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CFA Questions and Answers

• What will happen if the price of CD players decreases if the demand curve for compact discs slopes downwards, and the supply curve slopes upwards(in the graph below)?
What will happen if the price of CD players decreases if the demand curve for compact discs slopes downwards, and the supply curve slopes upwards(in the graph below)?
1. The equilibrium price of compact discs will riseClearly CD players are a complementary good to compact discs. So if the price of CD players decreases the demand for them will rise and so too will the demand for compact discs. Hence the demamd curve for discs will shift to the right causing the equilibrium price to rise.

• Ghanshyam group’s economics department has forecast that interest rates are going to change by 70 basis points. Vijay, a fixed-coupon bond portfolio manager with asset value of \$120.00...
Ghanshyam group’s economics department has forecast that interest rates are going to change by 70 basis points. Vijay, a fixed-coupon bond portfolio manager with asset value of \$120.00...
1. 3.50Effective duration = (price when interest rates fall - price when interest rates rise) / (2 initial price basis point change) = (4.2) / (2 120.00 0.005) = 3.50.

• Which one of the following bonds has the greatest volatility?
Which one of the following bonds has the greatest volatility?
1. 10-year, 10% coupon-this question is asking: given a change in yield, which of the bonds will exhibit the greatest price change? of the four choices, the bond with the longest maturity and lowest coupon will have the greatest price volatility.all else equal, the bond with the longer term to maturity is more sensitive to changes in interest rates. cash flows that are further into the future are discounted more than near-term cash flows. here, this means that one of the 10-year bonds will have the highest volatility. similar reasoning applies to the coupon rate. a lower coupon bond delivers more of its total cash flow (the bonds par value) at maturity than a higher coupon bond. all else equal, a bond with a lower coupon than another will exhibit greater price volatility. here, this means that of the 10-year bonds, the one with the 10% coupon rate will exhibit greater price volatility than the bond with the 15% coupon.

• What would be the initial cash outlay? BackInSoon, Inc., has estimated that a proposed project's 10-year annual net cash benefit, received each year end, will be \$2,500 with an additional...
What would be the initial cash outlay? BackInSoon, Inc., has estimated that a proposed project's 10-year annual net cash benefit, received each year end, will be \$2,500 with an additional...
\$15,617.22(\$15,617.22)2500              9 ys 3473.951167500          10th yr \$19,091.17

• Ramesh is invests capital for one of his clients. Ramesh attends an analyst meet where the issuer distributes designer watches to all the attendees. Ramesh initially denies the gift but finally...
Ramesh is invests capital for one of his clients. Ramesh attends an analyst meet where the issuer distributes designer watches to all the attendees. Ramesh initially denies the gift but finally...
1. Accept modest giftsAccording to Standard I B - Independence and Objectivity - modest gifts that do not exceed prescribed limits and entertainment are acceptable but special care should be taken by member analysts and investment managers to resist lavish gifts such as tickets, favors, job referrals and so on, which may be tied in with subtle pressures for favors possibly detrimental to clients.

• What will indifference curves that are convex to the origin reflect?
What will indifference curves that are convex to the origin reflect?
1. a decreasing marginal rate of substitution-the slope of an indifference curve is called the marginal rate of substitution (mrs). it is the rate at which an individual is willing to give up units of one good to get one more unit of another and still feel as well off. a convex indifference curve means that the slope (the mrs) decreases as you move down it.the reason is that when you have a relatively large amount of one good (e.g. good y) and not much of the other (good x), you are willing to give up a lot of good y to get one more unit of good x. but as you gradually give up y in return for x the amount of y you are willing to substitute for x gets smaller and smaller.

• When is the demand for goods likely to be more elastic?
When is the demand for goods likely to be more elastic?
1. the greater the number of available substitutes for the good-the magnitude of the price elasticity of demand of a good depends on several factors - the availability of substitutes, the proportion of income spent on the good, and the time period. demand tends to be more elastic:the greater the number of substitutes - if the price rises you can easily buy something elsethe greater the proportion of income spent on the good - a rise in the price has a large impact so you try to economise on the goodthe longer the time period - you have more time to adjust your spending patterns and find alternative goods.so, only the greater the number of available substitutes for the good is correct here. other answers would imply a more inelastic demand.

• What is the rate at which a firm can substitute one factor for another while still producing the same level of output known as?
What is the rate at which a firm can substitute one factor for another while still producing the same level of output known as?
1. marginal rate of technical substitution-an isoquant shows the combinations of two inputs (e.g. labour and capital) that a firm can use to produce a given quantity of output. in other words it shows all the possible production methods a firm could use to produce its chosen output level. as the firm moves along an isoquant it substitutes more of one input (e.g. capital) for less of the other and keeps output the same.the rate at which it can substitute one input for another whilst maintaining output is known as the marginal rate of technical substitution.for example, a firm making videos, in order to reduce costs, might want to use more automated production methods (i.e. use more capital and less labour). how many machines would it need to use in place of workers and still maintain its output at the same level? this is the marginal rate of technical substitution.note: the mrts is the slope of an isoquant.

• What is the probability that exactly two claims will be filled if Sweeter & Associates write 400 policies for the coming weekend, in the case below? Sweetwater & Associates write weekend...
What is the probability that exactly two claims will be filled if Sweeter & Associates write 400 policies for the coming weekend, in the case below? Sweetwater & Associates write weekend...
The previous answer gives a formula to work with, which results in answer A) 0.0164. It is vaguely familiar to me, as I have not taken a math class in a couple of years. However, I am almost positive that is the correct formula without any additional research. My reasoning is that it is a probability question, which means there is some multiplication happening since the probability gets smaller the more qualifiers that are put on a situation. The formula includes some multiplication, so that’s that. However, I wouldn’t go to do other probability questions without doing more research, especially when it comes to insurance claims. Since all the information we needed is in the question this time, as long as we have the right formula, the answer is answer A.

• What is the net present value of selecting the new machine, assuming cost of capital of 10%? The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed...
What is the net present value of selecting the new machine, assuming cost of capital of 10%? The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed...
The capital means in regards to economics refers to something that increases someone’s way in a company of increasing productivity and therefore increasing their profits. The net value refers to the final amount of money after taking out the money needed to produce that product. For example, the Pan American Bottling Company is considering the purchase of a new machine that would increase the speed of bottling and saving money. It costs \$45,000. The company wants to make sure that they can capitalize on it. They want it to be worth the money. In this case, the worker in the company would analyze each year and their cash flow between \$5,000 and \$25,000. This means that the net value would be \$13,883.

• What is the yield-to-maturity, stated annually if the issue price for this bond is \$785.50? A firm has just issued \$1,000 face value bonds with a coupon rate of 8%, paid semi-annually, and a...
What is the yield-to-maturity, stated annually if the issue price for this bond is \$785.50? A firm has just issued \$1,000 face value bonds with a coupon rate of 8%, paid semi-annually, and a...
C is the answer to this question. Would you like to know how this answer is reached? It is easy. All you have to do is calculate the IRR for the bond. Based on the details, it would be easy to assume that the amount paid is \$40 for every half a year. There are about 30 periods wherein this type of payment will be done. These details will allow you to reach the final answer that you are searching for. Do remember that if there are some details that will be changed with the given figures, the results can drastically change. For example, if the maturity of the insurance will be received after 20 years instead of 15, that would already entail some changes with what the final answer is going to be.

• What does coefficient of skewness of +2.48 indicate?
What does coefficient of skewness of +2.48 indicate?
The answer to this question is all of the above. All of the statements that are mentioned namely the mean is larger than the median and the tail of the distribution is to the right are connected to the +2.48. Take note that this is a positively skewed distribution based on the number as it is in between -3 and +3 but is closer to +3. This type of graph shows that there may be more low scores as compared to high scores. This is because the mean is higher than the median and the mode. Negatively skewed graphs indicate higher scores of students. Do remember that the median is always greater than the mode.