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  1. Sticky: Dear Members, Simplilearn had agreed to...

    Dear Members,

    Simplilearn had agreed to provide CFA L-1 questions for one month only (till 14th March). We thank Simplilearn team for helping the CFA L-1 aspirants by providing the good sample...
  2. Q9 Answer C For finding the odds for; without...

    Q9 Answer C

    For finding the odds for; without following the formula; we should think of odds for as
    Probability the event will occur : Probability the event will NOT occur

    => Probability that...
  3. Q8 Answer A First arrange the returns in...

    Q8 Answer A

    First arrange the returns in ascending order
    -10%, -5%, 2%, 3%, 4%, 7%, 8%, 10%, 12%, 18%

    Now we need to find the position at which we will get the 4th quintile.
    4th quintile is...
  4. Q7 Answer C Will the answer be the arithmetic...

    Q7 Answer C

    Will the answer be the arithmetic mean of the price for the 3 periods?
    Let’s find the arithmetic mean, which will be ($100+$125+$80) = $305/3 = $101.67
    Let’s try to build the...
  5. Q6 Answer B Rather than getting into...

    Q6 Answer B

    Rather than getting into complication, let’s work from basic reasoning.

    Let’s assume that you had invested $100 in the stock at T=0.
    Since the first year return is 100%, the...
  6. Q5 Answer A First Step: Find the semi-annual...

    Q5 Answer A

    First Step: Find the semi-annual yield
    Semi-annual yield = (1+EAY)^(1/2)– 1
    => Semi-annual yield = (1.05)^0.5 – 1 = 2.4695%

    Second Step: Multiply the semi-annual yield by 2 to get...
  7. Q4 Answer B Step 1: Assume the face value to...

    Q4 Answer B

    Step 1: Assume the face value to be $100, we would like to find out the discount at which the T bill is trading

    3.5 % = (D/100) * (360/120) => 3.5% = (D/100) * 3
    => D = 3.5% *...
  8. Sticky: Q 37 Ans C: The best way to approach these...

    Q 37 Ans C:

    The best way to approach these kind of problems in the exam is to take the middle value given in the answer as the OAS and arrive at the option value from the binomial model. If the...
  9. Q 91 Ans B: The statements specify the credit...

    Q 91 Ans B:

    The statements specify the credit enhancement ways. In Prefunded bonds some treasury securities are bought which are used to pay the coupon and the par value, since treasury is risk...
  10. Sticky: Q 36 Ans B: Value of the bond at the upper...

    Q 36 Ans B:

    Value of the bond at the upper node after 1 year
    = (108 * 0.5 + 108 * 0.5)/1.068548 = 101.0717

    Since the bond can be put at $101.5, the bond price cant be below 101.5 in the...
  11. Q90 Ans C : Statement 1 has the first part...

    Q90 Ans C :

    Statement 1 has the first part correct that is the price rise will be lesser but it is not because the option price decreases but it is because the option price increases.
    ...
  12. Q88 Ans B: First statement is correct. With...

    Q88 Ans B:

    First statement is correct. With regards to the second statement, a staggered board acts as a anti takeover mechanism. When a hostile bidder tries to acquire a company with a...
  13. Sticky: Q34 Ans B: We can find out the value of the...

    Q34 Ans B:

    We can find out the value of the bond by discounting the
    future payoff. In case of interest rate model, both the nodes have 0.5
    probability of occurrence (unlike the stock binomial...
  14. Q 86 Ans C : Country risk premium = Sovereign...

    Q 86 Ans C :

    Country risk premium = Sovereign Yield Spread * (Annualized std dev of developing country equity index) / (Annualized std dev of sovereign bond market in developed country currency)...
  15. Sticky: Q32 Ans C: This is similar to the previous...

    Q32 Ans C:

    This is similar to the previous question, here we need to find out the present value factor for the rates which are after 90 days, 270 days and 450 days.

    PV of rate after 90 days =...
  16. Sticky: Q 31 Ans C: We will arrive at the present...

    Q 31 Ans C:

    We will arrive at the present value factors for the rates in the exhibit 1.

    PV for 180 days = Z1 = $1/ (1 + 4.5% * 180/360) = 0.9780

    Similarly, we will arrive at the other...
  17. Q 85 Ans B : Optimal capital structure is the...

    Q 85 Ans B :

    Optimal capital structure is the one which reduces WACC or in other terms increases firm value.

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  18. Sticky: Ans 30 C: Since the interest rates have...

    Ans 30 C:

    Since the interest rates have changed (increased) the FRA would become more valuable to Swamp now. The best way to find out the value of the FRA is to determine the New FRA rate and...
  19. Q 84 Ans C : When the company raised $6...

    Q 84 Ans C :

    When the company raised $6 million, the amount of debt raised was 1.8 million and equity raised was 4.2 million.
    Since cost of equity is 12% for any amount raised till $4 million,...
  20. Sticky: Q28 Ans B: This takeover defense strategy is...

    Q28 Ans B:
    This takeover defense strategy is known as Pac man defense.



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  21. Q 82 Ans B: $5 million is a sunk cost, $15...

    Q 82 Ans B:

    $5 million is a sunk cost, $15 million is a opportunity cost

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    Today's Question (Questions...
  22. Sticky: Q26. Ans B: Let’s evaluate the proposed deal...

    Q26. Ans B:

    Let’s evaluate the proposed deal by Mr. Bhushan
    Cash value = $500 million
    No of shares to be issued = $50 million / 8 = 6.25 million
    Value of Vizag steel after acquisition = ($3000...
  23. Q 80 Ans C: When the NPV is negative then we...

    Q 80 Ans C:

    When the NPV is negative then we should only accept mandatory project.

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  24. Sticky: Q25 Ans B: Since the synergy value is $100...

    Q25 Ans B:

    Since the synergy value is $100 million, it will be distributed to Salem’s shareholders and Vizag’s shareholders.

    Value of Vizag before acquisition = 30 * 100 = $3000 million
    Value...
  25. Q 79 Ans A: Operating lease increases the net...

    Q 79 Ans A:

    Operating lease increases the net profit in the initial years.

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    Today's Question...
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