CFA Flashcards
Non-material information
Can be used to write reports but should not be shared with accounts for which the husband is a beneficial owner
Make distinction between
Required and recommended
Can you contact your previous clients?
If you took a copy of their information then no but if you use public records or your own recollection then yes
Should you use the information from another analyst?
No need to do your own research
Can you disclose client’s financial details?
You cannot but you can with their permission disclose that they are your clients
What is the policy for oversubscribed IPOs
Should not participate
What is the difference between current capital and financial account?
Current = Capital + Financial
Current flows of good and services into and out of the country (I/S)
Capital - Capital transfers, sales and purchases of non-produced, non-financial assets (B/S)
Financial Account - Government-owned assets abroad, foreign-owned assets
How to calculate depreciation of price currency
You need to divide the exchange rates by one and then calculate the change
when do Finance leases have equal values
At the beginning and end of their lives
Pension expense for a defined benefit plan
the components of the change in net pension asset or liability that are recognized as pension expense include service cost, past service costs, and interest expense or income on the beginning value of the net pension liability or asset.
When testing the correlation between two variables what is the test statistic
(rsqrt(n-2))/sqrt(1-r^2) with n-2 degrees of freedom
Where do securities held to maturity kept
Neither on the income statement or other comprehensive income
Relationship between S, I G and T X and M
Investment = Savings - (Government Spending - Taxes) - (Exports - Imports)
I = S - (G-T) - (X - M)
Std dev of sample mean
Sqrt(variance)/Sqrt(sample size)
How to tell if expansionary or contractionary policy
Compare neutral interest rates (real GDP Growth + target inflation rate) to policy rates. If the policy rate is less than the neutral interest rate then contractionary
What is included in footnotes
Accounting methods, legal actions, acqusitions and disposals, debt repayment, assumptions, commitments
Interest incurred for developing an asset
Is capitalized and never included as an interest expense
LIFO and FIFO
LIFO Inventory + LIFO Reserver = FIFO inventory
LIFO cost of sales - change in LIFO reserve = FIFO cost of sales
LIFO retained earnings + LIFO reserve (1-t)
LIFO cash - LIFO reserve x tax rate = FIFO CASH
What is interest coverage?
EBIT/Interest Payments
What is total asset turnover?
Sales/ATC
What is inventory turnover
COGS/Average inventory
What is a disclaimer of opinion?
When the auditor is unable to express an opinion about the financial statements.
What makes a financial statement useful and what are four enhancing characteristics?
Relevance and faithful representation are the two fundamental qualitative characteristics that make financial information useful. The four enhancing characteristics are comparability, timeliness, verifiability, and understandability.
test statistic to see if it is above 0
test statistic is average/(stddev/sqrt(n))
Free cash flow to equity
operating cash flow − fixed capital investment + net borrowing.
What is ROE (3 part)
(net income/sales) (sales/assets) (assets/equity) or net profit margin x asset turnover x equity multiplier
What is ROE (5 part)
(net income/EBT) x (EBT/EBIT) x (EBIT/Revenue) x (Revenue/avg total assets) x (Avg total assets/avg. equity)
Under IFRS, Interest paid and dividends received can be classified as
Interest paid - CFO or CFF
Dividends received - CFO or CFI
Fixed asset turnover
Sales / Average fixed costs
What is Comprehensive income?
NI + Unrealized gain from available-for-sale securities = Comprehensive income
DOL, DFL, DTL
DOL - how percent change in units sold affects operating income
DFL - How changes in operating income impact the NI EBIT
adjusted beta
2/3(unadjusted beta) + 1/3
Operating breakeven quantity
Fixed operating costs / (price - variable cost per unit)
Example of price discrimination
Off-peak pricing
Positive M2
Steeper than the CML so new CAL
Disadvantage of NPV
Does not consider the size of a project
Business Risk
Sales and operating risk
When you look at duration estimates remember that
Duration is a linear approximation so it is going to be too low for all
Synthetic short position
Long put position, a short t-bill position, and a short call position
Return on margin purchase
(New price - original price - interest)/margin posted
Macaulay duration
It is when you will recieve all the price of the bond back
P/E ratio and it relationship to price of stock
Dividend payout / (ke-g) or D1/E/ (ke-g) P0 = P/E x EPS
Difference between limit and stop orders
Limits - will be executed immediately and then stop order becomes market order
List of firm stages
Embryonic, growth, shakeout, mature, decline
What are some examples of Interest rate swaps?
Fair value hedge or a cash flow hedge
order driven market vs quote driven market
Order - Liquidity is provided by other traders in an order driven market where buy and sell orders are matched according to order matching rules and pricing rules
Quote - investors deal with traders directly
Brokers - brokers find counterparties
when given duration and convexity use this formula
- duration (change in y) + 1/2 convexity (change in y)^2
Sponsored depository receipts
The investor has the right to vote on the shares held by the depository institution in the home country.
Global depository recepits
Global depository receipts are not traded in U.S. markets
order of debt securities
Secured debt then unsecured debt. Ranked within as senior to junior, first mortgage to second mortgage, senior, subordinate, and junior
Short Term funding for bank
CDs, Retail deposits, borrow excess reserves, loans from other banks, Repos
Price of interest rate swaps
its par value
How to do multistage growth
Take up until the first year you incorporate the steady growth then divide by ke-g. Once done then discount all back by required rate.
Risk Premium
(1+RFR)(1+IP)(1+RP)-1
Sample variance
sum(xi-x(average))^2/n-1
Standard Error Calculation
stand dev/sqrt(n)
Equation of Exchange
MV = PY
Real exchange rate
Nominal (price/base) * (base currency CPI/price currency CPI)
Formal dollarization
Country adopts a foreign currency
Return on assets
EBIT/Average Total Capital
Diluted EPS
Net income - pfd dividends + convertible preferred dividends + convertible debt interest (1-t) / Wtd avg shares + shares from conversion of conv pfd shares + shares from conversion conv debt + shares issuable from stock options
Unlever the beta
Beta unleverage = B (1/(1+(1-t)(D/E)))
Beta releveraged B (1+(1-t)(D/E))
CML vs. SML
CML - tracks std dev
SML - tracks BETA
Plotting above and below the SML
Above - underpriced therefore buy below - overpriced therefore short
Difference between Operationally efficient and informationally efficient
Operational - lowest transaction cost
Informational - adjusts quickly to new information
P/B
Price per share/Book value per share
P/S
Price per share/ sales per share
difference between G-spread, I-spread, Z- spread and Option spread
G-spread - difference between government yield
I - spread - difference above swap rate
Z-spread - Accounts for shape of yield curve
Options-adjusted - adjusts for effects of options
Bon investors concerns with short horizons vs. long horizons
short horizons - market price risk
Long horizons - reinvestment risk
Effective duration
V_ - V+/2V0curve
Value of a forward contract
S + PV (costs) - PV (benefits) - F0(T)(1+RF)^-(T-t)
Stages of venture capital
- Formative stage (angel investing, seed stage, early stage)
- Later stage (expand production, increase sales)
- Mezzanine Stage - prepare for IPO
