Cfa Level Ii Original Set Of 7

Front 1

Sources of Economic Growth

Back 1

Land
Capital Goods
Labor
Entrepreneurial Ability

Front 2

3 social institutions that are preconditions to economic growth

Back 2

Market prices
Property Rights
Monetary Exchange

Front 3

3 activities necessary for persistent economic growth

Back 3

1. Saving and investment in new capital
2. Investment in Human Capital
3. Discovery of new technologies

Front 4

Coefficient of Determination

Back 4

R^2 or
Explained Variation / Total Variation

Front 5

Impact of labor productivity increase on employment, real wage rate, and potential GDP

Back 5

increase employment
increase wages
increase potential GDP

Front 6

Impact of population increase on employment, real wage rate, and potential GDP

Back 6

increase employment and potential GDP but lowers wage rate

Front 7

Required return from H Model Equation

Back 7

Front 8

currency forward premium equation

Back 8

Front 9

Interest Rate Parity equation

Back 9

Front 10

Current Account includes

Back 10

exchange of goods and services
investment income
unilateral transfers (net of aid)

Front 11

Implied growth rate from residual income equation

Back 11

Front 12

Financial Account Includes

Back 12

Payment for securities
direct investment
bank deposits

Front 13

Justfied PB equation (Gordon)

Back 13

Front 14

Impact of expansionary fiscal policy on currency, current account, and financial account

Back 14

currency appreciation
current account decrease
financial account increase

Front 15

Impact of expansionary monetary policy on currency, current account, and financial account

Back 15

currency depreciation
current account decrease
financial account decrease

Front 16

Relative PPP equation

Back 16

Front 17

International Fisher equation

Back 17

Front 18

Net national income

Back 18

gross national income - depreciation

Front 19

GDP measures that use factor prices

Back 19

income based measures

Front 20

Economic profit of a capital project

Back 20

NOPAT - $WACC

Front 21

Justified PS equation

Back 21

Front 22

agency costs of equity

Back 22

monitoring costs
bonding costs
residual losses

Front 23

Effective tax rate under double taxation

Back 23

corporate tax rate + (1 − corporate tax rate) × (individual tax rate)

Front 24

target payout calculation for stable dividend

Back 24

Front 25

HHI Calculation

Back 25

Front 26

Weighted Harmonic Mean

Back 26

Front 27

inputs for pricing stock options that decrease fair value

Back 27

lower volatility
shorter term
lower risk free rate
higher expected dividend yield

Front 28

When to use current rate method

Back 28

If functional currency and parent presentation currency differ

Front 29

translation methods for hyperinflationary

Back 29

GAAP - temporal
IFRS - restate for inflation and then current rate

Front 30

Recognition of fair value hedge using derivatives

Back 30

ineffective portion of hedge recognized in income statement

Front 31

Recognition of cash flow hedge with derivatives

Back 31

bypass income and go to OCI but are reclassed through income when transaction is complete

Front 32

recognition of a net investment hedge of a foreign subsidiary

Back 32

recognized in OCI

Front 33

Accruals Ratio CF

Back 33

Front 34

Adjusted Beta

Back 34

2/3 * regression beta + 1/3 * 1.0

Front 35

2 central questions for firm's choice of competitive strategy

Back 35

Industry Attractiveness
Competitive Advantage

Front 36

Management actions to gain competitive advantage

Back 36

Position for current forces
Exploit changes in forces
Shape the Industry Structure

Front 37

key components of industry analysis

Back 37

-industry classification – life cycle position, business cycle
- external factor review – technology, government, social, demographic, foreign
- demand analysis – end users, real/nominal growth, trends and variations around trends
- supply analysis – degree of concentration, easy of entry, Industry capacity
- profitability analysis – supply/demand, cost factors, pricing
- international competition and markets review.

Front 38

4 stages of Lifecycle

Back 38

- Pioneer. Acceptance of the product or service is uncertain, and the correct strategy may be unclear.
- Growth. Growth companies can prosper in all stages of the business cycle.
- Mature. Industry growth now corresponds to the growth of the general economy.
- Decline. Shifting tastes or technologies have overtaken the industry, and demand for its products steadily decreases

Front 39

Business Cycle Classifications

Back 39

- Growth industry stocks experience accelerating sales and high profit margins during all phases of the business cycle.
- Defensive industry stocks are much less cyclical than the overall market because demand for their products tends to be relatively independent of the business cycle.
- Cyclical industry stocks vary directly with the business cycle because product demand tends to increase during the expansion and peak phases and drop off significantly during the recessionary phase.

Front 40

implied growth rate of dividends from Gordon Growth model

Back 40

g = r − (D1 / P0)

Front 41

FCFF from EBIT

Back 41

[EBIT × (1 − tax rate)] + Dep − FCInv − WCInv

Front 42

FCFF from EBITDA

Back 42

[EBITDA × (1 − tax rate)] + (Dep × tax rate) − FCInv − WCInv

Front 43

FCFE from FCFF

Back 43

FCFF − [Int × (1 − tax rate)] + net borrowing

Front 44

Code of Ethics

Back 44

Act with Integrity, Diligence, Respect

Place integrity of profession and clients above own

Use Reasonable care and independent judgement

practice and encourage others to practice in an ethical manner

promote integrity of rules governing capital markets

maintain and improve professional competence

Front 45

5 principles of prudent investor rule

Back 45

1. Diversification is Fundamental
2. Risk must be considered
3. duty to avoid fees
4. balancing of current income and growth
5. duty and authority to delegate as prudent investors would.

Front 46

Sample Correlation Equation

Back 46

Front 47

t-test for correlation coefficient r

Back 47

Front 48

F stat for multiple regression

Back 48

Front 49

Serial Correlation

Back 49

Residuals are correlated, durbin watson except for time series then have to check correlation of residuals, hanson method to correct standard errors

Front 50

Multicollinearity

Back 50

Two or more independent variables are correlated, F and t values conflict, drop a correlated independent variable

Front 51

Test for autoregressive model fit

Back 51

check to see if autocorrelations of residuals is significant

Front 52

mean reversion equation for AR(1)

Back 52

b0 / (1-b1)

Front 53

adjustment of discount rate for probability of failure for private equity

Back 53

Front 54

Price of a Forward Rate Agreement

Back 54

Front 55

Value of a currency forward at time t

Back 55

Front 56

Pi equation for options prices

Back 56

Front 57

Variance Equation

Back 57

Front 58

Beta calc from Cov

Back 58

Front 59

Covariance from Market Model

Back 59

Front 60

Foreign Currency Risk Premium equation

Back 60

Front 61

model that says depreciating currency should increase domestic economic activity

Back 61

Traditional Trade or J-Curve

Front 62

model that says an increase in economic activity causes increased demand in domestic currency

Back 62

money demand model

Front 63

theory that increased rates causes appreciation of domestic currency

Back 63

free markets theory

Front 64

theory that bonds have positive exposure to currency risk

Back 64

government intervention theory

Front 65

Option Cost =

Back 65

Z-Spread - OAS

Front 66

Convexity Equation

Back 66

Front 67

Duration Equation

Back 67

Front 68

PSA calculation for t <30

Back 68

CPR = 6% x (t/30)

Front 69

CPR from SMM

Back 69

1 - (1-SMM) ^ (12)

Front 70

Reasons for differences in effective durations calculated by dealers

Back 70

1. differences in delta y
2. OAS differences from monte carlo model
3. differences in assumed spreads between 1m rates and refinancing rates

Front 71

Objectives of Corporate Governance System

Back 71

Eliminate or reduce conflicts of interest

Use the company’s assets in a manner consistent with the best interests of investors and other stakeholders

Front 72

n ratio equation for option binomial model

Back 72

Front 73

Uncovered Interest Rate Parity

Back 73

Front 74

conditional heteroskedasticity

Back 74

variance of residuals is not constant and is correlated with level of independent variables, t stats are inflated. Bruesch-Pagan Chi square test nR2

Front 75

Asset Beta equation

Back 75

Front 76

Cost of Equity with Debt added equation

Back 76