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#CFA: Questions and Answers

October 28, 2013

Felicitations of the day to every #CFA aspirant! Within this post, you can find listed relevant questions as well as solutions based upon various examination topics from #CFA. Concerns as well as issues are aplenty. Therefore, for those who don’t have the the right answers, then you’ve arrived at the correct place! Below, you will discover a selection of questions as well as the germane answers. If you have any kind of problem regarding CFA topics, obtain your answers right here! These valuable answers, obtained so conveniently, have assisted my prep extensively. If you decide to browse through it, it will help you you as well.

So let’s proceed to these questions!

Question: A lessee had a 15 year capital lease requiring equal annual payments.The reduction of lease liability in year three should equal to A. The current liability shown for the lease at the end of year 2. B. The current liability shown for the lease at the end of year 3. am not sure i get the question

Answer: A current liability is one that you expect to pay within one year (or one operating cycle). At the end of year 2, you expect to reduce the lease liability within one year by the year 3 principle payment; thus, the year 3 principle payment is shown as a current liability at the end of year 2.
At the end of year 3 you’ve already made the year 3 lease payments, so the year 3 principle reduction isn’t a liability (current or otherwise) any longer: you’ve paid it.

Question: Can someone please help me clarify something…
I understand that a higher coupon bond provides for a lower duration as per the Macaulay/Modified definition (lower time to payment), but my confusion stems from the Price-Yield Curve perspective.
If I have a high paying coupon bond, then I can assume that it’s priced at a Premium to Par (meaning that It would be at the top left hand-side of the Price-Yield curve). If I’m in this section, then a Change in Price/Change in Yield should result in a higher number, i.e. a high Duration given that this is a forumla for Duration. In that case, wouldn’t a High paying Coupon=High Duration?
I know this is wrong, but I was wondering if someone could help me out with where I’m off with my point of view??
Thanks!

Answer: edupristine Oct 26th, 2013 4:30pm Partner India 268AF Points
Justin Case wrote Can someone please help me clarify something…
I understand that a higher coupon bond provides for a lower duration as per the MacaulayModified definition (lower time to payment). Out my confusion stems from the Price-Yield Curve perspeCtive.
ff I have a high paying coupon bond. then I can assume that its priced at a Premium to Par (meaning that It would be at the top left hand-side of the Price-Yield curse). If I’m in this section. then a Change in Price/Change in View should result In a higher number. I.e. a high Duration given that this Is a forumla for Duration. In that case. wouldn’t a High paying Coupon=High Durabon,
I bow this is wrong, but I was wondering if someone could help me out with where I’m off with my point of vievn?
Thanks!
No it you have a higher coupon paying bond that means you are getting more money back than others In real terms. For example – YTM is 5% and coupon is 10% for X and 6% for bond Y. So it YTM change to 6%.
Here bond Y will valiate more than X. Because Bond Xis already getting 10% and reinvesting it on 5% but Bond Y is only getting 6% and reinvesting it on 5%.
The percentage change is greater for bond Y that is why they have a greater impact
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Question: If a firm s long-run average total cost increases by 6% if output is increased by 6%, the firm is experiencing
ANSWER diseconomies of scale
Can anyone please explain why the answer is not constant returns to scale “)
mean 6% = 6% right .

Answer: edupristine Oct 25th. 2013 6:18am Partner India 268 AF Points
Diseconomies of scale lead the marginal cost of a product to increase as a company grows. So you can not reach the answer here only by comapdng with increase in output only. here you need to compare with previous output increase with previous average cost increase

Question: Can someone please explain me the concept of Marginal Revenue Product. I dont know what is happening. I am not being able to understand the basic concept in this, please help me out!

Answer: edupristine Oct 28th, 2013 3:59am Partner incite 268 8F Points
Marginal revenue product is the additional revenue generated by the extra output from employing one more unit of a factor of production.
For example – If ATC is 540 and output is $60 and here you are employing 51 extra input and generating $3 extra(MRP).Then the final result is ATC $41 and output is $63.
$3 is Marginal revenue product generated by employing $1 additional input.
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