Ethical and Professional Standards
Define the “Code of Ethics” as per the CFA Institute.
The Code of Ethics outlines principles that CFA members and candidates must follow to act with integrity, competence, and respect, prioritizing the interests of clients and the public.
What is the formula for calculating the future value of an investment?
FV = PV x (1+r)^n
What is the law of demand?
The law of demand states that, all else equal, as the price of a good decreases, the quantity demanded increases, and vice versa.
What are the three main financial statements?
The balance sheet, income statement, and cash flow statement.
What is capital budgeting?
Capital budgeting is the process of evaluating and selecting long-term investment projects based on their expected cash flows and profitability.
What is the primary responsibility under the “Integrity of Capital Markets” standard?
To ensure that members and candidates do not engage in activities that distort market integrity, such as insider trading or market manipulation.
Define the null hypothesis in hypothesis testing.
The null hypothesis states that there is no significant effect or difference, and any observed results are due to random chance.
Define Gross Domestic Product (GDP).
GDP is the total monetary value of all final goods and services produced within a country over a specified period.
Define working capital.
Working capital is the difference between a company’s current assets and current liabilities.
Formula
Working capital = current assets - current liabilities
Define weighted average cost of capital (WACC).
Where E is equity, D is debt, r_e is the cost of equity, r_d is the cost of debt, and t is the tax rate.
WACC represents the average rate of return required by all of a company’s capital providers.
WACC=(e/v X re）+（d/v X rd X（1-t））
Explain the “Duty to Clients” standard.
Members must prioritize the interests of clients above their own and act in the client’s best interests with loyalty and prudence.
Explain the difference between a t-test and a z-test.
A z-test is used when the population variance is known and the sample size is large, while a t-test is used when the population variance is unknown and the sample size is small.
Explain the difference between nominal and real interest rates.
The nominal interest rate is the stated rate without adjusting for inflation, while the real interest rate is adjusted for inflation.
Explain the difference between LIFO and FIFO inventory accounting methods.
LIFO (Last-In, First-Out): The most recent inventory purchases are recorded as sold first.
FIFO (First-In, First-Out): The oldest inventory purchases are recorded as sold first.
Explain the Modigliani-Miller theorem.
The Modigliani-Miller theorem states that, in a perfect market with no taxes or bankruptcy costs, a company’s capital structure does not affect its overall value.
Describe the procedures for compliance with the “Conflicts of Interest” standard.
Members must fully disclose any potential conflicts of interest, such as ownership in securities or business relationships, to ensure transparency and trust.
What is the significance of the p-value in statistical tests?
The p-value measures the probability of obtaining the observed results under the null hypothesis. A low p-value (typically < 0.05) indicates strong evidence against the null hypothesis.
What is the impact of a tariff on domestic markets?
A tariff increases the cost of imported goods, leading to higher prices for consumers and potentially reduced demand for those goods, while protecting domestic industries.
What is the purpose of the statement of cash flows?
To show how a company’s cash balance changes over a period through operating, investing, and financing activities.
What are the primary sources of corporate financing?
Debt financing (loans, bonds) and equity financing (issuing shares).
What are the recommended procedures for compliance under the “Responsibilities as a CFA Institute Member or CFA Candidate” standard?
Members should adhere to the CFA Institute’s rules, ensure they do not misrepresent their CFA status, and report any violations of the Code and Standards.
Describe the central limit theorem and its importance in statistics.
The central limit theorem states that the distribution of sample means approaches a normal distribution as the sample size increases, regardless of the population’s distribution. This allows for the use of normal probability theory in hypothesis testing.
Describe the concept of purchasing power parity.
Purchasing power parity (PPP) suggests that in the long term, exchange rates should adjust so that identical goods cost the same in different countries.
Describe how to calculate the debt-to-equity ratio.
It measures a company’s financial leverage.
DER = total debt / total equityDescribe the agency problem in corporate governance.
The agency problem arises when there is a conflict of interest between a company’s management (agents) and its shareholders (principals).