CFA Prep Test L1

Cost of goods sold is a classification by function. The other two expenses represent classifications by nature.

Ordinal scale involves sorting data into categories based on some characteristic such as larger to smaller

The oligopolist faces two different demand structures, one for price increases and another for price decreases. Competitors will lower prices to match a price reduction, but will not match a price increase. The result is a kinked demand curve.

in order to draw demand and supply curves, own price and own quantity must be allowed to
vary. However, all other variables are held constant to focus on the relation of own price with
quantity.

A high salvage value estimate reduces the depreciable base and thus depreciation expense; long
average lives reduce the annual depreciation expense for any given depreciable base. The
combination of the two would result in the lowest depreciation expense, which leads to the
highest net income and profit margins.

Apex is not the owner of the goods and should only report its net commission as revenue. C is the amount paid to the owners. B is the total amount collected on behalf of the owners.

To lock in profits if possible sell the futures contract at the price of the expiration day.

The loss on the stock index means that the dealer must also pay the negative amount to the asset manager in addition to the fixed rate on the notional principal. The amount that the dealer would pay is approximately $13 million: ($100,000,000) (0.04) / 2 = $2,000,000 for the fixed payment.
The negative return on the stock index computed as follows is (250/280) ‐ 1 = ‐0.1071, for a dollar payment of ‐0.1071(100,000,000j = $10,714.286 for the stock index. The dealer must pay roughly $2 million plus $11 million.

compute, compare, and contrast the various yield spread measures;
compute the after-tax yield of a taxable security and the tax-equivalent yield
of a tax-exempt security
Taxable equivalent yield = (tax-exempt yield) / (1 - marginal tax rate) =
3.86 / (1 - 0.32) = 5.68%
Yield ratio = (yield on tax-exempt bond) / (yield of US Treasury) =
3.86 / (3.86 + 100bp) = 3.86 / 4.86 = 0.79

Inverse floaters are issues whose coupon rate moves in the opposite direction from the
reference rate.
The coupon formula for an inverse floater is:
Coupon rate = K ‐ I. × (Reference rate)
where K and L are values specified in the prospectus.

Point estimates are not as reliable as confidence interval estimates. A conservative approach to confidence intervals relies on the t‐distribution rather than the normal distribution, and use of the t‐distribution will increase the reliability of the confidence interval. Increasing the sample size increases the reliability of the confidence interval.

As the money should not be accepted without receiving written consent from all parties involved, therefore Zagoreos is in violation of Standard IV (B) Additional Compensation Arrangements. However, there is no indication that the member has received compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services and therefore has not violated Standard VI (6) Referral Fees.

An unstable market equilibrium is characterized by prices that tend to move further away from equilibrium. This means that any deviation from the equilibrium price will result in prices moving even further away from the equilibrium value. In contrast, excess supply tends to drive prices down towards equilibrium, which is the opposite of what an unstable market equilibrium would exhibit. Therefore, excess supply driving prices down is the least likely description of an unstable market equilibrium.

The increase in the value of the land bypasses the income statement and goes directly to a revaluation surplus account in equity. Equity increases thereby decreasing the debt to equity ratio.

MPT assumes investors maximize one‐period expected utility, and their utility curves
demonstrate diminishing marginal utility of wealth. http://en.wikipedia.org/wiki/Modern_portfolio_theory

Asset‐based valuations are most often used when an analyst is valuing private enterprises. Both
B and C are considerations in asset‐based valuation but are more likely to be reasons to avoid
that valuation model rather than reasons to use it.

Veblen goods are not inferior goods, whereas Giffen goods are. An increase in income for
consumers of a Veblen good leads to an increase in the quantity purchased at each price. The
opposite is true for a Giffen good.

The degree of operating leverage is the elasticity of operating earnings with respect to the number of units produced and sold. As an elasticity, the degree of operating leverage measures the sensitivity of operating earnings to a change in the number of units produced and sold.

In principle and in practice rent ceilings are inefficient and unfair. They prevent the housing market from operating in the social interest.

A country gains if trade increases the price of its exports relative to its imports as compared to its
autarkic prices, i.e. the final terms of trade are more favorable than its autarkic prices. If the
relative price of exports and imports remains the same after trade opens, then the country will
consume the same basket of goods before and after trade opens, and it gains nothing from the
ability to trade. In that case, its trade partner will capture all of the gains. Of course, the opposite
is true if the roles are reversed. More generally, a country captures more of the gains from trade
the more the final terms of trade differ from its autarkic prices.

The estimated equation is the standard Solow growth accounting equation. The intercept is the growth rate of total factor productivity.

Under IFRS, the inventory would be written down to its net realizable value ($4.1 million) whereas, under U.S. GAAP, market is defined as current replacement cost and hence would be written down to its current replacement cost ($3.8). The larger closing inventory value under IFRS will reduce the amount charged to the cost of goods sold, as compared to U.S. GAAP, and result in a higher gross profit of $0.3 million.

The central limit theorem establishes that the sampling distribution of sample means will be approximately normal, will have a mean equal to the population mean, and will have a variance equal to the population variance divided by the sample size.

A company's ROE is calculated as (NIt/BVEt‐1). For 2009, the BVEt‐1 is equal to the beginning total assets minus the beginning total liabilities, which equals &50,000,000 ‐ f 35,000,000 =
£15,000,000. Therefore, ROE200=9 £2,000,000/£ 15,000,000= 13.3%.

(68-24=44) so she has 44 years to retire. The annual expense will go to 30,000×(1.03^44) =110143.57. Since her expenditure is constant after she retires and she expect to live 25 years more till the age of 93. Using BAii calculator: PMT=‐110,143.57 ，FV=0，T=25，I/Y=8， CPT PV=1,175,758.

The initial measurement of goodwill is most likely affected by the fair value of the acquirer's assets and liabilities. This is because goodwill is calculated as the difference between the purchase price of an acquisition and the fair value of the identifiable net assets acquired. The fair value of the acquirer's assets and liabilities is important in determining the overall value of the acquisition and therefore impacts the calculation of goodwill. The acquired company's book value and the acquisition's purchase price may also play a role in the calculation, but the fair value of the acquirer's assets and liabilities is the most likely factor to affect the initial measurement of goodwill.

Momentum “effect” is a characteristic of a market‐value‐weighted index, not a fundamentally
weighted index.

Free cash flow to the firm can be computed as operating cash flows plus after‐tax interest
expense less capital expenditures.

The lowest acceptable price to the supplier at any given quantity must now increase because part of the price is paid as a per‐unit tax. Thus, the supply curve shifts upward.

If both the elasticity of demand and elasticity of supply increase, both the demand curve and the supply curve will become more horizontal. The space between the curves to the left of the equilibrium quantity will become smaller and both consumer and producer surplus will decrease.