Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFA Level 1 Mocks > Kaplan Mock 2 > Flashcards

Kaplan Mock 2 Flashcards

You may prefer our related Brainscape-certified flashcards:
CFA flashcards
1
Q

Directed Brokerage

A

Members and candidates have duty to seek best execution.
However, brokerage commissions are an asset that belongs to the client.
Directed brokerage does not violate a member or candidate’s duty of loyalty, as long as the goods and services benefits the account beneficiaries.

Member or candidates should disclose that directed brokerage may not result in the best execution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Employer Records

A

Records on any medium such as a cell phone, home computer or such are property of the firm even if the devices or information is on a personal computer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

GIPS firm’s Fundamental Responsibilities

A

Provide compliant presentations to all prospects.
Provide a composite list/description to all prospects who make a request.
On client’s request, provide compliant presentation and composite description.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Information Barrier on a Firm

A

A firewall is recommended to control interdepartmental communications. Therefore, a member or candidate may provided limited assistance under tight controls when assisting other departments.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

GIPS Verification

A

It is Voluntarily for a Firm

A firm may hire an independent 3rd party to verify it claim of GIPS compliance. If a firm chooses verification, it must be performed by a 3rd party of a firm-wide basis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Mosaic Theory

A

No villain when an analyst combines non-material, non-public information with public information to reach conclusion. If this is used in a report you do not need to make any additional disclosures to anyone in your firm other otherwise.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Free cash flow to the firm

A

net income + non-cash charges + interest expense net of tax – fixed capital investment – working capital investment

or

cash flow from operations + interest expense net of tax – fixed capital investment

Available to Debt and Equity Holders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Cash flow to equity

A

cash flow from operations – fixed capital investment + net borrowing.

Available to common shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Cash flow from operations

A

net income + non-cash charges – working capital investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Production Function

A

Y = A x f(L,K)

Y = Aggregate output
L = Labor Force
K = Capital Available 
f = function of 
A = Total factor productivity , the increase in output not form increases in labor or capital, closely related to advances in technology.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Leading Economic Indicators

A

Turning points in these tend to precede business cycle peaks and troughs:
Weekly hours, manufacturing
Manufacturers’ new orders, consumer goods
ISM new orders index
Stock Prices
Yield Curve
New unemployment insurance claims
Manufacturers’ new orders, non-defense capital goods excluding aircraft
Building Permits
Leading Credit Index
Consumer Expectations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Coincident Economic Indicators

A 
Turning points in these tend to coincide with business cycle peaks and troughs:
Employees on non-farm payrolls 
Industrial Production 
Personal Income less transfer payments
Manufacturing and trade sales
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Lagging Economic Indicators

A

Turning points in these tend to follow business cycle peaks and troughs:
Duration of unemployment
Inventory/sales ratio, manufacturing and trade
Consumer Price Index
Prime Rate
Manufacturing labor cost per unit of input
Consumer credit/personal income ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Desirable Estimator Properties

A

Unbiased: Expected value equal to parameter.
Efficient: Sampling distribution has smallest variance of all unbiased estimators.
Consistent: Larger sample produces better estimates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

No-Arbitrage Forward Exchange Rate

A

Forward Exchange Rate (A/B) = Spot Rate (A/B) = (1 + Interest Rate A) ÷ (1 + Interest Rate B)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Foreign Exchange Market Participants

A

Sell Side:
Market Makers: Large Multinational Banks
Currency Dealers

Buy Side:
Corporations
Investment Accounts: Real Money and leveraged
Governments: (Sovereign wealth funds, pension plans, central banks)
Retail Market: Households

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

P-Value

A

The smallest significance level at which the hypothesis can be rejected.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Money Supply

A

Increase in will reduces real rates and increase aggregate demand (vice versa)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Foreign Currency is Quoted

A

Always in the Base currency. Get what ever you are talking about in the base currency.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Histogram

A

Bar Chart
Frequency (Y) and Interval (X)

A histogram is a bar chart representing the relative frequencies of observations in the sample (i.e., the frequency distribution).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Limitations of Monetary Policy

A

Long-Term rates may move oppositely to short-term rates because inflation expectations change.

If the monetary tightening is extreme, expectations of recession may make long-term bonds more attractive, decreasing long-term rates.

If demand for money is very elastic, people will hold currency even as money supply increases, referred to as a liquidity trap.

Banks may desire to increase capital and not increase lending in repose to expansionary monetary policy.

Short-term rates cannot be below zero-limits a central bank’s ability to act against deflation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Recessionary Gap

A

GDP is less than full employment GDP
Downward Pressure on Wages
Output is less than potential output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Inflationary Gap

A

GDP is above full employment GDP
Upward wage pressure
Output is greater than potential output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Valuation Allowance

A

Is for a DTA
when you decrease a valuation allowance the DTA will increase, Income tax expenses will decreases, and net income will increase.

25
Q

Responsibility for establishing and monitoring a company’s risk management systems rests with

A

The board of directors is responsible for determining the risk tolerance of the company and appropriate risk policy.

The risk committee informs the board and may be given the responsibility to oversee the risk management functions of the company.

26
Q

Exchange-traded funds.

A

Trade like shares of closed-end funds; can be shorted or margined
In-kind purchase and redemptions keep market price close to NAV

A unique feature of ETFs is that they will create shares when institutional investors deposit securities that are included in the ETF basket and will redeem ETF shares for institutional investors. This is done to ensure an efficient and orderly market in the shares and to prevent the fund shares from trading at (much of) a premium or discount, thereby avoiding one of the pitfalls of closed-end funds.

27
Q

Capital Market Theory Implies that All Investors

A

who hold risky assets will invest in the market portfolio which is the point where the efficient frontier intersects the CML. Investors who assume risk combine the risk free assets with the market portfolio.

28
Q

Types of Capital Projects

A

From Least Detailed Analysis to Most Detailed Analysis:
Mandatory Projects - Safety and/or Environment
Replacement Project to maintain the business
Replacement project for cost reduction
Expansion Project
New Product or Markets

29
Q

Target Capital Structure

A

The proportions based on market values of debt, preferred stock, and equity that the firm expect to achieve over time.

Can use Existing Capital Structure Weights
Can adjust existing weights for from trends
Can use industry average weights

Do NOT use Balance sheet values

30
Q

Management Compensation

A

You want to align management compensation with shareholder interest which means:
Alignment with Company strategy
Long-term not short term
If stable over time are the performance targets too easy?

31
Q

Commercial Mortgages

A 
Non-recource Loans
Partially Amortizing 
Ballon Payments 
Analysis focus on propter debt server coverage or loan to value ratio
Call Protections
32
Q

Inverse Floater

A

Coupon Rate = Fixed Rate - Leverage Factor x Reference Rate)

There are 2 types of Reverse Floaters
Leverage Inverse Floater: Leverage Factor > 1
ex: Coupon Rate = 6% – (1.2 x 90-day LIBOR)
Key point is the 1.2

Deleverage Inverse Floater: Leverage Factor < 1
ex: Coupon Rate = 8% – (0.5 x 90-day LIBOR)
Key point is the 0.5

33
Q

Zero Coupon Bonds

A

Has no Reinvestment Risk, but has more Interest Rate Risk than a coupon paying bond.

34
Q

Floating Rate Agreement

A

Effectively locks in an interest rate today on a loan that will begin in the future.

Fixed Rate = forward (contract) rate
Floating Rate (LIBOR) is underlying rate
Long Pays fixed rate, Receives LIBOR
Receives (LIBOR – Fixed rate) or pay (Fixed Rate – LIBOR)

35
Q

Rebalancing

A

Updating the index weight on a periodic basis

36
Q

Reconstitution

A

Periodically adding and deleting securities. (more for Bond index)

37
Q

Recently issued government bonds that trade frequently are referred to as?

A

The most recently issued government bonds actively traded and are referred to as on-the-run bonds or as benchmark bonds.

38
Q

Investment Horizon vs Macaulay Duration

A

Macaulay Duration = investment horizon at which price risk and reinvestment risk offset each other.

IF THEY GIVE YOU ANY OTHER DURATION YOU NEED TO CONVERT TO MACAULAY DURATION
Modified Duration x 1 +r = Macaulay Duration

If Macaulay Duration > Investment Horizon = Price Risk Dominates (Short-Term Risk)

If Macaulay Duration < Investment Horizon = Reinvestment Risk Dominates (Long-Term Risk)

39
Q

Fixed for Floating “Plain Vanilla” Interest Rate Swaps

A

Exchange swaps of fixed-rate payments for series of floating rate payments

Swap price: is the fixed rate, therefore it will never change over the life of the swap.

Swap Value:
Positive: If expected short-term rates increase
Negative: If expected short-term rates decrease

40
Q

Dealer

A

Dealers maintain an inventory of securities and profit from a bid-ask spread. Therefore, they are a financial intermediary that offers to buy an asset at a bid price and to sell the same asset at an ask price.

41
Q

Brokers

A

Locate counterparties for buyers and sellers

42
Q

Arbitrageurs

A

Seek to earn a riskless profit by buying an asset in one market and simultaneously selling the same asset for a higher price in another market.

43
Q

Sortino ratio

A

Often used to assess downside deviation similar to the Sharpe Ratio

44
Q

Industry Analysis

A

Life-Style Stage

Porter’s 5 Competitive Forces

45
Q

Market Efficient

A

Operational Efficient: Low transaction costs
Allocationally Efficient: Direct resources to their heights-valued uses
Informationally Efficient: Prices reflect fundamental (intrinsic) value

46
Q

Factors Affecting Yield Spreads

A

Bond Quality: Spreads tend to be more volatile for lower-quality bonds than for higher-quality bonds.

Credit Cycle: Spreads narrowest when credit most available; investors are optimistic and believe risk is low.

Economic Conditions: Spreads narrow when economy strengthening; corporate cash flows improve.

Market Performance (including equities): Spread narrow in strong markets, also in steady low-volatility markets..

Broker/Dealer Capital: When broker-dealers have capital to commit to ORC bond trading, spreads are narrower.

Supply of New Issues: High new issues volume drives prices down and yield spreads up.

47
Q

Secured Bond

A

High priory claim to a specific firm assets

48
Q

Asset-Backed Security

A

Has claim to cash flows fro ma pool of assets held by a special purpose entity

49
Q

Covered Bond

A

Similar to an asset-backed security, but has no special purpose entity.
Financial assets underlying the bond legal separate on the balance sheet. Bondholders also have resource to other firm assets (in the event the segregated assets prove insufficient)

50
Q

Credit Card Asset-Backed Securities

A

Backed by a pool of credit card receivables, non amortizing loans

Lockout period:
No principal repaid
Principal payments by card holders used to purchased more receivables

Early (rapid) amortization provisions are included to enhance credit quality.

51
Q

Underwritten Offer

A

Investment bank guarantees security sale

52
Q

Best Efforts

A

Investment bank acts as a broker buy not all the shares in the market no guarantee.

53
Q

Real Estate Indexes

A

REIT Indices: Based on the actual trading prices of REIT shares similar to equity shares.

Repeat Sales: Based on price changes for properties that have sold multiple times may not be representative of all properties available (selection bias).

Appraisal Index: Based on periodic estimates of property values lower standard deviation of returns compared to other index methods.

54
Q

Hard Hurdle Rate

A

Incentive Fees only on gains ABOVE the hurdle rate

55
Q

Soft Hurdle Rate

A

Incentive Fees on ALL gains, but only if the return exceeds the hurdle rate

56
Q

High Water Mark

A

Incentive Fees only on gains that increase assets above the highest previous value

57
Q

Capital Protected Instrument

A

Guaranteed minimum value at maturity

Potential upside gains based on return of the other asset

58
Q

Guarantee Certificate

A

If guaranteed maturity value equals original cost

Also referred to as “Principal Protected Notes”

59
Q

Roll Yield

A

Convergence of future prices to spot prices as contract near expiration

Contango: future prices > spot prices = negative roll yield
Backwardation: furthers < spot prices = positive roll yield

CFA Level 1 Mocks (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions