It would be the one year - that would give the market value. the question asked specifically for current exposure I believe. That threw me off a little.
I also calculated expected discount value and my answer did match the choices. Then, I calcualted the market value I forgot the spot rate percentage but used the following : 1000 / (1+spot rate) that gave me one of the suggested choices.
well said Dan.. just reading through all the comments, everyone seems to be defending their answers. on the other hand, quite scary how for a particualr question everyone had a different answer. very tricky exam !
i remember being confused with binary tree model question - even though it was really easy. They asked for the current value i believe which made me confused between expected discount value or market value. which one was it?
the exam was challenging, hard BUT in line with aims in my opinion. Some questions easier than others. A lot of op risk questions, hazard rates, backtesting, model risk. a lot more qualitative questions than expected and because of that hard to say if one did well ! lets enjoy the next 6 weeks !
Thank you David ! I agree with you, I am not a fan of this question - I'll take it as you explained it going in the exam as I dont have time to dig deeper on this one.
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