2008CFA-Mock上ANS

Level 2 Mock Exam - Part 1_2008

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Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, pp. 70-71, 73, Example 5.Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specifi c situations

Neither is an acceptable reason for soliciting clients while at Portree. The clients belong to Portree and Jun is not permitted to solicit their business until he leaves the fi rm. As indicated in the Readings and Standards of Practice Handbook, even though Jun does not receive monetary compensation for his services, he may be considered an employee because as an intern he receives compensation and benefi ts in the form of work experience and knowledge.Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, p. 70.Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specifi c situations

Velez has acted appropriately and has not violated her duty of loyalty to Portree. According to the Standard relating to Duty to Employer, a departing employee is generally free to make arrangements or preparations to go into a competitive business before terminating the relationship with her employer provided that such preparations do not breach the employee’s duty of loyalty. Specifi cally, prior to leaving an employer, members must not contact existing clients or potential clients for the purpose of soliciting their business for the new business.

Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, p. 70.Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specifi c situations

Jun’s use of Fantine’s methods is acceptable. The Standards do not impose a prohibition on the use of experience or knowledge gained at one employer from being used at another employer. According to the Standards, “Once an employee has left the fi rm, the skills and experience that an employee obtains while employed are not “confi dential” or “privileged” information.”

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Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, pp. 105-107 Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations

Jun’s statement about passing the exams on the first try was merely factual, while his business card, which he distributes to prospective clients, prematurely states that he is a CFA charterholder.Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, pp. 94-95, 98, Examples 8, 9 Study Session 1-2-b

recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct

Priority goes to clients over accounts in which Upsala personnel are beneficial owners.

Code of Ethics and Standards of Professional Conduct and Guidance for Standards I-VII, CFA Institute

2008 Modular Level II, Vol. 1, pp. 69-70, 89 Study Session 1-2-a

demonstrate a thorough knowledge of the Code of Ethics and Standards of Professional Conduct by applying the Code and Standards to specific situations

Whether or not Upsala’s compliance policy requires disclosure, Jun is obligated to comply with CFA Institute Standards. The Standard relating to Loyalty to Employer requires that Jun disclose details of the consulting work and receive written consent from Upsala before rendering service.

“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, pp. 362-367 Study Session 3-13-d

discuss the structure of an autoregressive model of order p, calculate one- and two-period-ahead forecasts given the estimated coefficients, and explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series

Testing for correct specification of an autoregressive (AR) model requires a test to determine if the correlations between the error term and several lagged error terms are statistically different from zero. If the autocorrelations are significantly different from zero, the model is not correctly specified.“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, pp. 395-398 Study Session 3-13-l

explain autoregressive conditional heteroskedasticity (ARCH), and discuss how ARCH models can be applied to predict the variance of a time series

To examine for the presence of heteroskedasticity, Nordique should test whether the variance of the error in one period depends on the variance of the error in previous periods. This is accomplished by regressing the squared residuals from the estimated model on the squared residuals lagged one period.

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“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, pp. 376-384 Study Session 3-13-i, j

discuss the implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so that it can be analyzed with an autoregressive model;

discuss the steps of the unit root test for nonstationarity, and explain the relation of the test to autoregressive time series models

The Dickey-Fuller test is used to test for the presence of a unit root. The model is of the form: (P/E)t - (P/E)t-1 = b0 + g1 (P/E)t-1 + εt. The null hypothesis (H0: g1 = 0) is that the series has a unit root and is not stationary. The alternate hypothesis (H1: g1 ≠ 0) is that the series does not have a unit root and is stationary.

“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, pp. 376-380 Study Session 3-13-i

discuss the implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so that it can be analyzed with an autoregressive model

Beloit is concerned that a unit root exists. If she is correct, first differencing is a suggested solution, i.e., re-estimate the regression using the form: [(P/E)t - (P/E)t-1 ] = b0 + b1 [(P/E)t-1 - (P/E)t-2 ] + εt.“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, p. 367 Study Session 3-13-e

explain mean reversion, and calculate a mean-reverting level

If the process is mean reverting, the market P/E will move toward the mean-reverting level over time. If it is currently above its mean reversion level, the P/E will tend to fall, suggesting that underweighting stocks would be appropriate.

“Time Series Analysis,” Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, and David E. Runkel

2008 Modular Level II, Vol. 1, pp. 367-368 Study Session 3-13-d

discuss the structure of an autoregressive model of order p, calculate one- and two-period-ahead forecasts given the estimated coefficients, and explain how autocorrelations of the residuals can be used to test whether the autoregressive model fits the time series

The one-month forecast is 0.332 + (0.975 x 22.50) = 22.27. The two-month forecast is 0.332 + (0.975 x 22.27) = 22.04.

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“Analysis of Intercorporate Investments,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried 2008 Modular Level II, Vol. 2, pp. 10, 13, 24-26, 33-34 Study Session 5-21-b, d

calculate and analyze the effect of marketable securities classification on the financial statements and financial ratios under SFAS 115;

distinguish, given various ownership and/or control levels and relevant accounting standards, whether the cost method, equity method, proportionate consolidation method, or consolidation method should be used and analyze and contrast the earnings effects of using the cost method, equity method,

consolidation method, and proportionate consolidation method on a company’s financial statements and financial ratios

The appropriate components of ACI’s net income derived from the equity investments in Exhibit 1 (amounts in millions) are as follows:13

ColumbusDe Soto MarcoDe VacaVikingTotal

ConsolidationEquity MethodAvailable-for-Sale1Cost

Available-for-Sale

Amount Included in (0.60 x 65) = $39.0(0.30 x 85) = 25.5

3.02.0$70.0

Net IncomeNet IncomeDividendsDividendsDividends

Note 1: With a majority owner controlling Marco, there is no indication that ACI exhibits the degree of control consistent with a 30% stake; the Marco investment has been accounted for by Fanner as an available-for-sale security.

“Analysis of Intercorporate Investments,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried 2008 Modular Level II, Vol. 2, p. 13-15 Study Session 5-21-b

calculate and analyze the effect of marketable securities classification on the financial statements and financial ratios under SFAS 115

A reclassification from held-to-maturity to available-for-sale would not change the 2007 pre-tax income for ACI. Under held-to-maturity, interest that is received would be included in income but changes in market value of the securities would be ignored. Under available-for-sale, interest would once again be included, but only realized rather than unrealized gains would appear in income. Thus, as no gains were realized during the year, there would be no change.

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“Analysis of Intercorporate Investments,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried 2008 Modular Level II, Vol. 2, p. 10-24 Study Session 5-21-c

calculate and analyze the mark-to-market investment return on a marketable securities portfolio under SFAS 115

The analyst should track investment performance on a mark-to-market return basis, measuring the actual investment performance for each period (page 21). ACI has five investments classified under SFAS 115 (marketable securities where the company does not have the ability to exercise significant influence or control): Marco, De Vaca, Viking, Cortez and Da Gama. De Vaca does not have a market value and hence is accounted for under the cost method. It is not possible to calculate a mark-to-market return for it. Calculation of the mark-to-market return includes interest and dividend income plus realized and unrealized gains and losses; see page 21 and 22 for sample calculations and definition. The four qualifying securities and calculations of the mark-to-market portfolio return are as follows: (Note there were no realized gains or losses during the year.) The equity securities were purchased January 1, 2007, their cost basis is therefore equal to the opening market value. The debt securities were purchased during the year so their cost basis is also equal to their opening market value.)15

Fixed Maturities

Interest or Dividend IncomeCortez$3De GamaMarco Viking Market Valuation AdjustmentCortez($4)De GamaMarco Viking

Mark-to-Market Return, in $ millions

Equities $3Total $5 $3.5

($10)($9)$9.5