@adaptprep
Forum Replies Created
-
Posts
-
Up13
We will use a binomial distribution with p = 0.85 and n = 10. We want to calculate:
Pr(X >= 7) = Pr(X = 7) + Pr(X = 8)
Pr(X = 7) = (8 choose 7) * (0.85)^7 * (1 – 0.85)^(8 – 7) = 0.3847
Pr(X = 8) = (8 choose 8) * (0.85)^8 * (1 – 0.85)^(8 – 8) = 0.2725
Pr(X >= 7) = 0.3847 + 0.2725 = 0.6572Up10For the effective annual yield, you
annualize the holding period yield:HPY = (P1 – P0 + D1) / P0 = (100 –
101 + 2) / 101 = 0.99%EAY = (1 + HPY)^4 – 1 = 4.02%
Up8The exchange rate decreased to
101.34 units of the price currency per 1 unit of the base currency. For ease of
explanation, let’s suppose this exchange rate is quoted in Japanese yen (¥) per
United States dollar ($).A decrease of the yen-per-dollar
exchange rate to 101.34 is equal to an increase in the dollar-per-yen exchange
rate to 1/101.34 dollars per yen. We are told this exchange rate appreciated by
7.5%.That means the exchange rate was
(1/101.34) / 1.075 = 0.009179 dollars per yen, which is equivalent to 108.94 yen per dollars.Alternatively, because (1 / 1.075)
– 1 = -6.98%, a 7.5% appreciation of the dollar-per-yen exchange rate is
equivalent to a 6.98% depreciation of the yen-per-dollar exchange rate. If the
exchange rate was X, that means X(1 – 6.98%) = 101.34. Solve for X = 108.94.Up7The amount Haspiess owes is 0.5 * $75,000,000 * 5% = $1,875,000.
The amount Signicomp owes is 0.5 * $75,000,000 * (3.5% + 0.75%) = $1,593,750.
The netted payment will be Haspiess paying Signicomp $281,250.Up7The Global Investment Performance Standards (GIPS) are a
consistent baseline that companies can follow to give credibility to their
performance results. They came about because companies were taking advantage of
all sorts of potential biases to
skew performance results in their favor.
Up6The break-even point for this option is $43, meaning
that the stock must drop from $50 to $43 within the next four months. It is
entirely possible that such a situation could
happen (which is why the put is worth $5), but chances are that it won’t happen. In that case, Jonathan is most likely to make a
profit.Note that while it is less
likely for Stephen to make a profit, he does have greater profit potential,
which is why he would purchase this option in the first place.Up6The least likely method is returning the swap to the exchange. Most swaps are over-the-counter
agreements, so there is no exchange. Even if there were, the exchange isn’t in
the business to assume one side of the swap, but rather to pair buyers and
sellers.The following methods of terminating a swap are feasible:
- Purchasing a swaption
- Selling the swap to a counterparty
- Enter into a separate offsetting swap
- The contract specifies early termination by either party
with cash settlement
Up6Since costs are reasonably estimated, IFRS allows revenue
recognition up to the point of costs (then the profit is recognized upon
completion). In the first month, Medialink is expected to incur $1.0 million /
24 = $42,000.If the project proceeds as expected, Medialink
will incur $42,000 of revenue and $42,000 of costs (for $0 profit) each month
until the last month.Up5The correct answer is A. As income increases, the consumption of an inferior good decreases.
Inferior goods, by definition, are purchased less as income increases. All you need to know is that beans are an inferior good and that Nelly’s income increases.
The situation illustrates why a good might be inferior — why might you buy less of it as you get more money? In this case, Nelly needs to eat something. She would rather have beef, but it is expensive. If Nelly has very little income, she may have to spend all her money on beans. As her income increases, she uses the excess money to switch her purchases over from beans to beef.
Up5This is Ben Kester with Passed Tense. As GeorgeKop alluded to, our Adapt exam engine is unique in that it it learns about you as you use it, giving you harder questions as your “Earned Level” increases. Mock Exams are a great indicator, but only for a single point in time. We designed Passed Tense’s Adapt engine to give you a more complete picture of your preparedness through taking multiple practice exams.
We wrote the questions so that Level 7 difficulty corresponds to our estimate of the average difficulty of the CFA exam. As more people use Adapt it gets “smarter”. Adapt uses credibility theory to adjust the difficulty level for each question. So if some questions are too easy, they will lower in difficulty as more people answer.
If you would like harder questions that are comparable with what will be on the exam, you can click on “Custom” on the Account screen and then select a custom exam with difficulty level 7.
By the way, we’re having an “Earned Level Challenge” over the next few weeks giving $50 to the 20 users with the highest Earned Level in Adapt. Check out our blog for details
Please let us know if you have any other questions!
Up5The interest rate is the sum of the following factors:
- Real interest rate
- Inflation premium
- Default risk premium
- Liquidity premium
- Maturity premium
Up5Event-driven strategies attempt to exploit from short-term
events. Mergers and acquisitions (M&A) and distressed debt are two other major categories.Here are the other categories:
- Speculating market
volatility by purchasing and selling options in the manufacturing sector –
Relative value - Predicting future
economic growth from one sector to another – Macro - Finding individual
undervalued stocks – Equity hedge - Selecting individual
securities while remaining market-neutral – Equity hedge
Up5Yes, the correct answer is Neither I nor II.
Up5Each of these investment needs corresponds to a specific
type of investor:Individual investor:
Accumulate capital over the next 30 years to be payable for an uncertain number
of future yearsEndowment: Provide
an inflation-adjusted amount, payable for the next 50 yearsDefined benefit plan:
Grow the assets over a long term, with varying inflows and outflows each yearUp5The difference between a price index and a total return
index is that the total return index includes reinvestment of all cash flows,
whereas the price index just includes price changes of securities. The total return index then will be higher.Up5Stagflation (high unemployment and high prices) is most
likely to occur when supply is suddenly tightened (left shift in the short run aggregate supply curve). Because there
is less goods, prices increase as consumers compete for them. Likewise,
companies are producing less, so require fewer workers.Up5One way to calculate this is to adjust the debt weighting
formula:w_e = E / (D + E) = E/E / (D/E + E/E) = 1 / (0.7 + 1) = 0.59
Sometimes the easiest way to solve problems like this is to
put in fake numbers. If D/E = 0.7, then we could set D = 7 and E = 10. The
equity weight would then be 10 / (10 + 7) = 0.59.Up5Greater liquidity and lower counterparty default risk are
advantages for futures contracts over
forwards.On the other hand, forward contracts allow much more customization than futures contracts. You can draft
a forward contract for almost anything, whereas futures contracts are limited
to the current market offerings.Up5The Standard which applies is:
Misrepresentation:
Members and Candidates must not knowingly make any misrepresentations relating
to investment analysis, recommendations, actions, or other professional
activities.By not citing her sources, Krystal has misrepresented the
research findings she posted.Up5For a finance lease, the cash flow considered to be interest
($300,000) is considered operating
cash flow. The rest goes in the financing cash flow.
