2008CFALevel2－MockExam3（AM）模考试题Question1PatriciaSpraetz,CFA,isthechieffinancialofficerandcomplianceofficeratSuperPerformanceInvestmentAdvisors.SuperPerformanceisalargeinvestmentfirmthatmanagesdiscretionaryinvestmentaccounts.ThecompanyhasincorporatedtheCodeandStandardsintoitscompliancemanual.Spraetz’smostrecentinvestigationinvolvedKarenJackson,aportfoliomanagerforSuperPerformanceandacompensatedboardmemberofNewBio,arapidlygrowingbiotechcompany.JacksonisnotaCFAcharterholder.SuperPerformance’sbiotechanalysthadpreviouslydeterminedthatNewBiowasaquestionableinvestmentandelectednottoaddittothefirm’smonitoredlist.Recently,theboardofNewBioneededtoraisecapital,andJacksonpurchasedNewBioforherclientswhoinvestinbiotechstocks.SuperPerformancehasthreeportfoliomanagers(DianeCole,ThomasBermudez,andAnthonyRing)whorecentlyhavebeenawardedtherighttousetheCFAdesignation,andoneotheremployee(DianeTakao),whoisscheduledtotaketheLevelIIICFAexamthisyear.Thefirmwantstoincludeinformationabouttheseindividualsinabrochure.BrendaFord,aCFAInstitutemember,hasbeenafull-timeanalystforSuperPerformancefor12years.Sherecentlystartedprovidinginvestmentservices,toprivateclientsonherowntime.Ford’sdirectsupervisoratSuperPerformancetoldhershecouldstartthebusinessandgaveheradviceabouthowtogetstartedonherown.FordalsosentalettertoeachofherclientsdisclosingheremploymentatSuperPerformance.SuperPerformancerecentlyhiredRonAnderson,CFA,whopreviouslyworkedasanindependentinvestmentadvisor.Andersonwantstokeephisexistingclientsforhimself,andhasobtainedwrittenconsentfromSuperPerformancetodoso.TetsuyaWang,CFA,atraderatSuperPerformance,placedanordertopurchase70,000sharesofImperialShippingCompanyonbehalfofhisclients.DuetoaclericalerrorwithinSuperPerformance,thewrongtickersymbolwasenteredforthetrade,and70,000sharesofIndustrialStorageCompanywereinadvertentlyacquired.Bythetimetheerrorwasdiscoveredtwohourslater,IndustrialStorageCompanyshareshaddeclinedinpriceandtherewasalossonthereversingtrade.JoeKikuchi,manageratEasternTrading,thebrokeragefirmthatexecutedthetrade,offeredtoabsorbthelossonthetrade,aswellasthecommissionexpense,thusmakingupthelossforallofWang’sclients.EasternwilldothisifSuperPerformanceassuresEasternthatitwillplaceorderstopurchaseorsellanaggregateof1millionsharesoverthenexttwoyears.SuperPerformance’sorderswithEasternhaveaveraged500,000shareseachyearforthelastfiveyears.Easterndeliversbestpriceandexecution,offersreasonablecommissionprices,andprovidesWangwithsoftdollarsforresearch.WilliamsandFuddisamajorbrokerageandinvestment-bankingfirm.SuperPerformanceisoneofthetopthreeholdersofeachofthesecuritieslistedonWilliamsandFudd’s“PrimeShare#10”equitysecuritylist.OnthemorningofAug,WilliamsandFuddreleasedaresearchreportrecommendingthepurchaseofSkelmerdaleIndustriestoitsclients,includingSuperPerformance.OntheafternoonofAug,SuperPerformancebought1millionsharesofSkelmerdale.Part1)WhichofthefollowingstatementsregardingStandardIV:DutiestoEmployersismostaccurate?A)NeitherFordnorAndersonviolatedthestandard.B)Andersonviolatedthestandard,butForddidnot.C)BothFordandAndersonviolatedthestandard.D)Fordviolatedthestandard,butAndersondidnot.Part2)WangrejectsKikuchi’soffertocoverthecostsofWang’stradingerror.Whichofthefollowingismostlikelytobetheunderlyingrationalefortherejection?A)Tradevolume.B)Commissions.C)Execution.D)Softdollars.Part3)AfterreviewingtheJacksoncase,SpraetzreviewsSuperPerformance’spolicystatement.Whichofthefollowingexcerptsfromthepolicystatementconcerningresponsibilitiestoclientsislikelytobethemostrelevanttothecase?A)“Avoidmisrepresentingthecharacteristicsoftheinvestment,asnotallinvestmentsaresuitableforallclients.”B)“Distinguishbetweenfactandopinion.Well-formedopinionsareacornerstoneofmoneymanagement,butmustalwaysbeidentifiedasopinions.”C)“Keepsufficientrecordstojustifyallinvestmentactionsintheeventthatthoseactionsarechallengedinthefuture.”D)“Beforemakinganinvestment,alwaysconsidertheclient’sobjectivesandconstraintstodeterminewhetherthatinvestmentisappropriate.”Part4)WhichofthefollowingstatementsinSuperPerformance’smarketingbrochurebestcomplieswiththeCodeandStandards?A)CFAThomasBermudezspecializesingrowthstocks.B)DianeTakaoisaLevelIIICFAcandidate.C)DianeColeisoneofmorethan100CFAsatSuperPerformance.D)AnthonyRing,aCharteredFinancialAnalyst,hasmorethan10yearsofportfolio-managementexperience.Part5)thefair-dealingstandardbecauseclientswerenevertoldaboutthestock.thepriority-of-transactionsstandardbecausethecompanyboughtthestockbefore48hourshadpassed.SuperPerformance’spurchaseofSkelmerdalestockviolates:A)B)C)nostandards.D)inWilliamsandFuddrecommendations.thedisclosure-of-conflictsstandardbecauseclientswereunawareofSuperPerformance’shistoryofinvestingPart6)TosatisfytheCodeofEthics,Spraetzmustactwith:A)conviction,skill,andethicalawareness.B)honesty,professionalism,andgoodwill.integrity,competence,anddiligence.C)D)confidence,knowledge,andhighethicalstandards.Question2BavarianCrèmePies(BCP)hasbeenbakingandsellingcakes,pies,andotherconfectionaryitemsformorethan150years.Thecompanystartedout,likemanyfirms,asasmallMomandPopoperation.Todaythefirmhasmorethan4500employeesat10facilitiesinGermany,France,Belgium,andHolland.BCP’sstockhasrecentlybeenunderconsiderablepressure,andistradingata15-yearlow.TheBankofMunich,thefirm’sprimarylenderandalsoamajorstockholder,hassucceededinforcingBCP’sCEOintoacceptinganearlyretirementpackage.ThenewCEO,DietmarSchulz,isattemptingtoturnaroundthefirm’slossofmarketvalue,andrevivingtheattractivenessofthefirmasaninvestment.BCP’ssaleshavebeenstrong,growingbymorethan5percentduringthepastyeartoanewrecord.Firmprofits,whilenotgrowingatthepacehebelievesthattheycan,remainpositive,andmeasuresofprofitabilityremainwithinwhatheconsiderstobeacceptablebounds.Therefore,hebelievesthatthefirm’svaluationproblemmayemanatefromthechoiceofcapitalstructure,whichiscurrently30percentequityand70percentdebt.Becauseoftheirfinancialinterestinthefirm,theBankofMunichhasmadeitclearthattheywillprovidewhateverassistancetheycantohelptheeffort.Schulzhasenlistedtheservicesofoneofthebank’scorporatefinanceteam,KatarinaIben,CFA.Ibenhasadvisedotherbankcustomersregardingcapitalstructure,andhashelpedthemtodeviseplanstoimproveshareholdervalue.SchulzhasbeguntopreparealistoftopicsthathewantstoaddresswithIbenwhenshemeetswithBCP’sfinancestaffonFriday.Onthetopofthelistofquestionsisthematterofwhetherornotthesourcesofafirm’scapitalcanaffectfirmvalue.Schulzrecallsthatduringhisdaysasamaster’sdegreestudentattheLondonSchoolofEconomicshisprofessorstoldabouttheMandMtheoriesregardingcapitalstructure.Asithasbeensometimesincehehasthoughtaboutthesetheories,heplanstoaskIbentodiscussthemwithhisstaff.Schulzalsorecallsthatmanytheoreticalconceptsarebaseduponassumptionsaboutmarketsandmarketfrictions.Heisconcernedthat,whatevertheoutcomeofthefinancestaff’sdiscussionswithIben,anydecisionsmadebyBCPmustremaingroundedintherealworldsothathecandefendthemtohisboardandtoshareholders.Tothisend,heplanstofosteradiscussionwithIbenandhisstaffconcerningsomeofthepracticalmattersthatpertaintothefirm’scapitalstructureintherealworld.ThreedayslaterIbenhasarrivedatBCP’sheadquartersforthebigmeeting.SchulzopensthediscussionbyaskingIbentocharacterizethemainobjectiveconcerningcapitalstructure,andhowonemightgoaboutassessingwhetherornotBCPwasanywherenearmeetingthisobjective.Part1)Whichofthefollowingstatementscorrectlycharacterizesthemainobjectiveofthecapitalstructuredecision?A)MaximizetheWACC.B)Maximizefirmvalue.C)Minimizefirmrisk.D)Useamixofequityanddebtthatisontheefficientfrontier.Part2)WhichofthefollowingstatementsmostcorrectlycharacterizesMMproposition1?A)Regardlessofhowthefirmisfinanced,theoverallvalueofthefirmandaggregatevalueoftheclaimsissuedtofinanceitremainthesame.B)Firmshaveapreferenceorderingforcapitalsources,preferringinternally-generatedequityfirst,newdebtcapitalsecond,andexternally-sourcedequityasalastresort.C)overallcostofcapitalisunchanged.D)Firmswillseektousedebtfinancinguptothepointthatthevalueofthetaxshieldbenefitisoutweighedbythecostsoffinancialdistress.IncreasingtheuseofrelativelylowercostdebtcausestherequiredreturnonequitytoincreasesuchthatthePart3)IncreasingtheuseofrelativelylowercostdebtcausestherequiredreturnonequitytoincreasesuchthattheWhichofthefollowingstatementsmostcorrectlycharacterizesMMproposition2?A)Regardlessofhowthefirmisfinanced,theoverallvalueofthefirmandaggregatevalueoftheclaimsissuedtofinanceitremainthesame.B)overallcostofcapitalisunchanged.C)Firmshaveapreferenceorderingforcapitalsources,preferringinternally-generatedequityfirst,newdebtcapitalsecond,andexternally-sourcedequityasalastresort.D)Firmswillseektousedebtfinancinguptothepointthatthevalueofthetaxshieldbenefitisoutweighedbythecostsoffinancialdistress.Part4)Whichofthefollowingitemsisleastlikelytobeacostthathasthepotentialtoinfluencecapitalstructuredecisions?A)Financialdistress.B)Agency.C)Asymmetricinformation.D)Homogeneousexpectations.Part5)Themainoutcomeofthestatictrade-offtheoryis:A)B)C)D)thereisanoptimalcapitalstructure.thereisnooptimalcapitalstructure.thevalueofthefirmisnotaffectedbythechoiceofcapitalstructure.thepresenceoftaxesgeneratesataxshieldbenefit.Part6)Whichofthefollowingfactorsisleastapplicablewhenananalystisattemptingtoassesswhetherafirm’scapitalstructureisvaluemaximizing?A)Changesinthestructureovertime.B)Thecapitalstructuresofsimilarfirms.C)Theproximityofthecurrentstructuretothestatedtarget.D)Thequalityofthefirm’scorporategovernance.Question3SuperflightFundsisafamilyofaggressive,high-growthglobalfundswithofficesinFrankfurt,London,NewYorkandShanghai.Theyhaverecentlyhiredanewspecialsituationsanalyst,JacobHightower,whoistryingtogethisfirststockpickintotheSuperflightFundsportfolios.HightowerispitchingTechnohighBrands,atechnologycompanyspecializingindiscretionaryconsumerelectronics.Technohighhasrecentlydemonstratedaprototypeofanewmobile,wirelesspersonalhandheldtelevisionset.Hightowerthinksit’sgoingtorevolutionizepersonalelectronicsandmakestandardtelevisionsobsolete.HewantsSuperflighttoinvestheavilyinTechnohigh,beforetheproductisintroducedonalargescaleandthestocktakesoff.NasihaNasseristheportfoliomanagerforSuperflight’sglobaltechnologyfund.SheisskepticalthatTechnohighisgoingtobethestarperformerthatHightowerclaims.Competitionintheconsumerelectronicsspaceisfierceandmostfirmshavefoundtheirbrandpremiumserodedquicklybynewcompetition.Therehavebeenconsistentdisappointmentsinthesectorasfirmshavebeenunabletomaintaintheircompetitiveedgeinthemarketplace.Evenifthepersonaltelevisionbecomesahit,Nasserexpectsthemarkettobecomefloodedwithcheapknock-offsthatpreventTechnohighfrommaintainingtheprofitmarginsthatHightowerexpects.Hightowerbaseshiscaseontheanticipatedreturnthatthenewproductwillearn.HetellsNasser,“Technohigh’scostofcapitalisonly12%.Ithinkitcanreinvestat20%oncethisproducthitsthemarket.”Heoffersthestockdatabelowinsupportofhiscase:Table1TechnohighBrandsStockData(pershare)StockpriceExpectedEPSDividendExpectedgrowthrate(highgrowthperiod)$68$2none15%NasserquestionsHightower’sassessment.Shepointsout,“Sustainingacompetitiveadvantageisverydifficult.I’vecalculatedthatTechnohigh’sstockpricewouldrequireittomaintainitshighgrowthphasefor11yearsinordertojustifyitspremiumtotheindustryP/E.SinceIexpectitwillbeunabletomaintainitscompetitiveadvantageandachieveabove-industrygrowththatlong,thestockisovervalued.”Hightowercounters,“Butthefirmwillhaveadominantmarketshareforatleastafewyearswhilecompetitorstrytobringnewproductstomarket.Havingdominantmarketsharecausesasustainablecompetitiveadvantage.”Hightoweradds,“Porter’sfivecompetitiveforcesdeterminetheshort-termprofitabilityofthefirm.”AslongasaPorteranalysisisfavorable,heargues,thefirmshoulddowell.Nassercounters,“ThekeyissueforTechnohighinbeingabletosustainacompetitiveadvantage,amongPorter’sfivecompetitiveforces,isgoingtobethethreatofsubstitutes.”UntilTechnohighhasaplantoaddressthatissue,shesays,she’swaryofthestock.Inaddition,NasserpointsouttoHightowerthatTechnohighissubjecttowithholdingtaxesinitslocalcountry.Shesays,“Ifthestockstartspayingdividends,wehavetopay20%withholdingonanydividendstothelocaltaxauthorities.SinceourU.S.portfolioissubjecttothe28%taxonshort-termdividends,we’dbepayingabout48%taxonthedividendswereceiveintheU.S.portfolio.”Hightowersuggests,“Wecouldreduceexecutioncostsbyusinginternalcrossing,sincetheU.S.portfoliowillbetheonlySuperflightFundportfoliowithapositioninTechnohigh.”Finally,NasseriscautiousbecauseTechnohightradesonanorder-drivenmarket.Shepointsout,“Opportunitycostsaresignificantinorder-drivenmarketsbecauseofcompetitionamongthemarketmakers.”HerconcernaboutexecutioncostsaddstoherreluctancetoinvestinTechnohigh.Part1)IfHightoweriscorrectaboutthefirm’scostofcapitalandreinvestmentrate,thetangibleandfranchiseP/Eratiosarebestdescribedas:TangibleP/EFranchiseP/EA)lessthan12equaltozeroB)lessthan12greaterthanzeroC)equalto12greaterthanzeroD)equalto12equaltozero