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Thread: Free CFA Level 1 practice question bank for June 2011 exam

  1. #11
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    My Rationale would be that,

    Since a bonds price sensitivity to fluctuations in interest rates depend on coupon rates ,embedded options & MATURITY

    Answer : B

  2. #12
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    Q2. Ans B
    Default risk is low as firms are AAA. As all payments are concentrated at maturity (no coupons) so price sensitive to maturity.


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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q3. The effective annual yield (EAY) of a loan with a quoted rate of 8%, compounded quarterly is equivalent to the EAY of a loan with a continuously compounded quoted rate of:

    A) 8.16%.
    B) 8.08%.
    C) 7.92%.

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  3. #13
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    Quote Originally Posted by DG Mod View Post
    Q2. Ans B
    Default risk is low as firms are AAA. As all payments are concentrated at maturity (no coupons) so price sensitive to maturity.


    =======================================================================================
    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q3. The effective annual yield (EAY) of a loan with a quoted rate of 8%, compounded quarterly is equivalent to the EAY of a loan with a continuously compounded quoted rate of:

    A) 8.16%.
    B) 8.08%.
    C) 7.92%.

    =======================================================================================
    Ans to Q3: C

  4. #14
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    Q3. Ans C
    This will not require any calculation.
    Please remember that a corresponding continuous compound rate will be lesser than that of the discrete rate if they are yielding same.

    If you wish to calculate, (1.02)^4 = exp(r)
    [e raised to the power of r]
    Solving for r will give you the result of 7.92%


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    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q4. An investment advisor comes to you with 2 plans.
    First plan will pay nothing in first four years and then it will pay $20,000 per year for 5 years.
    Second plan will pay $15,000 per year in first 3 years and then a payment of $20,000 in the fourth year.
    All payments are done at the end of year. Which plan should you go for if both require an investment of $50,000 now? Your required rate of return is 10%.

    A. First Plan
    B. Second Plan
    C. None of the plans

    ================================================== =====================================

  5. #15
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    First Plan option A has higher NPV of 1783

    First Plan
    CF0 = -50000 CO1 - 0 F01-4, CO2-20000 FO2-5 , I/Y=10 , CPT NPV=1783
    Second Plan CF0 = -50000 CO1 - 15000 F01-3, CO2-20000 FO2-1 , I/Y=10 , CPT NPV=900+

  6. #16
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    Q4 Answer: A:
    First Plan: Find the PV after 4 years; FV = 0 ; PMT = 20,000 N=5, I/Y = 10%
    Find the PV now => PV0 = PV4/(1.1)4=> 51,783 => NPV = 1,783

    Second Plan: For recurring payments PMT = 15K, I/Y = 10, N=3, FV = 0; PV = -37,302. Find the present value of the single payment; PV = 13,660.26. So the second plan gives total PV of 50,963.04 => NPV = 963.04

    So Plan A is better

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    Today's Question (Questions and answers provided by Knowledge Varsity)


    Q5.What is the effective annual rate on a personal loan that charges 24% per annum compounded monthly?
    A. 24%
    B. 26.8%
    C. Data Insufficient

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  7. #17
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    Quote Originally Posted by DG Mod View Post
    Q4 Answer: A:
    First Plan: Find the PV after 4 years; FV = 0 ; PMT = 20,000 N=5, I/Y = 10%
    Find the PV now => PV0 = PV4/(1.1)4=> 51,783 => NPV = 1,783

    Second Plan: For recurring payments PMT = 15K, I/Y = 10, N=3, FV = 0; PV = -37,302. Find the present value of the single payment; PV = 13,660.26. So the second plan gives total PV of 50,963.04 => NPV = 963.04

    So Plan A is better

    ================================================== =====================================
    Today's Question (Questions and answers provided by Knowledge Varsity)


    Q5.What is the effective annual rate on a personal loan that charges 24% per annum compounded monthly?
    A. 24%
    B. 26.8%
    C. Data Insufficient

    ================================================== =====================================

    Ans of Q5 is: B
    26.8%

  8. #18
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    [COLOR=DarkRed]Q5. Ans B:

    Periodic rate = 2%
    EAR= (1.02)^12

  9. #19
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    [QUOTE=Daulat Guru;1702][COLOR=DarkRed]Q5. Ans B:

    Periodic rate = 2%
    EAR= (1.02)^12

  10. #20
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    The next deadline for registering for CFA June 2011 exam is tomorrow, Feb 16, 2011:
    http://www.cfainstitute.org/cfaprogr...ges/index.aspx

    If you are thinking about registering, you can save a substantial amount by registering before this deadline.

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