CFAi Mock Questions only

[shah.n.amar]

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

[Arif Irfanullah]

Please post your questions related to CFAI mocks under this thread.  If you've already posted under a different thread and the question still holds, please re-post here.  My apologies for making you do this but it is difficult for me to find questions across different threads.  

On a different note, I want to appreciate Andrei Radu's efforts in responding to questions. I request others to step up on the 'responding to others front'... not just on the asking questions front....

[Mehreen Amanullah]

Sir can you please explain CFAI 2011 A Ques 51. I can't understand that why are we subtracting increase in notes payable from net borrowing and why is cash being included in Working Capital Calculation.

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[Chintan Dave]

CFA Mock 2009 Afternoon session (FRA) Question 22 cannot understand why accounts receivables should be reduced for making adjustments to working capital.

[Andrei Radu]

Issues on mock 2009:

morning: q 42, q 50, q 59

afternoon: q 23, q 24, q 25, q 30 (why not Wcap also, and why 1/2 and not 0.4 target ratio), q45, q46  

Issues on mock 2011:  mock afternoon some issues: 

afternoon: q 51, calculation of fcfe: Reading the answer: the Net Increase in WCap includes the variation of Cash accounts and Notes Payables; is this correct?; q 58, q 60 

Issues mock 2012: 

afternoon: q 32: the Value of debt is computed as A/P+ Notes Payables + LT Debt, while the Cash is not added to the EV; q 34: the Value of debt is computed as only LT Debt, shile the Cash on BS is added to the EV

On Wed, May 22, 2013 at 5:44 PM, Chintan Dave <chintan...@gmail.com> wrote:

CFA Mock 2009 Afternoon session (FRA) Question 22 cannot understand why accounts receivables should be reduced for making adjustments to working capital.

--

[Sahar merchant]

Issues:

CFAI 2013 M: Q8, 13, 50, 58, 59 (for Armishaw's assumption, why is the RI from 2022 used while fo Stacks, RI for 2023 (RI for 2022 *(1+g)) used? and then why is the diffrenece discounted back 10 years and not 9 years?)

CFAI 2013 A: Q7, 8, 9, 10

2010 A CFAI PAST MOCK: Q13, 26,27,31,32,54

2010 M CFAI PAST MOCK: Q32,33,39,41,44,

2012 A CFAI PAST MOCK: Q17(what if the investment was treated as HTM)?, 16, 24(how would the answer differ if this company was following IFRS?), 32, q35(how does increased WC overestimate CFO?), 44(in the slution, why is z4 added as 0.0149 and not 0.9149?)

2012 M CFAI PAST MOCK: Q38, 39, 41, 48(is it reduced by $30 because it is not considered sold? then where will the profit of $30 be recognized?)

2011 M CFAI PAST MOCK: Q13

2011 A CFAI PAST MOCK

[CFA Prep]

In the CFA Mock Exam 2013 Afternoon Session...in question no. 53, the GTM method is being used but still they are using the 30% control premium whereas control premium should not be used for GTM and should only be used for GPCM, because in GTM the multiples reflect acquisition of total equity and so no control premium should be included. Is the solution in the mock incorrect? I am referring to example 6 on page 451(equity) when I say no control premium is necessary. Please guide me Sir. Thanks

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[vaibhav aggarwal]

1) Why in q no 17 in afternoon session the floor value is straight value+ call value ?

should it not be only straight value ?

2013 cfa mock

[vaibhav aggarwal]

In Q no 9 in morning CFA mock 2013

where is risk free rate to calculate price of forward contract

On Thu, May 23, 2013 at 8:47 PM, CFA Prep <cfalev...@gmail.com> wrote:

[vaibhav aggarwal]

Dear Arif Sir

I humbly request you to please explain the last case study (55-60) in CFA 2013 morning session

That was by far the toughest case study i have ever seen in equity .

Pleaseee

[Arif Irfanullah]

Response to questions related to the 2009 exams can be found here.

Am working on the 2010 material now.  

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

[Sara Walji]

I scored 65% on the overall mock of 2013.

I have the following issues in the pm mock:

·        Q10) why do we take 30mn as the exercise price and not 32mn, as the option was to exercise at 32mn?

·        Q39) why don’t we subtract interest from CFO for calculating cash flow based accrual since Interest is included in financing activities as per this company’s policy?

 

 

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

[Andrei Radu]

Mock 2013: 65% morning session, 63.3% afternoon session 

it is fantastic to see how challenging is to find the relevant information in the item text, while how easy is to get wrong on some very easy questions 

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[Lijo Jose]

Mock 2013 am 55%, pm 69%. Ethics questions were so hard I initially thought the questions were stupid! I'm going to study ethics for the next two days :@ 

I've heard that if you fail ethics you are allowed to fail only two other topics. Is this true?

Sara - check errata there is a correction on the option question. 

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[Andrei Radu]

What do you mean by fail?

[Lijo Jose]

Frankly I don't know. One of my colleagues (charterholder) told this to me. <70% possibly...?

[vaibhav aggarwal]

65% seems to be benchmark score

[vaibhav aggarwal]

Arif sir

Please explain in 2011 cfa mock

a) 39 question in morning session

b) 36 question in evening session

-Amar

 

--

[Arif Irfanullah]

I've posted videos for 2010 and 2011 mocks.  Will be working on 2012 next and then 2013.  

In the mean time please answer each others questions.  I'll not be able to do justice to all questions.

We are one big team and need to help each other. 

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

[Keith Zaccaria]

Has anyone done the BSAS 2013 mock? 

--

[christop...@gmail.com]

Sir
With respect to the 2013 PM paper. My challenge is to find the clues that should have guided my thought towards the solution CFA presented which on reviewing kind of make sense but did not fit in the line of reasoning of the questions. Any tips would be appreciated.

Sent from my BlackBerry® device from Digicel

---

From: Arif Irfanullah <arif.ir...@gmail.com>

Sender: 2013-cfa-le...@googlegroups.com

Date: Mon, 27 May 2013 02:24:55 -0700 (PDT)

To: <2013-cfa-le...@googlegroups.com>

Subject: Re: CFAi Mock Questions only

--

[Andrei Radu]

Could anyone please explain to me the following affirmation from the Active Portfolio reading: 

" When the Beta of the active portfolio is low (less than 1), there is more potential gain from diversification, hence a smaller position in the active portfolio is called for."

I have some difficulties in understanding why a smaller position is called for in the active portfolio, and why not a larger one. 

[Amar N. Shah]

I think more volatility = more chances that there is miss pricing.

My Opinion.

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[Lijo Jose]

I see it differently. you have two assets, one is highly diversifying and the other is not and you are looking to add these to your portfolio to achieve some predetermined level of diversification. In both cases we are assuming that higher diversification leads to larger gains.

Since the first asset is highly diversifying (in this case the active portfolio with a low beta) you only need to add a small position to achieve the diversification (and potential gain from diversifying) you set out for initially. The other asset (high beta) is not so diversifying so you will have to add a larger position to achieve the same level of diversification. I guess after a particular level, diversification will lead to lower returns, until then this strategy  would make sense I think.

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[Andrei Radu]

many thanks to both of you

it is more clear now

[ammarm89]

Here is something I found in the curriculum, page 467 on the derivatives reading. Its a bit complicated but its essentially just saying what Jose said. I think this is one of those things you should just memorize, the derivations are a bit confusing. 

"If the systematic risk of the active portfolio is average, that is, βA = 1, then the optimal weight is the “relative advantage” of portfolio A as measured by the ratio: alpha/[market excess return], divided by the “disadvantage” of A, that is, the ratio: [nonsystematic risk of A]/[market risk]. Some algebra applied to Equation 5 reveals the relationship between w0 and w*:

w* = w0 / [1 + (1 − βA)w0]

w* increases when βA increases because the greater the systematic risk, βA, of the active portfolio, A, the smaller is the benefit from diversifying it with the index, M, and the more beneficial it is to take advantage of the mispriced securities. However, we expect the beta of the active portfolio to be in the neighborhood of 1.0 and the optimal weight, w*, to be close to w0."

(Institute 467)

Institute, CFA. Level II 2013 Volume 6  Derivatives and Portfolio Management.

On Monday, May 27, 2013 2:09:33 PM UTC-4, Andrei Radu wrote:

many thanks to both of you

it is more clear now

On Mon, May 27, 2013 at 8:03 PM, Lijo Jose <lijo...@yahoo.com> wrote:

I see it differently. you have two assets, one is highly diversifying and the other is not and you are looking to add these to your portfolio to achieve some predetermined level of diversification. In both cases we are assuming that higher diversification leads to larger gains.

Since the first asset is highly diversifying (in this case the active portfolio with a low beta) you only need to add a small position to achieve the diversification (and potential gain from diversifying) you set out for initially. The other asset (high beta) is not so diversifying so you will have to add a larger position to achieve the same level of diversification. I guess after a particular level, diversification will lead to lower returns, until then this strategy  would make sense I think.

On 27 May 2013, at 18:47, "Amar N. Shah" <shah....@gmail.com> wrote:

I think more volatility = more chances that there is miss pricing.

My Opinion.

On Monday, May 27, 2013, Andrei Radu wrote:

Could anyone please explain to me the following affirmation from the Active Portfolio reading: 

" When the Beta of the active portfolio is low (less than 1), there is more potential gain from diversification, hence a smaller position in the active portfolio is called for."

I have some difficulties in understanding why a smaller position is called for in the active portfolio, and why not a larger one. 

On Mon, May 27, 2013 at 7:27 PM, <christop...@gmail.com> wrote:

Sir
With respect to the 2013 PM paper. My challenge is to find the clues that should have guided my thought towards the solution CFA presented which on reviewing kind of make sense but did not fit in the line of reasoning of the questions. Any tips would be appreciated.

Sent from my BlackBerry® device from Digicel

---

From: Arif Irfanullah <arif.ir...@gmail.com>

Sender: 2013-cfa-level-2-group@googlegroups.com

Date: Mon, 27 May 2013 02:24:55 -0700 (PDT)

To: <2013-cfa-level-2-group@googlegroups.com>

Subject: Re: CFAi Mock Questions only

I've posted videos for 2010 and 2011 mocks.  Will be working on 2012 next and then 2013.  

In the mean time please answer each others questions.  I'll not be able to do justice to all questions.

We are one big team and need to help each other. 

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

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858.663.5100

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[vaibhav aggarwal]

Arif Sir

Arif Sir

Please tell in Q no 40 in CFA 2012 mock . Why when calculating adjusted long term debt/ Assets ratio Why total value of lease is taken as long term debt? Why is current portion not taken current short term debt which is due in 1st year ?

Shouldnt Long term debt increase by 760- 130 ?

On Tue, May 21, 2013 at 4:53 AM, shah.n.amar <shah....@gmail.com> wrote:

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

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[ammarm89]

Also think of it like this, when an asset has a higher beta (more risk) investors expect a greater excess return. Since the active portfolio is more risky than the market portfolio, you would want to add less of it to your optimal portfolio. So if it has a higher excess return per risk (sharpe ratio) you can add a smaller weight of it to achieve the same diversification benefit. (Not sure if this is correct but makes sense to me)

On Monday, May 27, 2013 2:09:33 PM UTC-4, Andrei Radu wrote:

many thanks to both of you

it is more clear now

On Mon, May 27, 2013 at 8:03 PM, Lijo Jose <lijo...@yahoo.com> wrote:

I see it differently. you have two assets, one is highly diversifying and the other is not and you are looking to add these to your portfolio to achieve some predetermined level of diversification. In both cases we are assuming that higher diversification leads to larger gains.

Since the first asset is highly diversifying (in this case the active portfolio with a low beta) you only need to add a small position to achieve the diversification (and potential gain from diversifying) you set out for initially. The other asset (high beta) is not so diversifying so you will have to add a larger position to achieve the same level of diversification. I guess after a particular level, diversification will lead to lower returns, until then this strategy  would make sense I think.

On 27 May 2013, at 18:47, "Amar N. Shah" <shah....@gmail.com> wrote:

I think more volatility = more chances that there is miss pricing.

My Opinion.

On Monday, May 27, 2013, Andrei Radu wrote:

Could anyone please explain to me the following affirmation from the Active Portfolio reading: 

" When the Beta of the active portfolio is low (less than 1), there is more potential gain from diversification, hence a smaller position in the active portfolio is called for."

I have some difficulties in understanding why a smaller position is called for in the active portfolio, and why not a larger one. 

On Mon, May 27, 2013 at 7:27 PM, <christop...@gmail.com> wrote:

Sir
With respect to the 2013 PM paper. My challenge is to find the clues that should have guided my thought towards the solution CFA presented which on reviewing kind of make sense but did not fit in the line of reasoning of the questions. Any tips would be appreciated.

Sent from my BlackBerry® device from Digicel

---

From: Arif Irfanullah <arif.ir...@gmail.com>

Sender: 2013-cfa-level-2-group@googlegroups.com

Date: Mon, 27 May 2013 02:24:55 -0700 (PDT)

To: <2013-cfa-level-2-group@googlegroups.com>

Subject: Re: CFAi Mock Questions only

I've posted videos for 2010 and 2011 mocks.  Will be working on 2012 next and then 2013.  

In the mean time please answer each others questions.  I'll not be able to do justice to all questions.

We are one big team and need to help each other. 

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

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858.663.5100

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[Chintan Dave]

CFA Mock 2010 (Morning) FRA Case Merick Manufacturing Case Scenario. How do you infer that post-acquisition balance sheet is presented using Equity method??? Is it this statement in the case that indicates Equity method used "She (Kim King) is particularly interested in the potential effect on various financial ratios that might occur if the equity method is used."

If not could you explain it...because i couldn't understand.

Regards,
Chintan

[Andrei Radu]

If i recall correctly ( i dont have the exam in front pf me) Merick is a GAAP reporting entity. Thus use equity method

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[Arif Irfanullah]

Video lectures for the 2012 mocks have been uploaded and are available here. 

I'll now be working on questions related to the 2013 mock. 

[vaibhav aggarwal]

Arif Sir its urgent please reply

In Q no 58 cfa 2013 morning mock

Why have they calculated  No growth value= E0/Ke and NOt E1/ke ?

Why have they 5.04 which is E0 and Not 5.04* 1.05= 5.29 ?

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[Arif Irfanullah]

I know we only have two days left but here is no need to panic...

If there is no growth E0 = E1.  

Think about it.

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Arif Irfanullah

www.arifirfanullah.com

 

[vaibhav aggarwal]

Sir

I have thought a lot on this

But we are given next year g=5% why dont we calculate E1 ? I mean otherwise in all questions we will take E0 only

Can you tell me an exmaple where there is growth and we use E1 ?

I am really confused.

Please

[Arif Irfanullah]

I've uploaded the 2013 Mock video.  Have included some useful time-saving techniques.

Good luck with your final couple of days of prep.  Study hard but also make sure you get some rest/sleep tonight and tomorrow night.  

Your mind need to be fresh and thinking clearly on exam day.

[Sahar Merchant]

hello professor,

The questions for 2010 Afternoon mock have not been answered. The video starts with 2010 morning questions but i did not see another video posted for the afternoon questions. Please advise. Thanks

--

[Arif Irfanullah]

You are right. Seems like I missed 2010 Afternoon.  It is too late to create a video.  (Creating videos does take a fair amount of time)

At this stage you need to  focus on what what you know... and make sure you know it well.   No point learning anything new with less than 2 days left!

[Joe Chen]

Thanks a lot for your help. Could anyone please point out the 2013 mock exam video link? I can't find it. Thanks,

[Lijo Jose]

https://drive.google.com/#folders/0B9YOJD1WEzZdU1NLbkMzMVpQX1E

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[vaibhav aggarwal]

Urgent doubt-
Whats the affect of interest rate volatility on OAS and Z spread?

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[ammarm89]

Z-spread is the zero volatility spread which assumes that interest rates are not volatile, thus should have no effect. You cant use this value a bond with an embedded option so it shouldn't affect the spread.

OAS =z-spread - option cost (when talking about bonds with embedded option)

So lets say we are talking about MBS (which has an embedded call option, prepayment), when the expected interest rate volatility decreases the OAS widens. This is because the value of the option (which is essentially its cost) is lower, thus you are subtracting a lower number from the z-spread and the OAS is wider. 

Think about it, if interest rates are less volatile there will be less prepayments, thus the option is worth less (lower cost), so the spread after taking out the effect of the option (which is what the OAS does) will be higher. 

On Friday, May 31, 2013 12:38:08 AM UTC-4, vaibhavapj wrote:

Urgent doubt-
Whats the affect of interest rate volatility on OAS and Z spread?

On Thu, May 30, 2013 at 9:45 PM, Lijo Jose <lijo...@yahoo.com> wrote:

https://drive.google.com/#folders/0B9YOJD1WEzZdU1NLbkMzMVpQX1E

On 30 May 2013, at 16:59, Joe Chen <joe.ch...@gmail.com> wrote:

Thanks a lot for your help. Could anyone please point out the 2013 mock exam video link? I can't find it. Thanks,

On Monday, May 20, 2013 7:23:43 PM UTC-4, shah.n.amar wrote:

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

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[Andrei Radu]

Indeed that's a good question, why did you ask it now? 

i dont think there is a relationship between volatility and Z Spread as the Z one assumes zero volatility

On the other hand OAS is a byproduct from the valuation model. Mathematically as the volatility rises the option cost rises so the OAS is lower (or the other way around as Mohammed explain). However imagine the prepayment burnout when no prepayments will be done after a certain time. So at higher volatility (interests up and down) on a longer amount of time all the prepayments would have came earlier rather than later.  

I am not sure on this but I do not think there is a straight forward relationship on OAS and volatility. 

OAS reflects credit, liquidity and modelling risks, so a better way is to compare OAS with effective duration at different volatility assumptions.

please correct me if I am wrong 

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[Lijo Jose]

my answer to that question is different:

Z spread = OAS + Option cost

OAS  = liquidity risk, credit risk, modelling risk

If volatility goes up Option cost goes up and Z Spread goes up! 

Z spread assumes zero EXPECTED volatility, so if there is unexpected vol it will be affected.

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[Andrei Radu]

Ok but how volatility affects credit, liquidity and modeling risks?

[Lijo Jose]

I don't think it does, at least it's not intuitively clear if it does, and even if it does its not in the curriculum. I just had a look at Arif sir's videos. This is how he explains it. Reading 47 part two beginning section.

[Reha Vashist]

AS explained by Arif Sir , if assumed volatility changes Z spread will increase but OAS remains the same ( as it is without option ) .therefore volatility have no impact on credit , liquidity and modelling risk .Please refer first 2 minutes of second video on valuing options .

WITH REGARDS
REHA VASHIST

[Andrei Radu]

Thank you. 

So there is no direct relation between volatility and OAS. That s what I was saying. 

[Reha Vashist]

well i dont think there is any indirect relationship as well , as OAS does not have interest rate impact on it and volatility is is all about interest rate

[ammarm89]

I think the confusion is coming from the fact that I am considering that the bond's price will remain the same. So I guess the wording here is critical. But if the bond's price adjusts for the change in interest rate than z-spread changes and OAS stays the same. But say you are running simulations and assuming a given bond price than the below will hold true.  

"As with the value of a bond with an embedded option, the OAS will depend on the volatility assumption. For a given bond price, the higher the interest rate volatility assumed, the lower the OAS for a callable bond."

 (Institute 351)

Institute, CFA. Level II 2013 Volume 5  Alternative Asset Valuation and Fixed Income. John Wiley & Sons (P&T), 7/9/2012. #page(351)>.

https://drive.google.com/#folders/0B9YOJD1WEzZdU1NLbkMzMVpQX1E

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WITH REGARDS
REHA VASHIST

[vaibhav aggarwal]

what to ans in exam tell final ?

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[vaibhav aggarwal]

Hi

A teaser to all

WHY DOES FUTURE PRICES DIFFER FROM FORWARD PRICES ?

On Tue, May 21, 2013 at 10:08 AM, Mehreen Amanullah <mehree...@gmail.com> wrote:

Sir can you please explain CFAI 2011 A Ques 51. I can't understand that why are we subtracting increase in notes payable from net borrowing and why is cash being included in Working Capital Calculation.

On Tue, May 21, 2013 at 9:28 AM, Arif Irfanullah <arif.ir...@gmail.com> wrote:

Please post your questions related to CFAI mocks under this thread.  If you've already posted under a different thread and the question still holds, please re-post here.  My apologies for making you do this but it is difficult for me to find questions across different threads.  

On a different note, I want to appreciate Andrei Radu's efforts in responding to questions. I request others to step up on the 'responding to others front'... not just on the asking questions front....

On Tuesday, May 21, 2013 4:23:43 AM UTC+5, shah.n.amar wrote:

I thought I'd start a separate thread for questions relating just for the CFAi mock exams. I'll start.

In the 2012 Mock AM- on Question 9: The question asks for a one period binomial model.  I believe the period is 60 days while the discount rate given is an annual rate.  Therefore, why is the annual rate used when calculating the answer.  I thought you would need to adjust for the timing difference and raise the discount rate (1.03) by 60/365?

Thanks in advance.

-Amar

 

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[vaibhav aggarwal]

Dear All

Can you please suggest some books, websites to prepare of interview questions for analysts jobs in these i banks, kpo etc

Regards
Vaibhav

 
 

[Lijo Jose]

Sorry don't know of any. Good luck though!

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