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    Level 2: Post what your remember here...

    David, Could you please explain the idea behind this method of discounting. I do not remember seeing this explicit formula for discounting. Maybe I am just fried after the test, but I do not see the logic of this algorithm/formula. Thanks! Shannon
  2. S

    Level 2: Post what your remember here...

    Allow me to play devil's advocate for a moment. At the beginning of the test it said that all rates were continuous. Wouldnt this mean that we should instead use 80=100*exp(.05+s) and then say that s = PD*LGD? This would have given us a little more than 17%. Since 16% was the closest I...
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    Level 2: Post what your remember here...

    If I read it wrong, then I will take the hit, but I still really think the way it was worded the answer could have been ITM call or OTM puts. The point of this test was to see if we understood the concepts and how to apply the formulas. Being mind-readers and deciphering questions that read...
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    Level 2: Post what your remember here...

    The payout at time 1 should be based off of the LIBOR at time 0 so I believe we should have used 0.25%.
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    Level 2: Post what your remember here...

    I am not one do say and not do, so I emailed GARP about some of their errors. I do not know if it will go anywhere, but if other people are as angry as I am that there were so many baltant mistakes I encourage them to email GARP as well. [email protected]
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    Level 2: Post what your remember here...

    I had no idea on that one. None really sounded right. I took a guess and put goodwill but I am pretty sure that is wrong.
  7. S

    Level 2: Post what your remember here...

    It says that at those prices the announcement is made, so my thougt was that the prices would change to reflect the news and we would buy the target and sell aquiring company.
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    Level 2: Post what your remember here...

    I have a question for David: Is it worth writing GARP about inconsistencies or errors? With the amount of studying that I put in, if I fail because of all of the errors I will be beyond furious. For instance the cash flow problem. If the question was "what leads to a positive cash flow?"...
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    Level 2: Post what your remember here...

    Back to the volatility smile question: If the volatility of the ATM option was used to price the options, but in actuality there was a skew, this means that the ITM calls and OTM puts are both undervalued because the volatility used to price them was lower than the actual volatilities. Am I...
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    Level 2: Post what your remember here...

    I had .15 for Excess spread, 2.99 for the high water mark question. The convertable arb question was another one where there seemed to be 2 answers. The bond payment was a cash flow but it was not an INCREASE to cash flows. In the hedge fund section it said that if the stock moves up or down...
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    Level 2: Post what your remember here...

    Question 4 could have gone two ways, At the beginning of te test it said that unless stated otherwise all interest rates were we continuous. If we said that spread was PD*LGD it was one answer (this was what the reading said we should use for continuous so this was my answer) but if we used...
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    spread from PD, LGD

    Thanks! Shannon
  13. S

    spread from PD, LGD

    Hello, Every once in a while, I see an old practice question that simply uses the formula: spread = PD*LGD. Is there ever a case where this is not a viable answer to a problem? I know this is extremely vague, but sometime it seems like the most simple solution is best and other times it...
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    Excess spread vs excess servicing (from Fabozzi)

    I guess what I really meant was: what does excess servicing do? Excess spread is credit enhancement, since the agency MBS are already guaranteed, BUT what doe the Excess servicing do? ThankS!
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    Excess spread vs excess servicing (from Fabozzi)

    That is just net excess spread, isnt it? Also, one is for private label and thother for agency. Net excess spread is just WAC - deal coup - senior expenses. Excess servicing is WAC - deal coup - g fees - base servicing, so its kind of like base servicing + excess servicing is equal...
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    multiplier on specific risk

    Thank you! Shannon
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    Recovery rates on Equity default swap

    Hello, The idea of the swap makes enough sense, but what in the world does the recovery rate represent? The example in the book is horrible. It says if a stock goes down from 100 to anything less than 75, that we get paid notional*(1 - RR). Is the "recovery rate" just the current value of...
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    Prime brokerage accounts

    Makes sense. Thanks! SHannon
  19. S

    Prime brokerage accounts

    Thanks for the response but I am not quite following. So Citi and B of A actually placed the trades for him with brokerage accounts that Allfirst set up through the two banks? THanks! SHannon
  20. S

    multiplier on specific risk

    Hello, I read somewhere that there is a multiplier on specific risk. Is there any kind of a max function or multilpier that applies to specific risks (like market Var or stressed VaR)? Thanks! SHannon
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