interval is: mean + or - 1.96 times the first number we calculated Confidence Interval Lower Bound 8.774 Confidence Interval Upper Bound 11.23