June CFAI Mock Exams: WRONG/ERRONEOUS answers?

[keyth]

thx

[Lucky_27]

@MissM

@Lucky\_27

I agree, MissM b/c that’s why we add back the depreciation expense (stemming from capitalized interest) to EBIT.

Thanks Lucky_27. What I meant was in the calculation of EBIT, instead of Revenue - COGS - SG&A (which was what the solution provided), shouldn’t it be Revenue-COGS-SG&A - Depreciation expense?

Agree with you on the adjustment of adding back the portion of depreciation attributable to the capitalized interest. It’s just the EBIT formula that really bugs me.

Hey,

yeah, this I meant. Because we use EBIT (where depreciation is deducted), we have to add the depreciation (regarding capitalized interest) back. I do not consider the stated formula in the answer as completely correct.

[MissM]

I hope they don’t pull off something like this on the actual exam. I got the wrong answer because my EBIT calculation didn’t match the formula that was in answer key.

Thanks very much!

[Lucky_27]

If there is a question about capitalized interest on the exam, I am gonna be thinking of you, guys. That’s for sure!

[daneyh]

Can someone help me with q3 on portfolio management (afternoon session, final 6 questions). Amato wants to know the impact of combining the risky portfolio with a risk free asset. Shah Responds: 'If we combine with a risk free asset, we’l have A new linear efficient frontier known as the CAL or CML. The risk Return of the new portfolio will be linear combinations of the risk and return of the risk free investment and our portfolio. I understand why A is correct, but there would also be a new linear efficient frontier (regardless of what it is called)…just wouldn’t be known as the CAL or the CML (which is why the answer isn’t B). Should the line on new linear efficient frontier known as the CAL or the CML be taken wholistically?

[MissM]

CFAI Set B Mock PM – Richter Question 6:

Answer key says

Correct answer is A - Security Z

Security Z has the highest option-adjusted spread (OAS). The OAS is the spread measure that takes into account the cost of the prepayment option embedded in MBS. A higher OAS implies a higher expected return after accounting for the negative value of the prepayment option. The nominal spread and zero volatility spread do not take into account the cost of the embedded prepayment option. My understanding is that OAS is the spread assuming the bond has no options (in this case for MBS, it would be a call option due to possible prepayments). The reason for choosing Security Z over Security Y, is it because OAS is higher and therefore the MBS is cheaper? Would someone be able to kindly let me now if my above understanding is correct? Thanks!