Untitled Deck Flashcards
What does Standard I(A) cover in the CFA Institute Code of Ethics and Standards of Professional Conduct?
Knowledge of the Law - Members must understand and comply with applicable laws, rules, and regulations.
What is required under Standard III(A): Loyalty, Prudence, and Care?
Members must act for the benefit of their clients and place their clients’ interests above their own.
Describe the concept of ‘Fair Dealing’ under Standard III(B).
Members must deal fairly and objectively with all clients when providing investment analysis, recommendations, or taking investment actions.
What does Standard IV(A): Loyalty require?
Members must act in the best interests of their employer and not deprive their employer of their skills.
What actions are prohibited under Standard II(B): Market Manipulation?
Practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.
How is the Holding Period Return (HPR) calculated?
HPR = .
Define ‘Geometric Mean’ and its use in finance.
It is used for calculating compounded annual growth rates: .
What is Bayes’ Formula?
.
What is the Z-Score formula and its use?
Z = . It measures how many standard deviations an observation is from the mean.
Explain the Central Limit Theorem.
It states that the sampling distribution of the sample mean approaches a normal distribution as sample size increases.
What is the purpose of DuPont Analysis?
To break down ROE into profit margin, asset turnover, and financial leverage: .
What is a ‘Common-Size’ financial statement?
A statement where all items are expressed as a percentage of a base item, like total assets or revenue.
Define ‘Basic EPS’.
.
How is Free Cash Flow calculated?
.
What does a Qualified Audit Opinion indicate?
Exceptions to accounting principles but not sufficient to invalidate the entire financial statement.
What are the four market structures in economics?
Perfect competition, monopolistic competition, oligopoly, and monopoly.
When should a firm shut down in the short run?
If total revenue is less than total variable costs.
Explain the fiscal balance equation.
, where G is government spending, T is taxes, S is savings, I is investment, X is exports, and M is imports.
Define ‘Expansionary Monetary Policy’.
It occurs when the policy rate is less than the neutral interest rate.
What is the purpose of a customs union?
It removes trade barriers among members and adopts a common trade policy with non-members.
How is Net Present Value (NPV) calculated?
where CF_t is cash flow at time t and r is the discount rate.
Define Weighted Average Cost of Capital (WACC).
, where is weight, is cost, and is tax rate.
What is Modigliani-Miller Proposition I with no taxes?
Capital structure is irrelevant to a firm’s value.
What is the difference between a hard and soft hurdle rate?
Hard hurdle: incentive fee only on returns above the hurdle rate. Soft hurdle: fee on entire return if it exceeds the hurdle rate.
