CFA Mock: doubts / errata?

[ste79]

Hi guys!

Here my doubts for discussion purposes:

1. Q5 C: not clear to me the calculation of the return of the tax deferred account. It seems they apply the deferred capital gain formula in a taxable account

2. Q5 D: not clear to me the answer…the relative value of gift today vs a bequests in x years should already answer the question…quite confusing to me. In addition where they take the 2MM?

3. Q6 D: why not fund 2? Althoug the sharpe ratio does not increase, the Sortino increases and the drawdon decrease more than the Fund 3

4. Q7 B ii: why they calcualte the rebate rate using the 7Y rate (4%) and not the 10Y rate (4,5%)

5. Q7 C i: why a buy and hold strategy would not fit?

6. Q7 D i: I think they should use the couon rate (2%) and not the Yield (2,25%)

Happy to discuss

Ste

Edit: Also 5 B): not clear to be how “Selling the stock fwd” does not trigger the immediate capital gains tax

[S2000magician]

I just marked a CFA Institute 2020 mock exam morning session.

It’s actually the mock exam created by the Boston CFA Society.

I’ve used Boston Society mocks for many years when teaching CFA review courses at a local university, and have always found them to be pretty good.

Unfortunately, I found this one disappointing.

I won’t be marking any more of these.

[ste79]

Then I was not completely wrong!

[S2000magician]

Not completely.

[Deallover]

I also found 7B very confusing as it did not define what type of duration they are providing in the question (Macaulays or modified).
On another note, is it actually possible to increase a portfolios duration from 7 to 9 only using a bond with a duration <9? This doesn’t make intuitive sense.

[S2000magician]

@Deallover

I also found 7B very confusing as it did not define what type of duration they are providing in the question (Macaulays or modified).

As long as they’re consistent in the use of the term (i.e., all of their durations are Macaulay, or all of their durations are modified), it doesn’t matter which one they mean; the calculations are the same.

@Deallover

On another note, is it actually possible to increase a portfolios duration from 7 to 9 only using a bond with a duration <9? This doesn’t make intuitive sense.

Not without leverage.

[Torsten55]

When you say disappointing what do you really mean? For example, relevance of questions, difficulty level, explanations, multiple choice questions / essay questions, etc.

[S2000magician]

@Torsten55

When you say disappointing what do you really mean?

PM me.

[Deallover]

Thanks for the response S2000magician, your a lifesaver on this forum.
However, I’m not sure that it is possible, even with leverage. Because borrowing (even at a very short duration) would provide negative duration to the portfolio, and then investing long with the borrowed principle in a bond (longer duration) would provide positive duration. However, the maximum positive duration possible would be the duration of the bond invested long would it not?

[S2000magician]

@Deallover

Thanks for the response S2000magician, your a lifesaver on this forum.

You’re very kind.

@Deallover

However, I’m not sure that it is possible, even with leverage.

Think bond futures.

(Note: I put in the light bulb only to see whether it would work.)

[hardwax]

@ste79

Q7 D i: I think they should use the couon rate (2%) and not the Yield (2,25%)

any comments on this ? i have the same doubt

[S2000magician]

ste79 is correct.

If that were the worst of the errors on the exam, it would be OK.

It isn’t.

By a long shot.

[hardwax]

Absolutely. Several errors. Thanks for the reply.
Where can I find more robust mocks to prepare for the exam please?

[S2000magician]

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[ste79]

I have just sent my comments to CFAI…that’s a very weird situation…it seems they have published a not revised version

[Jippies]

Not sure if it’s just me, but the style of questions in the mock seemed very open-ended and vague compared to the previous CFA exams?

An example is Q8C on the AM portion - I had no idea how to even start answering that question when I was taking the mock…

[S2000magician]

@Jippies

An example is Q8C on the AM portion - I had no idea how to even start answering that question when I was taking the mock…

I’ve seen this sort of question on the real exam many times, but this one has atypical wording and vague justifications. For example, on what basis is 30% JPY bonds too low, but 45% JPY bonds not too low? How is the dividing line incontrovertibly established as being between those two numbers?

[BullRun]

Agree with Q5 C on Tax Deferred Calculation, also should we deduct the from tax-exempt account first because it is not deductible at the beginning of the investment period?

[SuziM]

How about Q5-F? It’s too broad. I didn’t know what to write. Is it possible to see such type of general questions in the real exam?
I’ve lost my motivation after taking this mock exam :-s

[S2000magician]

@SuziM

Is it possible to see such type of general questions in the real exam?

No.