2008CFALevel2－MockExam2（AM）模考试题Question1TonyWhite,CFA,isacitizenoftheUnitedKingdomandhasjustmovedtotheUnitedStates.HeworkedasafundmanagerforaLondon-basedinvestmentmanagementfirm,GlobalPensions(GP),whichisseekingtoattractbusinessfromseverallargeUSpensionfunds.GPhassentWhitetoNewYorktosetupoperationsthere.InLondon,WhiteranahedgefundinGP’sprivateclientsubsidiaryandwasaccustomedtotakinglargearbitragepositionsforclientswithhighrisk-tolerancewhowereseekinghighreturns.WhiteremembersthattheUShassomecomplexlawsgoverningmanagementofpensionfundassets.Hecallshisfriend,JoeAlbert,whoisaCFAcandidate,andaskshimtosendhimsomeinformationsohecanbecomeknowledgeableabouthisresponsibilities.AlbertsendsWhitethereadingsfromtheCFAexamwiththeadvicethatthesereadingswerejustafirststartandWhiteshouldgetmorein-depthknowledgeofhisfiduciaryresponsibilitiesifheistomanagepensionfundassetsintheUS.WhiteisunderconsiderablepressurefromGPtoearnfeesfrommanagingportfoliossoheputsthematerialsAlbertsenthiminhisdeskandwenttomeetanewclient,CarlosSantia,CFA.SantiaisatrusteeforthedefinedbenefitpensionplanofWalshIndustries(WI).Santiabecameatrusteebecausehiscollegeroommate,MattWalsh,ispresidentofWI.Walshislookingtoretiresoonandwantstomaximizetheamounthe’llbeabletowithdrawfromWI’spensionplan.ThroughhiscontactsinLondon,SantiahasheardthatWhitewasasharpandaggressivefundmanagerwithauniqueinvestmentstrategy.SantiabelievesthatWhiteisjustwhathe’slookingfortomakethereturnsnecessarytopleasehisfriendWalsh.WhiteandSantiametoverlunchanddevisedanewinvestmentopportunityfortheWIpensionplan.♣WhitetoldSantiathat,inordertomakethekindofreturnsSantiaislookingfor,hewouldneedformostofthepensionplanassetstobeinvestedinWhite’sfund.♣WhitealsotellsSantiathathisstrategyalsoinvolvessignificanttrading,butthatthereturnsheguaranteestogeneratewillmorethancoverthetransactionfees.♣Healsonotesthathisstrategysacrificescurrentincomeforgrowth.TheotherTrusteeshavedelegatedinvestmentauthoritytoSantia,becauseheisaCFAcharterholderandtheonlyoneoftheTrusteeswithinvestmentexpertise.Santiadoesn’tneedtoconvinceanyoneoftheprudenceofhisplan.Allinall,WhitefeltthathismeetingwithSantiawasagoodstartinbuildingaclientbaseintheUS.Hewasespeciallyhappythathecouldcontinuetoimplementhissuccessfulhedgefundstrategy.AshewasshakingSantia’shandonparting,Whitesaid,“I’msogladtobeworkingwithanotherCFA.Let’smeetforlunchagainsoon.”Part1)WhichofthefollowingStandardsintheCFAInstituteCodeofEthicsandStandardsofProfessionalConductapplyspecificallytoSantiainhisroleasthetrustee,withdelegatedinvestmentauthority,ofWI’spensionfund?A)StandardI(B),IndependenceandObjectivity.B)StandardIII(A),Loyalty,Prudence,andCare.C)StandardV(A),DiligenceandReasonableBasis.D)StandardIII(D),PerformancePresentation.Part2)IfSantiaimplementshisplanandtransfersasignificantamountofWI’spensionfundassetsintoWhite’shedgefund,whichofthefollowingprinciplesoftheNewPrudentInvestorRulewillleastlikelybeviolated?Investmentmanagersareexpectedtodiversifytoreducerisk.A)Trusteesareallowedtodelegateinvestmentauthority.B)C)Excessivetradingthatisnotwarrantedbytheportfolioriskandreturnobjectivesshouldbeavoided.D)Currentincomemustbebalancedagainsttheneedforgrowth.Part3)WhichofthefollowinggeneralfiduciarystandardsinthePrudentInvestorRulebestdescribesthestandardviolatedbecauseofSantia’sfriendshipwithWalsh?A)Care.B)Skill.C)Loyalty.D)Caution.Part4)WhenWhitereturnedtohisoffice,hedecidedhebetterbecomemoreknowledgeableaboutapplicablelawsandregulationsifhewastomanageWIpensionfundassets.HealsodecidedtogetouthisCFAInstituteStandardsofPracticeHandbookforadditionalguidance.AfterreadingStandardI(A)aboutknowledgeofthelaw,Whitedecidedthathe:A)didnotviolatetheStandardbecausehewasunawareoftheapplicablelawsandregulationsregardingpensionfunds.B)violatedtheStandardbynotunderstandingtheapplicablelawsandregulationsregardingpensionfunds.C)violatedtheStandardbecauseheknowinglyparticipatedinaviolationofapplicablelawsandregulationsregardingpensionfunds.D)didnotviolatetheStandardbecausehedidnotknowinglyparticipateinaviolationofapplicablelawsandregulationsregardingpensionfunds.Part5)WhichofthefollowingbestdescribesWhite’sresponsibilitiesunderStandardIII(C),SuitabilitywithClientsandProspects,whenmeetingwithSantiatodiscussmanagingWI’spensionfundassetsandpriortomakinganinvestmentrecommendation?A)SinceSantiaisaCFAcharterholder,WhitecouldreasonablyrelyonSantiatounderstandtheinvestmentobjectivesofthepensionfundandtorejectaninappropriateinvestmentstrategy.B)WhiteshouldhavemadeareasonableinquiryintotheinvestmentobjectivesofWI’spensionfund.C)Whitecanwaituntilheimplementshishedgefundstrategyforthepensionfundandcalculatetheactualriskandreturnprofileofthehedgefund.Thenhecancomparethehedgefundprofilewiththeinvestmentobjectivesofthepensionfund.D)ofWI’spensionfundandrelyonhisresponsetothequestion.ItwassufficientforWhitetoaskSantiawhetherthehedgefundstrategywouldmeettheinvestmentobjectivesPart6)WhichofthefollowingbestdescribesWhite’scompliancewithStandardVII(B),ReferencetoCFAInstitute,theCFADesignation,andtheCFAProgram,inhispartingcommentstoSantia?A)WhiteviolatedStandardVII(B).Heshouldhavesaid,“I’msogladtobeworkingwithanotherCFAcharterholder.”B)WhiteviolatedStandardVII(B).Heshouldhavesaid,“I’msogladtobeworkingwithanotherCharteredFinancialAnalyst.”C)WhiteviolatedStandardVII(B)becausehedidn’tdosoinaproper,dignified,andjudiciousmanner.D)WhitecompliedwithStandardVII(B).Question2TheannualmeetingisfastapproachingforSpartanIndustries,andtheboardofdirectorsisgatheredtogetherpriortothemeetingtodiscussdividendpolicy.Thefirmiscurrentlyfollowingatargetpayoutratioapproach,andshareholdersarequestioningwhetherthisismaximizingthevalueoftheirinvestment.ThefollowingdataappliestoSpartanforthemostrecentfiscalyear:DividendsPaidEarningsPerShareLong-termNormalGrowthRateRequiredReturnonEquityTargetPayoutRatioAdjustmentFactor$1$2%8%60%1/1Oneofthedirectors,GiselleJung,hascomeoutinfavorofswitchingtoaresidualapproach.This,shesays,willfreethefirmuptoincreasecapitalinvestmentwhenthereisarelativeabundanceofgoodprojects.Theresult,shebelieves,isthatthefirmwillbeaccordedahighervalueinthemarketfollowingtheswitch.Independentdirector,Dr.SunilPatel,isanadherenttothebird-in-the-handtheoryregardingdividends.Thefindingsofhisresearchstronglysuggestthatshareholderstendtoviewdividendsasbeinglessriskythanreturnsfromcapitalgains,andthatthishasadirectimpactuponthecostofequity.Asaresult,hewouldliketoswitchtoadividendstabilityapproach,andincreasethetargetpayoutratio.Whatreallymatterstothefirm’sshareholders,suggestsboardmemberJasonZweig,ishowmuchtheygettokeepafterthedividendsarereceived.Sinceshareholdersareforcedtorealizeincomewhendividendsarepaidouttothem,increasesinpayoutincreasetheirtaxliabilities.Hissuggestionisthatthefirmshouldpayouttheminimumrequiredtokeepshareholdershappy,andfocusinsteaduponexpandingthefirm’sinvestmentopportunities,possiblybyenteringintonewmarketsorproductlines.Chairman,MarioBertocci,saysthathewondersifthefirmcanreallyaffectitssharevaluebyalteringthedividendpolicy.Hethinksthefirmshouldpayoutanominalamount,andusetheresttorepurchaseshares.HenotesthatWallStreetanalystsconsistentlytellhimthatrepurchasingsharesshouldhaveapositiveimpactonthefirm’svaluation.Heaskstherestoftheboardtoconsiderhowasharerepurchaseprogrammightbeintegratedwithoneoftheproposedoptionsforacashdividendpolicy.Part1)Whichofthefollowingstatementsconcerningtheresidualdividendapproachisleastaccurate?Investmentopportunitiescanbeconsideredindependentlyofdividends.A)B)Dividendpaymentsmaybeunstable.C)Investorsmayperceiveafirmfollowingtheapproachasriskierthanthosewithstablepayoutpolicies.D)Determinationoftheamountofresidualfundsistypicallydifficult.Part2)Withrespecttothevariousapproachestodividendpolicy,whichofthefollowingstatementsismostaccurate?Adividendstabilityapproach:A)meansthatdividendsareastablepercentageofearnings,whileatargetpayoutapproachcanresultindividendsdecreasingifearningsfall.B)usuallymeansthatdividendsareslowlygrowing,whileatargetpayoutapproachcanresultindividendsdecreasingifearningsfall.C)usuallymeansthatdividendsareslowlygrowing,whileatargetpayoutapproachresultsinafloorvaluefordividendsevenifearningsfall.D)meansthatdividendsareastablepercentageofearnings,whileatargetpayoutapproachresultsinafloorvaluefordividendsevenifearningsfall.Part3)SupposethatSpartancontinuestofollowthetargetpayoutratioapproach.Whatistheexpectedcashdividendfortheupcomingyear?A)$1.B)$1.C)$1.D)$1.Part4)WhichofthefollowingstatementswithrespecttoSpartanrepurchasingitsownsharesisleastaccurate?A)RepurchaseswillsendasignaltoinvestorsthattheoutlookforSpartanisgood.B)Repurchaseswillforcethefirm’sexistingshareholderstoincurcapitalgainstaxliabilities.C)Sharesthatarerepurchasedcanbeusedtofundthefirm’sESOPwithoutEPSdilution.D)Throughtime,therepurchasescanbeusedtoalterSpartan’scapitalstructure.Part5)Anincreaseinthesizeofdividendpaymentswillcausethevalueofthefirmtoincreaseifthe:A)bird-in-the-handtheoryholds.taxaversiontheoryholds.B)increasecausestherequiredreturnonequitytoincrease.C)increasecausestheexpectedgrowthratetodecrease.D)Part6)Assumethatcurrentmarketexpectationsareconsistentwiththedatapresentedinthetableabove.Nowsupposethatthefirmweretoincreasethetargetpayoutratioto70percent,andthatthisresultsintherequiredreturnonequityfallingto7percent.Allelsebeingequal,howwouldthisaffectthefirm’ssharepriceandP/Eratio?SharePriceP/ERatioA)B)IncreaseDecreaseIncreaseIncreaseC)DecreaseD)DecreaseIncreaseDecreaseQuestion3AustinYohe,CFAisaconsumergoodsanalystforBadgerInvestmentCompany(Badger),alargemoneymanagementfirmlocatedintheUnitedStates.Yohehasbeenaskedbyhissupervisor,RobinGray,CFAtoprepareananalysisoftheglobalcarbonatedbeverageindustrywithaviewtowardidentifyingpotentialinvestmentsforthefirm’sportfoliomanagers.Theglobalcarbonatedbeverageindustryislarge,with$560billioninannualrevenueasof2004.Theindustryismadeupoffivemajorfirmsthattogethercomprisethemajorityoftheworld’scarbonatedbeverageproduction,whileelevenotherfirmseachcatertoasmallsegmentofthecarbonatedbeverageconsumerbase.Eachoftheelevensmallerfirmshasanapproximatelyequalmarketshare.YohehasgatheredthedatainFigures1and2forinclusioninhisreport.Figure1:OverviewofTop5FirmsintheCarbonatedBeverageIndustryFirmBolaColaBaseofOperations2004Revenue(inbillions)RealRequiredReturnInflationFlow-ThroughRateReturnonAssetsAssets/EquityRatioDividendPayoutRatioUnitedStates$123%90%7%1%BubblePopGreatBritain$100%SohoSodaUnitedStates$%FizzCoFrance$67WaxTadpoleBeverageCo.Japan$56%5%80%85%60%75%6%5%4%5%1%60%25%45%Figure2:CountryInflationDataCountryUnitedStatesGreatBritainFranceJapanInflationRate3%4%5%1%Whiletheyarecompletingthereport,Yoheandajunioranalystatthefirm,AndyHuang,reviewthedatainordertoseewhatsuggestionstheymightmaketothefirm’sportfoliomanagers.Atthispoint,theywanttoanalyzetheeffectsofinflationonthevalueofthetopfivefirms.Huangstates,“lookingatthetwolargestfirms,afteraccountingforinflation,BolaColaappearstobethecheapercompany.BubblePophasaleadingP/Eratioof20,whichishigherthanBolaCola’s.”Yohereplies,“I’dhavetoconfirmyourcalculations,butwithaleadingP/Eratioof19,theWaxTadpoleBeverageCompanylookslikeabettervaluethaneitherBolaColaorBubblePop.”Aftercompletingtheircalculations,YohebringsthereporttoGrayforfinalapproval.
