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CFA Level II Updated
How do I use the Jarque-Bera test to check residual normality?
The Jarque-Bera test evaluates whether a sample comes from a normal distribution by jointly examining its skewness and kurtosis.
How often must indefinite-lived intangibles be tested for impairment?
Indefinite-lived intangibles tested annually plus triggering events. Compare carrying to fair value; impairment equals excess.
What does it mean when receivables grow faster than sales?
Receivables up 28% vs sales up 9% signals revenue acceleration, loose credit, or channel stuffing. Check DSO, allowance coverage, and peer benchmarks.
How does the color Greek describe gamma decay?
Color is the derivative of gamma with respect to time, describing how gamma itself ripens or decays as expiration approaches.
Which metrics best show that inventory management is improving?
Credible inventory improvement leaves a fingerprint across four metrics: DIO, gross margin, obsolescence reserves, and cash conversion cycle.
How should I analyze uncertain tax positions (UTPs) under ASC 740?
Uncertain tax positions are tax benefits claimed on returns but not recognized on financials because the more-likely-than-not threshold isn't met. Brindall's $186M UTB is accrued as a liability...
What is a quanto swap and when would a corporate use one?
A quanto swap pays foreign rates in domestic currency with no FX exchange but requires a correlation-based adjustment.
How do I account for increasing-rate preferred stock where the dividend escalates over time?
Use a constant effective yield to spread IRPS dividends. The difference between effective and cash dividends accretes carrying value and reduces EPS for common shareholders.
Why does uncovered interest parity fail empirically?
UIP fails because risk premia, peso problems, and expectational errors mean high-rate currencies tend to appreciate rather than depreciate as theory predicts.
What happens when a company modifies outstanding stock options?
Modifications add incremental fair value (post-mod minus pre-mod) amortized over remaining vesting. Cascade Software reprice example adds $3.73M/year.
What are unrecognized tax benefits under FIN 48 and how do they affect reported earnings?
UTBs represent the tax benefits claimed on returns but not recognized in financials due to uncertainty; reversals boost EPS, settlements impact cash.
How does the White test detect heteroskedasticity without assuming its form?
Heteroskedasticity means the variance of regression errors varies across observations. It does not bias coefficient estimates but it invalidates standard errors.
Can goodwill be partially impaired under IFRS?
IFRS tests goodwill at CGU level. Partial goodwill method requires grossing up goodwill for testing but only parent's share flows through P&L.
How do I interpret non-cash working capital changes when analyzing cash flow quality?
NCWC = (AR + Inv + Prepaid) - (AP + Accrued). Growth-matched changes are healthy; sudden jumps vs flat revenue warn of earnings trouble.
What is the speed Greek and when does gamma slip?
Speed is the third derivative of option price with respect to spot, describing how gamma itself shifts as the underlying moves.
My target company's inventory is declining. Is that bullish or bearish?
Declining inventory is ambiguous. The interpretation depends on whether sales are accelerating, flat, or declining alongside the drop.
How do permanent differences differ from temporary differences in tax accounting?
Temporary differences reverse over time (create DTA/DTL); permanent differences never reverse (only affect current ETR). For Okuma Solar, $84M accelerated depreciation is temporary while $4M muni interest is permanent...
What makes a Constant Maturity Swap different from a vanilla swap?
A CMS resets against a long-tenor swap rate each period, requiring convexity adjustment to price correctly.
Why is mandatorily redeemable preferred classified as a liability rather than equity?
Mandatorily redeemable preferred is a liability because the issuer has an unconditional obligation to deliver cash. Dividends become interest expense.
What is the international Fisher effect and does it hold empirically?
IFE predicts high-rate currencies depreciate by the interest differential. Empirically the forward premium puzzle shows the opposite in short to medium run.
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