Exam (elaborations)
CFA SALT SOLUTIONS QUESTIONS AND ANSWERS
- Course
- Institution
CFA SALT SOLUTIONS QUESTIONS AND ANSWERS
[Show more]
Seller
Follow
Classroom
Reviews received
Content preview
CFA SALT SOLUTIONS QUESTIONS AND ANSWERS3 years ago, an investor paid $10,000 to establish a position in a
non-dividend-paying stock. During this time, the stock's annual
returns have been 8%, 3%, and -5%, respectively.
Calculate the investor's holding period return and the position's
terminal value. Correct Answer R = (1 + 0.08) x (1 + 0.03) x (1
+ -0.05) - 1 = 0.0568
R = 5.68%
Terminal value = 1.0568 x 10,000 = 10,568
A 2% annual coupon bond is selling for $101 per $100 par
value. Its final coupon payment will be made at maturity in 3
months. The holding period return for an investor who purchases
this bond today is closest to:
1%
2%
3% Correct Answer An investor would pay $101 today in
exchange for a $2 coupon payment and a $100 principal
repayment. The return over a 3-month holding period is:
HPR = (100 - 101)/101 + (2/101) = 0.0099 = 0.99%, ~ 1%
The $100 par value is the maturity value that will be received at
the end of the 3-month period, so it should be P1 instead of P0.
A company is able to borrow over 5 years at a 5.7% interest rate.
If the nominal risk-free rate is 4% and lenders require premiums
,of 1% for inflation, 0.8% for liquidity, and 0.4% for maturity,
the compensation for the possibility that the company does not
repay the loan is closest to: Correct Answer Remember r = rf +
I+D+L+M
Nominal risk free rate = rf + I = 4%.
I = 1%
L = 0.8%
M= 0.4%
So 5.7 = 4 + D + 0.8 + 0.4, so D = 0.5%
A portfolio has experienced the following annual returns:
30%
40%
−70%
Calculate the arithmetic mean and geometric mean. Correct
Answer Arithmetic mean = (.3 + .4 - .7)/3 = 0
Geometric mean = [(1 + .3)(1 + .4)(1 - .7)]^1/3 - 1 = -0.1827
Geometric mean is always smaller unless all numbers are the
same.
A portfolio manager invests $5000 annually in a security for
four years at the prices shown in the following exhibit:
year 1 = purchase price of security = 62
year 2 = 76
year 3 = 84
year 4 = 90
, The average price is best represented as the
a. harmonic mean of 76.48
b. geometric mean of 77.26
c. arithmetic average of 78 Correct Answer Answer is A.
The two primary uses of the harmonic mean are:
1. To handle a dataset with extreme outliers
2. To determine the average security price when using the cost
averaging technique
The second use applies here.
A USD25 million equity portfolio is financed 20 percent with
debt at a cost of 6 percent annual cost. If that equity portfolio
generates a 10 percent annual total investment return, then the
leveraged return is:
a. 11%
b. 11.2%
c. 13.2% Correct Answer portfolio return/portfolio equity
=
(Rp(Ve + Vb) - Vb(rD)) / Ve
=
Rp + (Vb/Ve)(Rp - rD)
rD = borrowing rate
Rp = return on invested funds
Ve = amount of equity capital
Vb = amount of borrowed funds
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Classroom. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $12.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82956 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now