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

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    Mentor, Knowledge Varsity ratankv's Avatar
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    Free CFA Level 1 Practice Questions for December 2012 exam

    Team DG and Knowledge Varsity is glad to announce that we will provide some free CFA Level 1 sample questions till November 29, 2012.

    We had started a similar initiative for the June 2011 exam, please see link below
    June 2011 Question

    Knowledge Varsity will be providing fresh set of CFA Level 1 sample questions.

    How it will work?

    1. Existing users should login and subscribe to this thread. Some users may be automatically subscribed (depending on your profile settings) and can skip this step.



    2. New users can Register and then login to subscribe to this thread.

    3. When you go to the Subscription page, make sure to choose "Daily/Weekly updates by email" option from the "Notification Type" dropdown. Then click "Add Subscription".



    4. We will post a question and members can discuss the answer in this forum.

    5. We will then post the solution and the next question.

    All the best for your CFA Level 1 prep!

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    Mentor, Knowledge Varsity ratankv's Avatar
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    Question #1

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

    Q1. An investor, plan to retire at the age of 60. He expects to live till the age of 90. He is currently aged 25. He invests the first payment in the account today and invests for 35 years (that is total of 35 investment done). The retirement account earns 12% per annum. Assume that he would like to withdraw $30,000 per year starting from the point when he turns 60 for 30 years, find out the approximate amount he should deposit in his retirement account every year? Here assume, that the investor doesn't leave any money for their heirs.

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    [QUOTE=ratankv;2947]================================================== ===============================================
    Today's Question (Questions and answers provided by Knowledge Varsity)

    Q1. An investor, plan to retire at the age of 60. He expects to live till the age of 90. He is currently aged 25. He invests the first payment in the account today and invests for 35 years (that is total of 35 investment done). The retirement account earns 12% per annum. Assume that he would like to withdraw $30,000 per year starting from the point when he turns 60 for 30 years, find out the approximate amount he should deposit in his retirement account every year? Here assume, that the investor doesn

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    It will be A.

    Thanks DG & Knowledge Varsity Team for helping & guiding us.

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    Mentor, Knowledge Varsity ratankv's Avatar
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    Q1 Answer is A

    Check the Video Solution Q#1 below:



    Text Solution for Question #1 is below

    This is a complex problem involving 2 series of cash flows. Please find the timeline in the pic below/attachment.


    In these type of problems, we need to come up with a common point.
    If we take the middle point as common point, that will be the best.
    So, we can find out the PV of the cash inflows at T = 59; Using that, we can find out the PV at T=60; and then we can compute the PMT for the series of cash outflows. Let’s do step by step calculation
    Step 1: Find out the PV at T = 59
    Keep the calculator in the END mode, the 2nd series of cash flows from T=60 to T=89 looks like ordinary annuity and the PV will come one period before the first cash flow.
    FV = 0; I/Y =12; N=30; PMT =$30,000; PV = ?
    CPT-> PV => PV = $241,655.19
    Step 2:Find out the PMT. Here you have to note that the FV of the investment would be equal to the present value that we have found out.
    FV = PV59 = $241,655.19; PV = $0; N = 35; I/Y =12; PMT = ?
    CPT -> PMT =>PMT = -$559.82
    So, the investor needs to deposit $559.82 every year for 35 years, in order to get $30,000 every year when he retires.

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    Mentor, Knowledge Varsity ratankv's Avatar
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    Question #2

    Today's Question (Questions and answers provided by Knowledge Varsity)
    ================================================== ================================================== ============
    Q2. A Firm's EPS was $5 in 2002, In year 2008 the EPS was $14. Find the compounded annual growth rate (CAGR) of the EPS.
    A. 15.85 %
    B. 18.7 %
    C. Can

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    Thank you Mr. Ratan for the video.
    This is a very good initiative!

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    Quote Originally Posted by ratankv View Post
    Today's Question (Questions and answers provided by Knowledge Varsity)
    ================================================== ================================================== ============
    Q2. A Firm's EPS was $5 in 2002, In year 2008 the EPS was $14. Find the compounded annual growth rate (CAGR) of the EPS.
    A. 15.85 %
    B. 18.7 %
    C. Can’t be determined from the given options
    We can use PV = -5, FV = 14 and calculate rate.
    According to my calculation, CAGR = 15.8%
    So answer is A.

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    @Ratan Sir:- Thanks for the new concept of video & detail explaination.... it's very helpful. I hv one query reg Q-1, what if we take common pt at one end ?? Then how to calculate ?

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    Mentor, Knowledge Varsity ratankv's Avatar
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    Hi Shubhojit,
    You can take common point at the start/end/middle as per your convenience. However, the middle one is better, as it will require less computation steps.
    Let's say that you are taking the common point in the end of the period (that is at T=90), then the following would be the steps
    - Compute the FV of the $30,000 at the end of the period (T=90), this can be done by taking. N=30, I/Y=12, PV=0, PMT = +30,000, Compute FV, please note that the FV will come at T=89. You will have to multiply by 1.12 to get FV at 90.
    FV(90) = FV(89) * 1.12
    Now, next you will have to bring the FV at 90, to FV at 59. Find out how many periods are in between. 60 - 59 = 1 (and there is one period), so 90 - 59 = 31 => 31 periods are there.
    therefore, FV(59) = FV(90)/1.12^31 = 241,655.519
    Now, solve the PMT using the following (please note that we are still in end mode, so you need to visualise one period before 25, that is 24)
    N = 35, I/Y= 12, PV =0, FV = FV(59) = 241,655.519, PMT = ?
    The PMT value will come as 559.8238 which is the same as computed earlier.
    If you, see here the number of calculation being done is more. Same would happen if you take the common point at the start also. So, it is advisable to make the middle as the common point.

    Thanks
    Ratan
    Quote Originally Posted by Shubhojit View Post
    @Ratan Sir:- Thanks for the new concept of video & detail explaination.... it's very helpful. I hv one query reg Q-1, what if we take common pt at one end ?? Then how to calculate ?

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