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Avi
11-06-2002, 08:02 PM
When can we talk about Course 2? :-?

Avi
11-06-2002, 08:57 PM
Now is fine, I think 8)

Sam (Retired)
11-06-2002, 09:00 PM
Then what do you think about C2? is it hard?

Avi
11-06-2002, 09:03 PM
Truth be told, I came out with a better feeling than I thought I would. Now watch, I'll get a 2 :D

Drzy
11-06-2002, 09:08 PM
Here's the question that weirded me out:

We're given the time-weighted rate of return and the dollar-weighted rate of return, the balance in the account at various times (April 27th?? why wasn't that one at the end of the month like the others?), and told the time of a deposit D and a withdrawal W. And we're asked to find W.

Well, the account balance on October 30th, immediately before the withdrawal W, is 13. And how about that, we're also told the balance on October 31st is 12. So doesn't that mean the withdrawal was an amazing total of 1?? :-? That was an answer listed, so I chose it, but what the heck? Was it really that simple? Maybe they were checking to see if we pay attention to details that are supposed to obvious? I'm still weirded out.

VernSchil
11-06-2002, 09:10 PM
I thought the interest theory was MUCH easier than previous exams and hope I only missed 1 i.theory question, that bond one where they didn't give the face value.

Finance was a lot more difficult than I anticipated. They asked annoying, nitpicky questions that didnt seem to follow the pattern from previous years.

Micro was about what I thought it would be, maybe a little harder.

Macro was right on par with what I expected.

ne11er
11-06-2002, 09:11 PM
So doesn't that mean the withdrawal was an amazing total of 1?? :-? That was an answer listed, so I chose it, but what the heck? Was it really that simple? Maybe they were checking to see if we pay attention to details that are supposed to obvious? I'm still weirded out.
Are you sure this is the answer?
WOOHOOOOOOOOOOOOOO I GUESSED RIGHT!!!!!!!!!!!!!!!!!!! I didn't even do the problem! I just was making black dots on my scantron!

VernSchil
11-06-2002, 09:14 PM
I didn't get 1 as an answer.

Since they gave the Dollar weighted return of 0, you know the numerator (end bal - beg bal - contributions) must equal 0

I believe this was w-d -2 = 0 or something similar. You could then sub in for d in the time weighted method and solve for w. I think I got w^2=4, or w=2

shluffer
11-06-2002, 09:17 PM
The trick to the question wa that the denominator didn't matter. This was true since the dollar weighted return was 0. I also got 2 as the answer.

Sam (Retired)
11-06-2002, 09:25 PM
So, what is the passing mark for C2?

Avi
11-06-2002, 10:07 PM
Here's the question that weirded me out:

We're given the time-weighted rate of return and the dollar-weighted rate of return, the balance in the account at various times (April 27th?? why wasn't that one at the end of the month like the others?), and told the time of a deposit D and a withdrawal W. And we're asked to find W.

Well, the account balance on October 30th, immediately before the withdrawal W, is 13. And how about that, we're also told the balance on October 31st is 12. So doesn't that mean the withdrawal was an amazing total of 1?? :-? That was an answer listed, so I chose it, but what the heck? Was it really that simple? Maybe they were checking to see if we pay attention to details that are supposed to obvious? I'm still weirded out.

The answer to that was 3, I think.

The key there was that since the dollar weighted return is 0, who cares about the dates. Also, the balance change is comprised of 2 parts. The withdrawal/deposit AND the behavior of the fund. If the withdrawal was 1, then the time weighted average wouldn't have been 4%.

I don't remember the exact numbers, but I'm pretty sure that 3 was the answer.

Mathlete
11-06-2002, 10:13 PM
Here's the question that weirded me out:

We're given the time-weighted rate of return and the dollar-weighted rate of return, the balance in the account at various times (April 27th?? why wasn't that one at the end of the month like the others?), and told the time of a deposit D and a withdrawal W. And we're asked to find W.

Well, the account balance on October 30th, immediately before the withdrawal W, is 13. And how about that, we're also told the balance on October 31st is 12. So doesn't that mean the withdrawal was an amazing total of 1?? :-? That was an answer listed, so I chose it, but what the heck? Was it really that simple? Maybe they were checking to see if we pay attention to details that are supposed to obvious? I'm still weirded out.

The answer to that was 3, I think.

The key there was that since the dollar weighted return is 0, who cares about the dates. Also, the balance change is comprised of 2 parts. The withdrawal/deposit AND the behavior of the fund. If the withdrawal was 1, then the time weighted average wouldn't have been 4%.

I don't remember the exact numbers, but I'm pretty sure that 3 was the answer.
I also got 3 for the answer. I agree with you, Avi, that since the dollar-weighted return is zero, the deposits and withdrawals account for the change in the account balance from the beginning to the end of the year. This was a pretty tricky question if you did not pick up on this point.

Avi
11-06-2002, 10:21 PM
I thought the interest theory was MUCH easier than previous exams and hope I only missed 1 i.theory question, that bond one where they didn't give the face value.

Finance was a lot more difficult than I anticipated. They asked annoying, nitpicky questions that didnt seem to follow the pattern from previous years.

Micro was about what I thought it would be, maybe a little harder.

Macro was right on par with what I expected.

If you mean the one about the principal in the 30<sup>th</sup> payment, then I got 605. I think the trick in that one is remembering that the principal portion of an amortized payment follows a geometric series.

Or remember that the Principal Portion of Payment P is equal to P*v<sup>n-t+1</sup>

So we know that the 6th payment had principal of 500, and that the annual effective rate is 10%, so the monthly effective rate is .797% so
v = .9920889. Thus we can set up the following ratio:

500/x :: P*v<sup>n-5</sup>/P*v<sup>n-29</sup>

This reduces to 500/x = v<sup>29</sup>/v<sup>5</sup>

So x = 500*v<sup>5</sup>/v<sup>29</sup>

knowing that v = .9920889, v<sup>5</sup>/v<sup>29</sup> becomes 1.21 and 500*1.21 = 605

The Dupont question was rediculous! I mean who studies that stuff??

I took an educated guess that turned out to be correct (it's page 835 in Brealy-Myers), the answer was 7.23%, or Sales - assets * Profit Margin * Leverage * Debt burden or 1.7*6.3*.9*.75.

That question though got me annoyed.

VernSchil
11-06-2002, 10:31 PM
No, I wasn't talking about that bond question Avi. I also got 605, but the one I was referring to was towards the end of the exam. I was tired at that point, but it had something to do with selling the bond after 1 coupon payment and refinancing at a different yield rate. They asked for the total affect on the income statement or something similar.

Pillow
11-06-2002, 10:33 PM
I remember that one...I found the price of the bond for the first yield.

Then, I found the price of the bond with the time being 1 less than the original time (since one coupone had been paid).

Then, subtracted the two prices. That's how I got it...probably wrong, but whatever works...an answer was listed.

VernSchil
11-06-2002, 10:37 PM
The DuPont question was so funny. Kellison told us during our seminar that "they love to test you on the DuPont stuff." Since he really had no idea about anything concerning the exams, we didn't really take him seriously. In fact , about 10 minutes before the exam started, I joked with my co-worker about how stupid the DuPont system is and how they'd never ask anything on it and how Kellison had no idea what he was talking about. I literally laughed out loud when I saw that question.

Avi
11-06-2002, 10:44 PM
I remember that one...I found the price of the bond for the first yield.

Then, I found the price of the bond with the time being 1 less than the original time (since one coupone had been paid).

Then, subtracted the two prices. That's how I got it...probably wrong, but whatever works...an answer was listed.

Oh that one :duh:

If I remember correctly, the problem said that a company bought a 10 year bond with 6% semiannual coupons that redeemed for 1000 at a yield of 8% semiannually. Since if Face is not mentioned, it defaults to Redemption (and vica versa) This bond cost \$864.10

They then sold it immediately after the first coupon payment for a yield of 5%. This means that we have a bond with 19 remaining payments of 30, redeeming at 1000 at a 2.5% effective per 6 months which is \$1074.89

They also are holding the \$30 coupon payment, so they have, right now, \$1104.89.

Now I merely subtracted the original payment price, and did not accumulate it 6 months and I got 240.79. Choice E was 241.

Did anyone else get another answer?

VernSchil
11-06-2002, 10:54 PM
One question that annoyed me was the finance question where they gave a portfolio that was 30% X, 30% Y and 40% Z, then gave Beta's for x,y,and z and the std dev for x,y,z then asked for the Beta of the portfolio. I felt like I was so close to figuring this out but kept falling a little short. Could anyone who thinks they solved it correctly please explain their solution? Thanks.

Avi
11-06-2002, 10:59 PM
One question that annoyed me was the finance question where they gave a portfolio that was 30% X, 30% Y and 40% Z, then gave Beta's for x,y,and z and the std dev for x,y,z then asked for the Beta of the portfolio. I felt like I was so close to figuring this out but kept falling a little short. Could anyone who thinks they solved it correctly please explain their solution? Thanks.

I haven't checked it up in B-M yet, but if I recall correctly, the beta of a portfolio is merely the weighted average of the betas of the component stocks. The variances and standard deviations given were red herrings, I think.

So I got .3* 1.43 + .4*.78 + .3*1.1 = 1.071 and answer A was 1.07

VernSchil
11-06-2002, 11:06 PM
Good. I think I guessed that since it was the only answer I could figure out how to derive although I figured it was the "dummy" answer. Also, do you remember what you got for the last question? They gave a P/E factor of 12 which I wasn't sure how to incorporate into the solution. I think the question asked for the Beta of the company's assets.

Avi
11-06-2002, 11:07 PM
The fact that the beta of a portfolio is the weighted average of the betas of the components is written clearly in HTP. I can't find it clearly in B-M, but I think chapter 7.4, especially the last paragraph, implies it.

Avi
11-06-2002, 11:18 PM
Good. I think I guessed that since it was the only answer I could figure out how to derive although I figured it was the "dummy" answer. Also, do you remember what you got for the last question? They gave a P/E factor of 12 which I wasn't sure how to incorporate into the solution. I think the question asked for the Beta of the company's assets.

Yup, first you had to find r<sub>m</sub> which was .1175 if I remember correctly, since the Cost of Capital was .13 and the risk free rate was .055, and the company was 100% equity financed. Original Beta was given as 1.2, so .13 = .055 + 1.2(r<sub>m</sub> - .055)

Then, what I did was to surmise that if 40% of the equity was retired, then the value of the stock has to go down by 40%. So now we have a company 40% Debt funded and 60% equity.

But CoC <u>must</u> stay at .13 since taxes are not mentioned, so MM1 holds!

Thus .13 = .4*.055 + r<sub>E</sub>*.6

So r<sub>E</sub> = .18

But r<sub>E</sub> = r<sub>f</sub> + ß(r<sub>m</sub> - r<sub>f</sub>)

So .18 = .055 + ß(.1175-.055)

So ß = 2

shluffer
11-07-2002, 12:13 AM
The answer you just gave gives the beta for equity not for total assets.

Dumbledore
11-07-2002, 01:24 AM
I too multiplied four numbers together and got 7.23% for the Dupont question..... I thought it was a little nit-picky that they asked that.....

As for the bond problem and its effect on the books... I did not include the 30 coupon received because I perceived the problem to be the total impact from the buying and selling of the bond and not taking into account any coupons received..... so my answer was the 211.... I hope this wasn't one of my stupid error ones that seem to doom me! :swear:

(Hoping to be a one-timer on 2 since I as a two-timer on 1!!!!)

Sam (Retired)
11-07-2002, 01:26 AM
7.23 is ans B, right?

Bill Thrill
11-07-2002, 02:25 AM
Phew its finally over! What will I do with all this newfound free time!

Remember the question where a competitive industry was in long-term equilibrium with a demand curve of Q=50-P and a supply curve of P=25. Then a new firm comes along that can produce with MC=4. The question is what happens to the industry?

The answers were something like this:
A) The industry remains competitive with Q=25
B thru E) The industry becomes a monopoly with Q &lt; 23, Q=23, Q=25 Q&gt;25 or whatever.

I had no idea but guessed A. When I got home I looked all through the micro book to find a discussion on this scenario but could not. Would someone explain the answer and point me to the right place in the text?

mchung
11-07-2002, 06:34 AM
Dear all,

How many questions do u think correct?

Michael Chung

Avi
11-07-2002, 08:57 AM
The answer you just gave gives the beta for equity not for total assets.

But if I recall correctly, didn't they ask for the "new beta of company stock", and the stock is equity, isn't it? I don't think they asked for the beta of the assets. Then again, I may have misread the question.

The beta of the assets, however, would have been 1.2 as the CoC did not change due to MM1. Was 1.2 given as an answer choice?

--Avi

Avi
11-07-2002, 09:00 AM
As for the bond problem and its effect on the books... I did not include the 30 coupon received because I perceived the problem to be the total impact from the buying and selling of the bond and not taking into account any coupons received..... so my answer was the 211.... I hope this wasn't one of my stupid error ones that seem to doom me! :swear:

(Hoping to be a one-timer on 2 since I as a two-timer on 1!!!!)

Does anyone remember if 219 given as an answer on that question? As that would be the answer if you accumulated the 864.10 payment by 2.5% I didn't think of it at the time b/c I don't think you accumulate or discount when dealing with a balance sheet, justr with NPV's and such.

Avi
11-07-2002, 09:08 AM
Phew its finally over! What will I do with all this newfound free time!

Remember the question where a competitive industry was in long-term equilibrium with a demand curve of Q=50-P and a supply curve of P=25. Then a new firm comes along that can produce with MC=4. The question is what happens to the industry?

The answers were something like this:
A) The industry remains competitive with Q=25
B thru E) The industry becomes a monopoly with Q &lt; 23, Q=23, Q=25 Q&gt;25 or whatever.

I had no idea but guessed A. When I got home I looked all through the micro book to find a discussion on this scenario but could not. Would someone explain the answer and point me to the right place in the text?

I didn't know either, I guessed B, that it would be monopolistic at &lt; 23 and here was my, admittedly faulty, reasoning.

If the MC = 4 company dominated, then Q = 23, P = 27 (monopolistically).

If it went competitive, then Q = 25, P = 25

And here is where I took a leap of faith of the cliff of doubt into the sea of despair (how's that for mangling metaphors :roll2: ) I figured that the P=25 group would act monopolistically and then set MR (50-2P) equal to the price, 25, and came up with Q = 12.5, P = 37.50.

The above may be total garbage, I agree, so I figured that if the two firms were to both produce, they would have monopolistic power and produce between 12.5 and 23

The more that I think about it, the more I think it should be an oligopoly and thus depend if it was cournot or Bertrand(?), One would produce monopolistically (Q=P=25) and the other would have each produce at 25/3 for a total of 16 2/3.

I think I'll concede this one :roll:

:D

Avi
11-07-2002, 09:09 AM
7.23 is ans B, right?

Yes, I think so.

Dumbledore
11-07-2002, 11:00 AM
What did everyone get for the question (sorry I vaguely remember it) where you had to find M (as well as K,L, and N) where in column you were given 10% and 12% and the other column the 10% corresponded to the 12% in the first column and M was opposite the 10%??

I put 8% because I found N to be like -2 and stuff like that.... :-?

(Hoping to be a one-timer on 2 since I was a two-timer on 1!!!!)

VernSchil
11-07-2002, 11:08 AM
What did everyone get for the question (sorry I vaguely remember it) where you had to find M (as well as K,L, and N) where in column you were given 10% and 12% and the other column the 10% corresponded to the 12% in the first column and M was opposite the 10%??

I put 8% because I found N to be like -2 and stuff like that.... :-?

(Hoping to be a one-timer on 2 since I was a two-timer on 1!!!!)

That question totally stumped me. I guessed 8.33% since .12/.1 = .1/.0833, but that was a complete shot in the dark.

Avi
11-07-2002, 11:26 AM
What did everyone get for the question (sorry I vaguely remember it) where you had to find M (as well as K,L, and N) where in column you were given 10% and 12% and the other column the 10% corresponded to the 12% in the first column and M was opposite the 10%??

I put 8% because I found N to be like -2 and stuff like that.... :-?

(Hoping to be a one-timer on 2 since I was a two-timer on 1!!!!)

Ditto for me.

My reasoning was that EVA = (ROI-r)*Original Assets

So N = -2 so as r = .1 for company 2, ROI was 8%.

VernSchil
11-07-2002, 12:16 PM
Anyone remember the macro question that said the economy is in a recession and the central bank wants to stabilize inflation. What should it do?

I think the answers were Stable monetary policy, increasing monetary policy, decreasing monetary policy, increasing/decreasing fiscal policy.

I thought it should be either stable or increasing monetary but wasn't sure.

Avi
11-07-2002, 12:49 PM
Anyone remember the macro question that said the economy is in a recession and the central bank wants to stabilize inflation. What should it do?

I think the answers were Stable monetary policy, increasing monetary policy, decreasing monetary policy, increasing/decreasing fiscal policy.

I thought it should be either stable or increasing monetary but wasn't sure.

I think the answer was decrease money supply, and I based it on
%M + %V = %P + %Y

Assuming the velocity is constant (which I think is a safe assumption, anyway the central bank does not have control over that, it's a tech issue) we need to keep %P = 0. However, %Y is decreasing so %M must decreas also (otherwise if %M were stable we would have 0 = %P - %Y so inflation would rise to counteract the recession).

--Avi

VernSchil
11-07-2002, 01:19 PM
I really hate those I,II, III type questions. There were 2 others I can remember that I wasn't certain of.

Which are costs of financial distress before bankruptcy or something like that?

I. Lack of supppliers
II. Competitors "poach" customers away by saying the firm will collapse
III. Managers don't act in the interest of the shareholders

Second question was the one on options:
I. writing a call and buying a put equals selling an asset short and something to do about borrowing at the risk free rate (I think)
II. value of a European put increases with an increase in the dividend rate
III. values of both puts and calls increase/decrease (cant remember which one) with the risk free interest rate increasing/decreasing

Avi
11-07-2002, 01:30 PM
I really hate those I,II, III type questions. There were 2 others I can remember that I wasn't certain of.

Which are costs of financial distress before bankruptcy or something like that?

I. Lack of supppliers
II. Competitors "poach" customers away by saying the firm will collapse
III. Managers don't act in the interest of the shareholders

I chose I and II as III is the principal-agent problem that is not exclusive to pre-bankruptcy conditions, JMO.

Second question was the one on options:
I. writing a call and buying a put equals selling an asset short and something to do about borrowing at the risk free rate (I think)
II. value of a European put increases with an increase in the dividend rate
III. values of both puts and calls increase/decrease (cant remember which one) with the risk free interest rate increasing/decreasing

Again I picked the choice that said I and III even though I had no idea what I meant, as I thought that the underlying dividend rate should have <u>nothing</u> to do with the price of a European anything as you can't excersise early. The only choice w/o II was choice C.

However, checking my Seminar notes, the value of a put DOES increase w/ increased dividends, so 2 is true, so I definitely got that one wrong :crying:

Burgled.
11-07-2002, 01:55 PM
I really hate those I,II, III type questions. There were 2 others I can remember that I wasn't certain of.

Which are costs of financial distress before bankruptcy or something like that?

I. Lack of supppliers
II. Competitors "poach" customers away by saying the firm will collapse
III. Managers don't act in the interest of the shareholders

I chose I and II as III is the principal-agent problem that is not exclusive to pre-bankruptcy conditions, JMO.

Second question was the one on options:
I. writing a call and buying a put equals selling an asset short and something to do about borrowing at the risk free rate (I think)
II. value of a European put increases with an increase in the dividend rate
III. values of both puts and calls increase/decrease (cant remember which one) with the risk free interest rate increasing/decreasing

Again I picked the choice that said I and III even though I had no idea what I meant, as I thought that the underlying dividend rate should have <u>nothing</u> to do with the price of a European anything as you can't excersise early. The only choice w/o II was choice C.

However, checking my Seminar notes, the value of a put DOES increase w/ increased dividends, so 2 is true, so I definitely got that one wrong :crying:
Isn't III wrong as well? I thought that calls increase with the risk-free rate, but that puts decrease with the risk-free rate. I put that both I &amp; II were true. And I think I'm right. No, I know it. ;)

Avi
11-07-2002, 02:02 PM
Calls are positively correlated with the risk free rate, and puts are negatively correlated with the risk free rate (according to my notes which I most conveniently forgot at the exams :duh: )

aas
11-07-2002, 06:04 PM
This non soa question and answer touches upon a previously posted question.
1. Q)Discuss using the IS-LM framework, how
Greenspan’s expansionary monetary policy may steer the economy out of Recession.
A)Greenspan’s expansionary monetary policy will lower interest rates, which, in turn, are going to increase consumption, investment and GDP through the multiplier effect.

(Generally, if the economy is at less than full employment (Y*) (during a recession), there is room to increase the money supply to increase growth without having a major problem with inflation as there is slack in the economy. In the long run, the mv=py equation comes into play where increasing the ms increases inflation with no effect on output). IS/LM reflects Short Term activities.

retaker
11-07-2002, 06:18 PM
"Which are costs of financial distress before bankruptcy or something like that?

I. Lack of supppliers
II. Competitors "poach" customers away by saying the firm will collapse
III. Managers don't act in the interest of the shareholders

Second question was the one on options:
I. writing a call and buying a put equals selling an asset short and something to do about borrowing at the risk free rate (I think)
II. value of a European put increases with an increase in the dividend rate
III. values of both puts and calls increase/decrease (cant remember which one) with the risk free interest rate increasing/decreasing"

These were the trickiest two concept questions on the exam.

For the first one, I assumed this was a finance type question, because the only place I EVER saw anything about finacial distress or bankruptsy was in Brealy Meyers, and the only thing I saw was about managers not acting in the companies or shareholders best interest or whatever. Further, the first two seem like Micro things, so I chose E) only.

I know I remember the four games that the managers play if the company is in financial distress to basically screw the debt holders and "feed" the stockholders. This is opposite what E) said, so I didn't like that, but I just got the feeling that the first two were traps!
Cash out and run
Bait and switch
refuse to invest in projects

For the next one, III is definitely wrong, and I based my guess upon that, becuase that ruled out 3 or 4 of the choices.

BTW I don't think your number I choice matches theirs?

VernSchil
11-07-2002, 06:25 PM
BTW I don't think your number I choice matches theirs?

I'm fairly certain it is right, at least definitely on the options question because I remember the very first thing I did on that question was waste a lot of time trying to draw a graphical depiction of selling the call, buying the put and seeing if it matched a graph of selling short the asset and borrowing whatever.

My "I" on the financial distress question could be wrong, but again I'm very certain that's the right order.

Or did you mean what "I" actually says? I know it was selling a call and buying a put, but I really don't remember what that was being compared to. I just know I didn't really have a clear picture of it.

Avi
11-07-2002, 06:31 PM
BTW I don't think your number I choice matches theirs?

I'm fairly certain it is right, at least definitely on the options question because I remember the very first thing I did on that question was waste a lot of time trying to draw a graphical depiction of selling the call, buying the put and seeing if it matched a graph of selling short the asset and borrowing whatever.

My "I" on the financial distress question could be wrong, but again I'm very certain that's the right order.

Or did you mean what "I" actually says? I know it was selling a call and buying a put, but I really don't remember what that was being compared to. I just know I didn't really have a clear picture of it.

You're listing of financial distress options was the ay I remember it, but I chose I&II as correct, as my reasoning was III is correct even w/o bankruptcy, that's the classic principal-agent problem.

As for the other, I KNOW I got that wrong.

retaker
11-07-2002, 06:51 PM
"
II. Competitors "poach" customers away by saying the firm will collapse "

Is not what it said. I believe it said basically that competitors steal their customers.
I don't remember seeing either of the first two choices in the material, and they seem to bogus and obvious, like a trap? I chose E) only.

I though I) said something different?

If your wording was correct, then I) is NOT true, I didn't think what ever I) really was on the test was true either.

Assumption 1) Writing a call means selling one?
2) They used the wording selling a call short.
Unless they are talking about a concept that wasn't
in Brealy and meyers, I assumed they just meant selling a
call?

Under these assumptions:

If you draw the position diagrams for selling a call and buying a put, you will see that it is NOT the same as selling short and leading the PV of the exercise amount, as they said. So I) & III) are wrong, so I guess I chose II) only?

What about the finance concept question where they asked about how to share in the gain of the stock if it went up 200%, but also get some return if it went down 80%?

The two option choices they had for answer choices D) and E), I don't believe were correct, so I chose convertible bonds??

Does anybody know?

retaker
11-07-2002, 07:14 PM
that's "lending" the PV of the exercise price.

Avi
11-07-2002, 07:17 PM
I chose covertible bond as well, but more from lack of knowledge than knowledge.

retaker
11-08-2002, 10:23 AM
Me too. By ruling out the other choices. It might just be correct, though. :tup:

ziaigiazig
11-08-2002, 12:10 PM
Ok there are a few things I haven't seen mentioned just yet and I wanted to verify/check a few answers!

1. A couple people have referred to this as the "easy" finance problem, but nevertheless I was not so sure. There was one problem where you had to evaluate a project and you could either use the required project return, the risk free rate, or the company's current bond return. All of these methods would give you different answers that were all choices. I went with the risk free rate, but I wasn't sure. :cry:

2. There was some problem where consumption changed from maybe 55 to 100 - does this sound familiar to anyone?

retaker
11-08-2002, 12:19 PM
I don't completely remember the question, but I think I remember it somewhat, and for a separate project, with it's own ratio of debt to equity financing, you have to use a discount rate specific to that project, so I guess you would use the projects cost of capital.

snoo
11-08-2002, 12:32 PM
I also got that the consumption changed from 55 to 100 but I wouldn't take my word for it, I didn't do so 'hot' on this exam. Yikes!!! I already know of a couple other answers I got incorrect.... The only thing I really had a chance on was the interest theory... and I still missed a couple!!!!

About the bond problem, I also got an answer of 211, anyone else?

Be careful when you think an exam is straightforward. I thought that on course 1 when I thought I answered 33 straightforward questions. I barely passed with a 6..... I think I was lucky I passed at all!!!!

retaker
11-08-2002, 12:59 PM
Yeah, it was 211

VernSchil
11-08-2002, 01:18 PM
Yeah, it was 211

Are you sure? This was a problem I purely guessed on, not even a non-educated guess since I didn't know if the Face value wasn't given you can assume it equals the redemption value. I know it works the other way around, but Batten never mentioned it goes both ways. This question was discussed a little bit earlier (possibly in another thread) but I don't think we came upon a clear answer. Does anyone remember more detail about the question?

retaker
11-08-2002, 02:18 PM
If you are talking about the one where they sold it to yeild 5% after the first payment, yes, it was 210 or 211.

I checked it right after the exam!

Avi
11-08-2002, 02:20 PM
I don't completely remember the question, but I think I remember it somewhat, and for a separate project, with it's own ratio of debt to equity financing, you have to use a discount rate specific to that project, so I guess you would use the projects cost of capital.

I also pick 13% as the discount rate, since the question said that that was the required return on the stock/project.

retaker
11-08-2002, 02:20 PM
I remembered it exactly after the exam.

originally r = .06, i^(2)= .08
C=1,000
n=10
then after first payment sold to yeild i^(2) =5.

Avi
11-08-2002, 02:27 PM
If you are talking about the one where they sold it to yeild 5% after the first payment, yes, it was 210 or 211.

I checked it right after the exam!

What about the \$30.00 coupon? The change to the balance sheet should take that into account too, no? I put down 241 (choice E).

retaker
11-08-2002, 02:36 PM
What?? What does the coupon have to do with it?
I thought you only had to worry about the change in the Price?
Maybe they got me again?

Are you sure?

Avi
11-08-2002, 02:42 PM
What?? What does the coupon have to do with it?
I thought you only had to worry about the change in the Price?
Maybe they got me again?

Are you sure?

Are we talking about the change in balance sheet one? (From the numbers it appears to be so)

If it's that one, I figured that the change in balance sheet = Money coming in - Money going out.

They paid ~ 864 for it, they got ~1070 for it, but they also got 30 from the bond holder for a total of 1104 or so (I don't have the exact numbers on me).

If all they were asking for was the change in bond price, then :swear:

retaker
11-08-2002, 03:10 PM
Where did my post go? Waaa waa waaaaaa waa

I was whining because they got me on this one too. That's 2 I missed. :crying:

What about the ROE, with tobin's q, and the financial distress one?

Did we ever come to a consensus about those? I might have missed 4, not including the 2 or 3 random screw ups?

:crying:

Avi
11-08-2002, 03:27 PM
Where did my post go? Waaa waa waaaaaa waa

I was whining because they got me on this one too. That's 2 I missed. :crying:

What about the ROE, with tobin's q, and the financial distress one?

Did we ever come to a consensus about those? I might have missed 4, not including the 2 or 3 random screw ups?

:crying:

It was 1.071

As Sales:Assets * Net Profit Margin * Leverage * Debt Burden = ROE

See B-M page 835

Sam (Retired)
11-08-2002, 03:28 PM
1.071 is ans B? I guessed on this one

snoo
11-08-2002, 03:39 PM
I got 1.071 for the Beta question where it gave you some other useless stuff (I hope anyway). I took the weights of the beta's of the stocks to get the overall beta. But they also gave the standard deviations for each of the stocks and the standard deviation of the market...... Anyway.... the extra stuff threw me off a little bit, but then I cleared my head and went the simple route, hopefully that is the correct one!!!

retaker
11-08-2002, 03:55 PM
Which answer choice was that for the ROE one?

What about the financial distress one?

Mathlete
11-08-2002, 04:35 PM
1.071 is ans B? I guessed on this one
I think it was answer A, if I am not mistaken.

retaker
11-08-2002, 04:40 PM
I don't even remember seeing that answer choice.

Was answer choice e) like 10.2 or was that another question?

Budder
11-09-2002, 12:01 PM
What?? What does the coupon have to do with it?
I thought you only had to worry about the change in the Price?
Maybe they got me again?

Are you sure?

Are we talking about the change in balance sheet one? (From the numbers it appears to be so)

If it's that one, I figured that the change in balance sheet = Money coming in - Money going out.

They paid ~ 864 for it, they got ~1070 for it, but they also got 30 from the bond holder for a total of 1104 or so (I don't have the exact numbers on me).

If all they were asking for was the change in bond price, then :swear:

This is what I did also. I saw that the answer that was -30 (without the coupon added in) was there also, but figured that one to be the trap.
Not totally sure this is correct, but I used the same logic as Avi.
If not, maybe I fell for the double trap!!
If this is the case then they can have some of this :swear: from me also.
:x

Avi
11-09-2002, 08:56 PM
1.071 is ans B? I guessed on this one
I think it was answer A, if I am not mistaken.

My mistake, 1.071 was the answer to the ß question.

The ROE was 7.23%, which was answer B

tempercalm
11-10-2002, 12:18 PM
hi there,

I just want to talk about the P=50-Q problem.

I looked through the reference Micro book and found out no clue in every page , then checked another advanced Micro textbook and got the answer.

This comes from exactly the price leadership model in the traditional models of imperfect competition. The price faced by consumer is between 4 and 25, therefore the output should be greater than 25.

I have no Micro background before taking this exam. What I did to prepare this exam 2 is read the reference textbook. But this question seems out of the cover of the intermediate reference textbook.
It is unfair to all people who prepare their exams accoring to the content of reference textbooks.

BTW, the ISBN of the advanced textbook is 0-03-024474-9( page 586) .

Avi
11-10-2002, 12:48 PM
Should you beleive that there was a mistake on the exam (which includes non-syllabus questions) send email to:

ccannon@soa.org
ombudsperson@soa.org

c3 taker
11-11-2002, 03:39 PM
Ok there are a few things I haven't seen mentioned just yet and I wanted to verify/check a few answers!

2. There was some problem where consumption changed from maybe 55 to 100 - does this sound familiar to anyone?

I also got 55 to 100 for that particular question. It was just changing a price or a budget constraint in the equation for the budget line I believe.

For the one with U = 1/2 X + Y, Px = Py, how much X do you buy......was the answer 0? It would seem that if both cost the same you would want all Y because X only brings you half as much utility?

Avi
11-11-2002, 03:51 PM
Ok there are a few things I haven't seen mentioned just yet and I wanted to verify/check a few answers!

2. There was some problem where consumption changed from maybe 55 to 100 - does this sound familiar to anyone?

I also got 55 to 100 for that particular question. It was just changing a price or a budget constraint in the equation for the budget line I believe.

For the one with U = 1/2 X + Y, Px = Py, how much X do you buy......was the answer 0? It would seem that if both cost the same you would want all Y because X only brings you half as much utility?

That's the reasoning I used too.

I also took the partials wrt each variable. wrt X it was a negative constant. wrt to Y it was a positive constant, meaning (I think) that there was no local max or min on the interval, so max U is found at max Y and min X, and since x is non-negative it must be 0.

VernSchil
11-11-2002, 03:53 PM
The reasoning is correct, but I think (and hope!!!) you switched the variables or the variable they asked for wasn't the one you wrote down, because from what I remember the variable that was multiplied by 1/2 wasn't the variable they were asking about. Of course, I switch things like that all the time, so it wouldn't surprise me if the answer was 0 instead of 90.

c3 taker
11-11-2002, 03:56 PM
I'm fairly sure that they asked for X and the equation was U=1/2 X + Y. I was just asking about the reasoning. Avi....is this what you remember?

VernSchil
11-11-2002, 04:05 PM
yeah maybe you are right. I'm starting to second guess and confuse myself. I did the same thing on Course 1 last May. I know the answer was either 0 or 90 as those two numbers stand out in my mind. Just can't remember which numbers goes with what variable.

shluffer
11-11-2002, 04:28 PM