|Exam Name||:||Chartered Financial Analyst(R) Level III (CFA Level III)|
|Questions and Answers||:||33 Q & A|
|Updated On||:||October 18, 2017|
|PDF Download Mirror||:||CFA-Level-III Brain Dump|
|Get Full Version||:||Pass4sure CFA-Level-III Full Version|
Beitia’s asset base = $5,000,000.
Annual after-tax spending amount = $150,000.
Estimate of future inflation = 3.5%.
Beitia will donate $750,000 to his alma mater in one year in one lump sum.
Risk-free rate = 4.0%.
Beitia’s income tax rate = 25%.
Washington forms four corner portfolios from his efficient frontier and calculates the following
expected returns and standard deviations:
Calculate the required before-tax return for Beitia’s portfolio and Beitia’s expected utility from holding each of the corner portfolios.
Assuming that Washington combines two corner portfolios to meet Beitia’s desired return
(calculated in Part A), calculate the weights of the appropriate corner portfolios that will be used (assume no borrowing or short-selling) and the resulting portfolio standard deviation.
Assuming that Washington combines a corner portfolio with the risk-free asset to meet Beitia’s desired return (calculated in Part A), calculate the weights of the appropriate corner portfolio and the risk-free asset that will be used (assume no borrowing) and the resulting portfolio standard deviation.
HAS ONE PARTAl Casualty, Inc. writes property and casualty insurance policies for individuals, homeowners, and small businesses located in the Southeastern portion of the United States. For the last three years, market forces have caused Al to more competitively price their policies to increase underwriting volume. This competitive pricing environment coincides with a somewhat slowing general business cycle. Two months ago, a massive hurricane hit the panhandle of Florida and southeast Alabama, causing unprecedented damages to property. Approximately 50% ofAl ‘s homeowners’ policies are written in that geographic region, but as of yet, claims processing has been much less than expected from the area. Stan Carnay, Al ‘s CEO, has been busy preparing the latest investment portfolio report for the Board of Directors’ meeting in two weeks and has asked Eileen Carlyle, CFA, Al ‘s most recent addition to the investment group, for assistance in updating a decades-old investment policy statement. In preliminary discussions, Carlyle indicatcd the following:
“Underwriting activity, although somewhat improved over the past decade, has not been as profitable as expected during the last three years. The competitive marketplace in which we operate has directly impacted our ability to profitably price our insurance products.”
“We should count our blessings that so few claims from the recent hurricane have been submitted. Actuarial estimates indicate our potential exposure from this weather event is approximately $75 million, which represents 75% of our surplus portfolio. Since claim submission has been almost non-existent, we can transition our investment portfolio into a greater proportion of common stock, taking our stock to surplus ratio from 90% to close to 100%. That action should help strengthen our long-term competitive position.”
“Recent economic conditions have slowed, but numerous other comparable casualty companies
are optimistic that economic conditions will improve over the next 9 to 12 months. Although market economists continue forecasting a slightly longer downturn in the national economy, we consider those forecasts overly pessimistic.” Without using calculations, formulate an investment policy statement appropriate for Al. Answer Question 7 in the template provided.
HAS ONE PART Bailey Investments is a U.S.-based investment management firm. They began operations on January 1, 2004. Their client base has grown considerably over the last few years
and in order to ensure accurate and consistent performance data they have decided to pursue GIPS® compliance. The following includes composite data and notes relating to the first
presentation for one of their composites in which they claim GIPS compliance. Bailey Investments has prepared and presented this report in compliance with the Global Investment Performance
Standards (GIPS®). Notes:
Valuations are obtained by Reuters and computed using the U.S. dollar.
Bailey Investments is a dedicated equity portfolio manager that invests entirely in U.S. securities
and has no affiliates.
The benchmark composition is 100% S&P 500. The annualized compound
benchmark return is 8.15%. The annualized compound composite return is 8.06%.
Composite dispersion is the annualized monthly standard deviation of composite returns.
No modifications to the composites as presented here have occurred as a result of changes in personnel or for any other reason at any time.
Performance results are presented before management and custodial fees but after all trading commissions.
The composite includes discretionary and non-discretionary fee-paying portfolios. ListJour non- compliant items in the presentation. For each, state the necessary corrective action.
Answer Question 8 in the template provied.
HAS THREE PARTS One year has passed since HNW Advisors first started operations. Their overall equity portfolio has returned 28.2% versus a return of 22.4% for the S&P 500. The standard deviation of the S&P 500 is 20%, and Maggie Day, CFA, has estimated the standard deviation of HNW Advisor’s equity portfolio at 45%. HNW Advisor’s equity portfolio has a beta of 1.35, and the risk-free rate is 4.4%. A major HNW client is attempting to evaluate the relative performance of HNW’s equity fund. The client is unsure whether the Sharpe measure or the Treynor measure is appropriate for the HNW portfolio.
Using the Sharpe and Treynor measures for the HNW portfolio and the S&P 500, determine how HNW has performed relative to the S&P 500.
Assume that, using the Sharpe ratio to measure performance, the S&P 500 outperformed the HNW portfolio, but using the Treynor measure, the HNW portfolio outperformed the S&P 500. Explain, in terms of systematic and unsystematic risk, how this change in ranking could have occurred.
Compute M2 for the HNW portfolio, assuming management uses the market as a benchmark.
Explain, in terms of relative returns and volatility, the circumstances under which M2 for HNW would equal M2 for the market.
HAS TWO PARTS Tom Groh is the President of Opportunity Banks. Opportunity has historically
operated in the northeastern United States, with most of its business in Maryland, Delaware, and New Jersey. Opportunity has been in business since 1987 and has built its business on making mortgages and construction loans to residential developers. Opportunity has been very profitable, because developers value the services the bank provides. This allows Opportunity to price their construction loans with higher interest rates. Opportunity services and retains ownership of the its loans. It historically has had a near-zero leverage-adjusted duration gap. In the most recent fiscal year, Opportunity has experienced important changes in their business as follows:
Due to pressure from local activists, Opportunity has stepped up lending in low-income areas.
Groh expects the default rate on these loans to be higher than the Loans currently in their portfolio.
Opportunity has bought a regional bank with operations in North Carolina, South Carolina, and
Georgia. The acquired bank’s loan portfolio consists mostly of commercial loans to small, local businesses.
A recent downturn in interest rates has caused many of Opportunity’s variable rate mortgages to be refinanced to 15 and 30-year fixed-rate mortgages. Opportunity has retained the business of
most of its customers who have refinanced.
A. In each of the scenarios provided, determine one effect on the investment objectives, constraints, or investment policies of the bank’s security portfolio. Evaluate each scenario in isolation from the others. Answer Question 10-A in the template provided.
Template for Question 10-A
Effect on Bank's Policies
I .Due to pressure from local activists, Opportunity has stepped up lending to low-income areas. Groh expects the default rate on these loans to be higher than the loans currently in their portfolio.
2.Opportunity has bought a regional bank with operations in North Carolina, South Carolina, and Georgia. The acquired bank's loan portfolio consists mostly of commercial loans to small, local businesses.
3. A recent downturn in interest rates has caused many of Opportunity's variable rate mortgages to be refinanced to 15- and 30-year fixed rate mortgages. Opportunity has retained the business of most of its customers who have refinanced.
The CFA degree III examination is the final in the series of three tests carried out by the CFA Institute. Coupled with at least forty eight months of relevant work journey, successful completion of the last level yields a constitution membership. while the primary two degrees revolved around simple financial advantage, investment valuation comprehension and the utility of each, the CFA stage III examination focuses on portfolio administration and wealth planning.
exam StructureThe format of the exam, which is barely offered in June, is a mix of item set questions (corresponding to level II) and essay class questions. like the different checks, the level III exam is also carried out in two components - the morning and afternoon session. within the morning session, there are 10 to fifteen essay class questions. each and every query incorporates varied materials such as A, B, C, etc., which help you prepare your answer in a template. These questions might also provide you with a situation and ask you to advance your own recommendation or answer. within the afternoon session, there might be 10 merchandise units. each and every item set contains a case remark adopted by way of six assorted-alternative questions. The exam is graded for 360 features, which corresponds to one aspect per minute.
examination CurriculumAs outlined earlier, the focus of the exam is on portfolio management and wealth planning, however additionally covers seven themes that are grouped into two other areas, namely, ethical and knowledgeable standards and Asset courses. here desk provides weighting of those themes and extensive areas for the exam:subject area level III ethical and professional standards (complete) 10 investment tools (complete) 0 company Finance 0 Economics 0 economic Reporting and evaluation 0 Quantitative methods 0 Asset classes (total) 35-forty five choice Investments 5-15 Derivatives 5-15 equity Investments 5-15 mounted earnings 10-20 Portfolio administration and Wealth Planning (total) forty five-55 completea hundred
As is evident from the table, the Ethics and knowledgeable requirements gets as an awful lot significance as within the different tiers of the exam. The investment equipment don't seem to be demonstrated one by one, except economics, which is part of the portfolio administration and wealth planning section for stage III. the vast majority of the examination revolves round portfolio administration and asset courses within the portfolio context.
StandardsIn level III, requirements essentially consist of the Code of Ethics and global investment efficiency requirements (GIPS). standards account for 10% (i.e., 36) of the 360 viable facets. The Code of Ethics area will undoubtedly be an item set in the afternoon session. besides the fact that children, GIPS could be proven both as an essay question within the morning session or as an item set within the afternoon session.
Asset ClassesThe exam checks your knowledge on all of the important asset classes, together with option investments, derivatives, fairness investments and fixed-earnings investments. youngsters, the focus is now on the portfolio administration facets of these investments. as an example, a whole session is dedicated to the administration of energetic and passive fastened-earnings portfolios, covering investment ambitions, benchmarking, return evaluation, portfolio immunization strategies, relative price analysis and so forth. The syllabus also covers innovations used in foreign and emerging markets and how derivatives are used to manage activity fee and credit hazards in mounted-revenue portfolios.
The 2d asset class is equity securities, that are an essential component of most investment portfolios and crucial for the portfolio's success. The discussion here surrounds fairness investment techniques, evaluation of equity fund managers and equity indexes. The syllabus additionally discusses the company governance considerations concerning conflicts between managers and shareholders that erode value and have a direct have an impact on on fairness portfolio managers. at last, there is discussion on measuring and managing portfolios in overseas and emerging markets.
The area on option investments essentially discusses the option investment classes and how spinoff devices equivalent to swaps, futures and forwards are used to control some choice investments.
Portfolio administration and Wealth PlanningThis includes the largest portion of the exam and will account for as a minimum 180 points out of the 360 feasible facets. Portfolio management ideas will dominate each the morning and afternoon sessions. The syllabus is very complete and introduces new ideas such as behavioral finance, which forms the foundation for fiscal decision making. risk administration ideas, overlaying equipment and recommendations for measuring and managing possibility are additionally discussed. aside from these, you're more likely to be demonstrated on questions involving individual and institutional wealth.
The number of concepts that may also be tested are restricted but are vital. One such essential conception is the investment coverage commentary and its accessories, which is extremely testable. Economics, which changed into part of the investment tools in level I and II, is blanketed beneath portfolio management in the exam. other important concepts are managing portfolios of institutional traders, asset allocation, risk administration purposes and evaluating portfolio performance.
within the portfolio management section, the CFA Institute gives no guidelines about which subject matters are greater important. however, it does make available essay questions from previous years, which can be very useful for working towards and setting up your examination strategy.
The backside LineThe stage III exam is considerably some of the tougher tests for the CFA, as many of the questions are posed in essay layout. the important thing to success is to follow as many essay class questions as viable and master subject matters in particular involving portfolio management, which is at the heart of this exam.
Chartered monetary analyst® designation is knowledgeable credential it truly is offer by using the CFA institute to the monetary and investment experts. The designation of the Chartered economic Analyst or CFA® charter is probably the most identified and respected credential in the box of investment banking. it is a globally diagnosed credential.
There are three stages in CFA® program that college students will need to go through. in line with the old records, flow fee for the CFA® examination is read CFA-Level-IIIy forty p.c. there is a wide range of issues related to investment administration, shares, derivatives, economic analysis which offer you outstanding figuring out of every thing you want so as to turn into a more robust financial Analyst/funding banker.CFA® stage I examination:
here is the first examination that students will have to move through. In level one, students will have to center of attention on the concepts and tools that are utilized to investment management and valuation.
The CFA® stage 1 examination is performed in two classes, every three hours lengthy. It incorporates 240 diverse-alternative questions in two periods of a hundred and twenty questions each and every. The questions are designed in keeping with the subject weightages given in the CFA® level 1 examination Syllabus, with very slight deviation.CFA® stage II examination:
this is the 2nd examination that students will have to move through after passing the CFA® stage I examination. In level II, college students will must contend with the assets valuation. students need to have the capacity to observe the ideas and tools that they have got discovered in degree I.
There are total 20 merchandise set questions, break up in two sessions. The morning and evening sessions have 10 merchandise set questions each and every. the whole variety of questions within the CFA® level II exam is one hundred twenty. The duration of the examination is 360 minutes. probably the most CFA® level II subject matters are coated most effective within the morning session and other subject matters are lined best in the night session.CFA® stage III examination:
here's the last CFA® exam that college students will should circulate to turn into a CFA® charterholder. within the level 3 examination, students will must go through portfolio management in depth. CFA® level I and CFA® level II revolved around fundamental fiscal advantage, funding valuation comprehension and the utility of both. CFA® degree III examination makes a speciality of portfolio administration and wealth planning.
The exam layout of CFA® stage III is a mix of item set questions and essay class questions. The length of the examination is 6 hours long and is written in two sessions. The morning session and the evening session.
within the morning session, there should be 10-15 essay classification questions. The questions always describe both a case examine or a hypothetical circumstance to which college students need to either construct a solution and clarify it or imply measures to handle it.
in the afternoon session, there are 10 merchandise sets. every item set consists of a case commentary adopted by six varied-choice questions.Overview of CFA® exam layout: CFA exam degree I degree II degree III Morning evening Morning evening Morning night No of Questions 120 120 60 60 12 10 type MCQ MCQ 10 Set of presents10 set of itemsEssay Set of giftsperiod 6 Hours 6 Hours 6 Hours Passing rating 70%* Above 70%* 50-70%* Approx. Passing quotes 42%* 46%* 53%*
observe: * These numbers range every year. this is simply an approximation based on the old facts.
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the day before today became CFA stage III results day. For the first time in a long time, the pass fee truly multiplied: fifty four% of people passing the third and closing exam, more than at any time for the reason that 2006, when the flow rate was a heady 76%.
CFA effects forums are predictably full of ecstatic individuals who spent ultimate nighttime engorged with alcohol. They’re also domestic to the sad minority who failed, a few of whom are questioning whether it’s all value it. As is smartly usual, every CFA examination requires 300 hours of study CFA-Level-III. Three CFA checks for this reason require 900 hours. If these hours are outfitted in after work and at weekends, at a cost of 15 hours per week, that means 60 weeks of examine. This sounds low-priced. except it doesn’t work like that….Will it truly take you seven years to circulate CFA three?
in case you embark on a quest to become a CFA Charterholder, you need to be organized to sacrifice a lot of lifestyles.
The CFA Institute itself says that it takes the typical candidate 4 years to complete the programme. In some circumstances, despite the fact, this appears optimistic.
one of the most contributors to Analyst forum confessed yesterday that he’d been getting to know for CFA exams considering that 2007. He took CFA level I twice, CFA degree II twice and CFA level III 4 times earlier than passing. “I actually have passed!,” he declared, proudly.
a further contributor become less fortunate. Having began getting to know for CFA tests seven years in the past, he failed degree I once, degree II 3 times and then failed level III on his first are attempting in June. “I’ll be taking my 8th CFA exam next 12 months. This in reality sucks,” he complained.Does discovering for CFA assessments wreck your domestic life?
a couple of CFA III candidates, a success or not, lamented that every one their researching had been bad for their relationship.
“27 feminine and married, i believed I may ultimately get my household existence again.however no, another 12 months of work/study CFA-Level-III fatigue,” mirrored one exhausted fail.
a further candidate referred to she’d handed whereas her husband had failed, which turned into inflicting tension and making it tricky for her to celebrate. And yet another said his spouse became unexpectedly ecstatic about his success and return to family existence: “was amazed by wife’s response … was happier than me ….realized how a whole lot it intended to her …”are you able to circulate the CFA exams in 18 months?
the most completed CFA candidates pass all three checks in 18 months. How is that this achieved? one among the day past’s 18-month-passers stated it’s about getting to know challenging, however not too hard. “18 months complete. level 1 in December 2012, level 2 in June 2013, stage 3 in June 2014. degree 2 and three were very narrow pass each and every time – capacity I took care now not to over-analyze :),” he mirrored.
essentially the most magnificent circulate the day gone by changed into the 29 12 months-historic mother of two little ones under three years historic who begun getting to know when her first baby was only seven months. “June 2012 – My baby is 7 months ancient, I sat CFA degree-1 exam. passed with All >70%. June 2013 – First baby is 1.8 years, I’m 8 months pregnant. Sat CFA degree-2 examination. handed. June 2014 – Two children, husband, family unit tasks. Sat CFA level-three examination. passed,” she wrote, including that, “I managed to beginning and conclude my charter while on maternity leave… I had no help with the little ones except 1 month before each examination, after I requested my folks to babysit full-time.”linked articles:
CFA or MBA: Which is ultimate for a finance career?
What’s the minimum score that you would be able to get on CFA stage I, and still move?
How I handed CFA stage II handiest 4 months after passing level I
results for the notoriously tricky Chartered financial Analyst (CFA) level III examination are out.
And simplest forty nine% of candidates handed.
The curriculum, which incorporates three levels, is largely regarded to be the most elaborate to acquire by means of finance specialists (and it has its share of unbelievable horror stories).
Fewer than 20% of candidates move all three tests on the primary go, and the average adult takes 4 years to conclude all three.
This yr, the move price dropped under 50% for the primary time for the reason that 2010.
As finance as a container has grown, so too has the number of verify-takers. however it seems the verify has been getting tougher to circulate on the grounds that its inception in 1963. right here's the ancient circulate rate.
CFA Institute, enterprise InsiderSEE also: a private equity CEO Tackles The Age ancient query — Is It value It To Get Your MBA?