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CFA Questions and Answers

May 16, 2014

Greetings of the day to all you CFA aspirants! In this blog, you will find a list of questions and answers based on different study topics from #CFA. Questions and doubts are aplenty. So, if you don’t have the answers, then you’ve come to the right place! Here, you will find a list of questions along with the relevant answers. So if you have any doubts, find your answers right here! These answers, found so easily, have aided my prep enormously. So if you go through it as well, it will help you too. So let’s move on to these questions!

Question: Help me out on IS curve: For the IS Curve (S-I)=(G-T)+(X-M), How come saving minus investments will be equal to fiscal balance and trade balance? i dont understand the logic how it is directly proportional?

Answer: The IS and LM model formula, S — I = (G — T) + (X — M). tels you that the aggregate savings – aggregate investment should equal to (government expenditure – Taxes) + ( Total export – Total import). The whole effect should be balanced.

Question: Demand and supply analysis: 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’ ? i mean.. 6% = 6% right…? Bookmark Report quote rep Feature on CFA Feature on CAIA Feature on FIRM

Answer: 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 comapring with increase in output only. here you need to compare with previous output increase with previous average cost increase.

Question: Portfolio standard deviation for 5 assets: Guys, CFA Institute pretty clear talks about 2 and 3 assets in the portfolio, but what shall I do if I need to calculate standard deviation of a portfolio with 5 assets? Which formula should I use? Thanks in advance.

Answer:No specific formula is given for that. So. I think you should use same formula in extended form for the calculation of 5 assets.

Question: Shares Repurchase: Could anyone give a brief explanation on why a share repurchase is considered a way of paying dividends to shareholders? And why is usually considered a better action than paying dividends with cash? Thanks!

Answer: Usually those companies who are not paying dividends regularly use this approach. Hence through repurchase company pays a cash and buy back the part of shares outstanding, Though the shareholders who sold their shares bene?ted with cash baclt( dlvldend la also a form of paying cash to shareholders). And the Tax on dividends is paid by company. not by shareholders

If you think that you still have further doubts, all you have to do is drop in your queries in the comments section below or post your questions on the EduPristine forum.

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