An alternate way to pay investors is when the

firm uses cash to buy its own shares, also known as

The firm will pay the dividend to all shareholders on record on a specific date, set by the board, called the ________ date.

WidgetBaker is considering making an acquisition of RiskyWidgets. Widgetbaker has a WACC of 12.5%, whereas RiskyWidgets has a WACC of 15.0%. The two firms are funded by the same proportions of debt and equity in their capital structure, which will not change as a result of the acquisition.

Which of the following best describes the appropriate discount trate to use to evaluate the acquisition of RiskyWidgets?

Assume that all rates in the below question are after-tax figures.

Which of the following best represents the relationship between the costs of capital for the typical firm?

You choices:

Consider the following statements about corporate bonds:

Which of the following is correct?

[This case was adapted from CFA Institute, Ethics in Practice Casebook]

Emily is a

portfolio manager for a well-established investment company that incentivizes its

employees to sell to clients its own proprietary investment products. Emily  does

as she is asked and within a year becomes the company’s number one salesperson for these products. She receives outstanding performance reviews along with a significant

financial bonus. However, Emily starts to realise that the investment

products she is selling are underperforming and overpriced compared to other products

which are more suitable for her clients’ investment needs and which give them superior

growth prospects.

Consequently, she purchases

fewer of her company’s investment products on behalf of her clients. Her

supervisor begins pressuring her to sell more, but she refuses to comply. She even

complains to senior management that she is being forced to place the company’s

interests above those of her clients. She even secretly records conversations

with her supervisor and makes copies of client records documenting what she

considers inappropriate conduct of her supervisor.

When management

ignores her complaints and she loses the bonus because her supervisor rates her

performance significantly downward, she files a complaint with the local regulator against the

company and the supervisor. In doing so, she provides the secret recordings and

copies of client records as evidence to support the official complaint. When the

management realises what she has done, she is fired. 

Emily’s actions are:

The 3-year zero-coupon bond issued by Firm X is currently trading at $863.84. The bond has a face value of $1,000. The following table shows the annual yields to maturity (YTM) for zero-coupon bonds with different credit ratings:

Based on the price of Firm X’s bond, its implied credit rating is:

[This case was adapted from CFA Institute, Ethics in Practice Casebook]

Wang is president and CEO of Royal Capital Investment Group (RCIG), an

investment adviser business that is owned by Royal Capital Bank. RCIG uses the

Bank’s 32 branch office network to operate. A client of the Bank that is a

long-time customer and Wang’s personal friend and friend of other Bank board

members opened an investment account with stated investment objectives for its

income. While the customer did make a few investment transactions over the

year, the bulk of transactions involved hundreds

of money transfers amounting to $95 million in deposits and $79 million in withdrawals.

The transactions included transfers to and from entities and persons

located in countries or banks identified by the government regulator as having

significant money laundering risk. Furthermore, Wang came to know that the customer

engaged in certain types of international activities that are easily tainted by

corruption and bribery. But because of the customer’s longstanding relationship

with the Bank, Wang presumed the transactions to be legitimate. Wang even

approved the daily Anti-Money Laundering reports that would have triggered suspicious

activities including accepting vague transaction descriptions such as “fees collected

for services provided”, “commissions for work done”, or “consultancy fees” without

further investigation. Wang’s actions are