Just taken the AM of this and I’m concerned that the following questions are geuninely wrong in the answer book, any thoughts?
22 - The question explicitly states to use ‘Sharpe Ratio’ to make your decision, no mention is made of correlations. Based on the Sharpe ratio alone, A is the correct answer.
24 - This is clearly wrong, in the answer book they have actually calculated the expected return from the CAPM wrongly, the correct answer is B since required return is 14% and stock is only expected to return 12%, hence overvalued.
38 - Ok, not sure about this one so maybe I just don’t understand it, but how does a -ve balance sheet accruals ratio imply that cash earnings are greater than accounting earnings? Surely it’s the Cash accruals ratio we should be looking at in this question.作者: ninja1024 时间: 2013-4-21 17:35
22 - it is ok, look at page 409 in book 6. The question asks about mean-variance effect on the result portfolio and you have to know you count it using also correlation
24 - you are right
38 - yep, I am not sure either. I can imagine the situation where for example you have BS accruals down because of going down the value of some non operating security held available-for-sale and for instance no earnings in IS nor CF. Now I am not confident there is such a link between earnings and BS accruals…作者: ishfaque 时间: 2013-4-21 17:48
I still dont get 22 anyone can help.作者: orang3eph 时间: 2013-4-21 17:50
BTW I can answer 38… High level thinking. NI is the earnings for accounting method (Earnings/Share = NI/Share). The physical cashflow we get is CFO from operations plus CFI = your cash earning for the period (Don’t need to worry about financing, since getting money from stock isn’t really earning). Therefore if the ratio is negative (NI -CFO - CFi)/(NOAaverage), then it means cash earnings (CFO+CFI) is greating than accounting earnings (NI)作者: strikethree 时间: 2013-4-21 17:52
kys916 wrote:
BTW I can answer 38… High level thinking. NI is the earnings for accounting method (Earnings/Share = NI/Share). The physical cashflow we get is CFO from operations plus CFI = your cash earning for the period (Don’t need to worry about financing, since getting money from stock isn’t really earning). Therefore if the ratio is negative (NI -CFO - CFi)/(NOAaverage), then it means cash earnings (CFO+CFI) is greating than accounting earnings (NI)
I entirely agree with your logic there. However the Cash Flow accruals ratio was +ve in 2010, which is the period the question is asking about. Therefore accounting earnings cash earnings and A is not the correct answer.
