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Thread: Free CFA Level 1 Practice Questions for December 2012 exam

  1. #61
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    Ratan Sir, can we have videos also as the solutions. It really helps in understanding & approach for problem solving.

    @Bimupa :- Thanks.

    Regards,
    Shubhojit

  2. #62
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    Answer for Q17 shud be 'C'.

    @Bimupa:- I agree with u !!

  3. #63
    Mentor, Knowledge Varsity ratankv's Avatar
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    Solution to Question #16

    Solution to Question #16
    Text Solution to Question #16

    There are several methods to find out the weighted average, we will adopt a simple approach.
    The share outstanding on Jan 1 should be considered for the entire year.
    The share issued on Apr 1, is only applicable for 9 months (prospectively)
    The stock dividend on Jul 1, should be applied retrospectively. Note, that the stock dividend will increase the number of shares outstanding before the stock dividend date, it is not applicable for stocks issued or repurchased after the stock dividend date.
    The share repurchased on Sep 1, should be subtracted, but only for 4 months (prospectively)
    Please, see the following table

    What we do next is add the last column
    => Sum = 12 *11,000 + 9 *4,400 + 4 * -1,000 = 132,000 + 39,600 – 4,000 = 167,600
    Now, divide this sum by 12 (since we multiplied them by the months earlier)
    => 167,600/ 12 = 13,967
    => So, the weighted average share = 13,967

    Regards,
    Ratan Gupta
    Director, Knowledge Varsity
    www.KnowledgeVarsity.com

    Quote Originally Posted by ratankv View Post
    Today's Question (Questions and answers provided by Knowledge Varsity)
    ================================================== ==================================================
    Q16. During the past year a company had the following changes in the capital structure
    Jan 1: Share outstanding: 10,000
    Apr 1: Share issued: 4,000
    Jul 1: 10% stock dividend
    Sep 1: Shares repurchased: 1,000
    The weighted average no of common stock in the last year is most likely (take January to December as the financial year)
    A. 13,600
    B. 13,967
    C. 14,400
    Attached Thumbnails Attached Thumbnails Click image for larger version. 

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  4. #64
    Mentor, Knowledge Varsity ratankv's Avatar
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    Solution to Question #17

    Text Solution to Question #17

    First determine, if the option is dilutive or anti-dilutive
    The option will be dilutive, only when the average stock price > exercise price;
    here we have average stock price is $30, which is more than the exercise price; hence the option is dilutive
    If the option is exercised, calculate the amount of money received by the firm. Note that the firm will get only the exercise price
    = 10,000 * $20 = $20,000
    To reduce the dilution, the firm uses this money to buy the stocks in the market at an average stock price.
    So, the number of stocks bought = 20,000/30 = 6,666.67
    Rounding to the whole number it comes to 6,667
    Since, firm buys the share, the net increase in the number of shares is less
    => 10,000 – 6,667 = 3,333
    So, 3333 number of shares has increased.

    Simpler method,
    Increase in no of shares = (Average stock price – exercise price)/(average stock price) * Number of options
    => Increase = {(30-20)/30 } *10,000 = 3,333

    Regards,
    Ratan Gupta
    Director, Knowledge Varsity
    www.KnowledgeVarsity.com

    Quote Originally Posted by ratankv View Post
    Today's Question (Questions and answers provided by Knowledge Varsity)
    ================================================== ==================================================
    Q17. A firm had 10,000 options outstanding exercisable at $20 last year.
    If the average market price of the firm’s share was $30, find the increase in the number of shares for diluted EPS calculation attributed to the options.
    A. 10,000
    B. 6,667
    C. 3,333

  5. #65
    Mentor, Knowledge Varsity ratankv's Avatar
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    Question #18

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

    Question #18 A firm has net income of $100,000 in 2011 and 10,000 common share outstanding for the entire year. The firm has 100 non-convertible preferred shares paying 12% dividend and having face value $100. The firm also has 100 convertible preferred shares paying 10% and having face value $100. Each of the convertible preferred shares is convertible to 5 shares. The diluted EPS in 2011 is closest to?
    A. $9.78
    B. $9.41
    C. $9.52

  6. #66
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    I am assuming that all get converted. So the denominator will have the no. of shares outstanding with full dilution.
    Ans. of Q.18: C

  7. #67
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    Quote Originally Posted by ratankv View Post
    ================================================== ===============
    Today's Question (Questions and answers provided by Knowledge Varsity)

    Question #18 A firm has net income of $100,000 in 2011 and 10,000 common share outstanding for the entire year. The firm has 100 non-convertible preferred shares paying 12% dividend and having face value $100. The firm also has 100 convertible preferred shares paying 10% and having face value $100. Each of the convertible preferred shares is convertible to 5 shares. The diluted EPS in 2011 is closest to?
    A. $9.78
    B. $9.41
    C. $9.52
    What is the answer to question 18?

  8. #68
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    I guess that the answer for Q 18 shud be 'A'.

    Ratan Sir:- Plz share the answer for Q-18. Also, we r looking for new questions as well.

  9. #69
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    CFA is a Finance course and this course enables a student how to invest in a firm, how to maintain or increase your return, how to be tax efficient etc. The person having CFA degree can judge where to invest and how to find out the value of company.
    Last edited by mark.1; 15-10-2012 at 01:04 PM.

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    When an investment manager’s client instructs the manager to use the client’s brokerage to purchase goods or services for the client, this is known as;

    A. Horizontal brokerage and does not violate any fiduciary duty
    B. Directed brokerage and does not violate any fiduciary duty
    C. Straight brokerage and does not violate any fiduciary duty

    Answer: B

    Explanation
    It is known as directed brokerage and does not violate any fiduciary duty, because brokerage is an asset of the client and the brokerage is used to benefit that client, not the manager, such practice does not violate fiduciary duty.

    site to practice cfa level 1 practice exam and cfa level 1 mock exams
    Last edited by george22; 01-05-2014 at 02:30 AM.

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