Some CFA L1 questions

Y

ymc

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I am a newbie. Not sure if this is an appropriate forum for this. Please let me know if this is not appropriate.

Questions:
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1. FBN, Inc. has just sold 100,000 shares in an initial public offering. The und
erwriter's explicit fees were $70,000. The offering price for the shares was $50
, but immediately upon issue, the share price jumped to $53.

a. What is your best guess as to the total cost to FBN for the equity issue?

b. Is the entire cost of the underwriting a source of profit to the underwriters
?

22. If you place a stop-loss order to sell 100 shares of stock at $55 when the c
urrent price is $62. How much will you receive for each share if the price drops
to $50?

a. $50
b. $55
c. $54.87
d. Cannot tell from the information given.

3. An equity analyst is about to write a 'sell' report for the stock of Company A. But the analyst's employer is about to underwrite the debts for Company A. The analyst then shelved the report. Does this violate any CFA ethics code?

My comments:
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1a I think the cost should be 70k+300k=370k

1b I think only the explicit fee of 70k is the source

2 I think d. should be the correct answer but my guts told me that it shouldn't be a trick question and so I should pick b.

3 I think no violations. Or is there?

What do you think?
 
I think that question number three (3) states a clear violation of Standard I(B) Independence and Objectivity.
 
Then what should that analyst do? Publish the report and run the risk of getting fired???
 
ymc, what's the source of these questions? Because seriously, if this is what you're using to prepare for the exam, you're completely SOL.

Moreovoer, based on the priceless thread you recently posted in the LII forum (http://www.analystforum.com/phorums/read.php?12,588885), it's probably time to do your homework at the CFAI website and scrap the gong show that is your present study strategy.
 
^ Too harsh.

What's wrong with these questions? They seem like reasonable study questions to me (or at least the second two do).
 
Joey, perhaps unnecessarily harsh. My apologies ymc.

So but let's revisit these questions:

Question 1
This neither contains four responses or is related to any LOS. The closest thing in the CBOK that comes to mind is how to account for underwriting costs in the valuation process. My recollection is that we would treat this as an initial cash outflow, rather than let it affect the cost of capital.

Question 2
Again, is this related to any LOS? I'll select D. The limit order triggers at $55 but we don't know the share price at which the trade actually executes.

Question 3
Like CFAZod, I think shelving the report violates Standard I(B): Professionalism: Independence and Objectivity. Further, I think it violates Standard III(A): Duties to Clients: Loyalty, Prudence, and Care.

And to ymc's follow-up question...

ymc Wrote:
-------------------------------------------------------
> Then what should that analyst do? Publish the
> report and run the risk of getting fired???

Yes. In extreme circumstances, members and candidates are expected to leave their positions in order to remain in compliance with the code and standards.

In summary, I still think ymc's headed for a FAIL if he/she's relying on material like this to prepare for the exam. I interpret the lack of responses to this thread as a strong signal that the material is out of scope. It's not quite too late for ymc to change gears here, but based on his/her other posts he/she doesn't seem to have made much effort to learn about the program.

I think it's important to remind fellow AF participants that the CFA candidacy requires a lot of preparation and none of us are going to hold their hands through the process. How sympathetic should we be when it's evident the poster has taken little initiative? Going forward, I'll seek more tactful ways to make my point.
 
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