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CFA Board Exam| Questions and Essays with 100% Verified Answers
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CFA Board Exam| Questions andEssays with 100% Verified Answers
Assumptions of Gordon Growth Model - ✔ ✔ *Dividends are appropriate
to measure shareholder wealth
*Dividend growth rate and
required return never change
*Required return is greater than the dividend growth rate
Attitude/Rationalization - ✔ ✔ A mindset that fraudulent behavior is justified;
Inappropriate ethical standards; Excessive participation by nonfinancial
management in the selection of accounting standards; Violations of laws
and regulations by management or board
members; A management obsession with maintaining or increasing the firm's
stock price or earnings trend; Making commitments to third parties to achieve
aggressive results;
Failing to correct known reportable conditions;
Inappropriately minimizing earnings for tax purposes;
Use of materiality as a basis to justify inappropriate or
questionable accounting methods; Strained relationship between
management and the current or previous auditor
Available for Sale Securities - ✔ ✔ Listed at fair value but but
,unrealized gains and loses are not
reported
Average Collection Period - ✔ ✔ Average number of days it takes for a customer
to pay its bills; ACP = 365/Receivables Turnover
Average Inventory Period = - ✔ ✔ 365/Inventory Turnover
Average Revenue < AVC - ✔ ✔ Firm should shut down
Auction Process - ✔ ✔ When the issuer determines the size and terms of the
issue and several banks bid on the interest rate required to sell it; Lowest
interest rate bid wins the deal
Auditor's Opinions - ✔ ✔ +Unqualified opinion
+A qualified opinion
+An adverse opinion
+A disclaimer opinion
Austrian - ✔ ✔ Business cycles are caused by the government
Autarky - ✔ ✔ Close Economy
Average Revenue > ATC - ✔ ✔ Firm should stay in business for long-run
,Average Revenue > AVC - ✔ ✔ Firm continue production
Backfilling Bias - ✔ ✔ When past performance of an index is inflated because
funds with poor performance in the past
is not included
Backwardation - ✔ ✔ When a futures price is below the spot price;
Caused by hedgers to insure
against price declines in the
future; Some markets are described as having normal backwardation
Balance Sheet CDO - ✔ ✔ Created by a bank to reduce its loan exposure on
its balance sheet
Bank Discount Yield - ✔ ✔ = ((face value -
market value)/(face value)) * (360/days until
maturity)
Banker's Acceptance - ✔ ✔ Guarantees by a bank that a loan will be
repaid; Part of a commercial transaction;
Gives assurance to counterparty that financing is secure for the trade;
Counterparty can sell the acceptance in a secondary market or hold
until it is paid;
Credit risks are the borrower does not repay or the
acceptance bank does not pay
, Banker's Acceptances - ✔ ✔ Guarantees from a bank stating that a firm
has ordered goods and
a payment will be made at the receipt of the goods, which the firm sells at a
discount immediately to generate cash
Barriers to Creating a Coherent
Financial Framework - ✔ ✔ +Valuation
+Standard setting
+Measuring value at a point intime versus it's movement over a period of time
Barter Transaction - ✔ ✔ When two parties exchange goods with no cash
payments; GAAP says revenue can be recognized at fair value only if the firm
has historically received cash for
the goods and use the historical price to determine
fair value, otherwise the revenue is recorded at
the carrying value of the surrendered items;
IFRS says revenues must be based on fair value of
revenue from similar transactions with unrelated
parties
Basic EPS - ✔ ✔ (Net Income - Preferred
Dividends)/(Weighted Average of Shares Outstanding)
Basis Swap - ✔ ✔ Trading one floating rate payment for another
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