Exam Feedback May 2018 Part 1 Exam Feedback

[Albertikos]

Yeh I just reversed engineered the ESS and SSR from remembering the 0.8 answer and a 700 denominator.

cool!

And for the t-test with two tail test... do you remember if you reject de null hypothesis or fail to reject.. I obtain a value which was between the critical values os I fail to reject the null hypothesis...

 

[Stuart D Moncrieff]

cool!

And for the t-test with two tail test... do you remember if you reject de null hypothesis or fail to reject.. I obtain a value which was between the critical values os I fail to reject the null hypothesis...

I remember putting fail to reject. I think the test was looking for a result exactly equal to a certain number - hence I used the 2 tailed test with 14(? n-1) df i.e. p = 0.025 for the 5%. There was a 0.05 column which had a value of 1.8 or something, I think my test value was somewhere around 2 which was below the value in the middle column.

Really vague but I remember putting fail to reject.

 

[Albertikos]

I remember putting fail to reject. I think the test was looking for a result exactly equal to a certain number - hence I used the 2 tailed test with 14(? n-1) df i.e. p = 0.025 for the 5%. There was a 0.05 column which had a value of 1.8 or something, I think my test value was somewhere around 2 which was below the value in the middle column.

Really vague but I remember putting fail to reject.

Me too! hope to pass! but we have to wait oneeee month until results are released....

 

[ab88]

I remember putting fail to reject. I think the test was looking for a result exactly equal to a certain number - hence I used the 2 tailed test with 14(? n-1) df i.e. p = 0.025 for the 5%. There was a 0.05 column which had a value of 1.8 or something, I think my test value was somewhere around 2 which was below the value in the middle column.

Really vague but I remember putting fail to reject.

Fail to reject null. Alpha 5% two tail so 2.5% in table at n-1 = 23 dof as sample size given was 24.

 

[nikic]

cool!

And for the t-test with two tail test... do you remember if you reject de null hypothesis or fail to reject.. I obtain a value which was between the critical values os I fail to reject the null hypothesis...

If truly the Test Statistic was between the Critical Values, then surely you do not reject H0.

As to whether the Test Stats actually was between the CVs or above, I honestly do no recall. But I believe the computation for the Test Stat was relatively straightforward so you should be correct.

 

[ab88]

One question on currency hedging had 0.9495 beta, dont remember but I marked long 85 contracts. Anyoner remembers that q?

Option questions:

one was short butterfly to long vol
short puts to protect from appreciating AUD and some benefit from depreciation
time to expiry (theta) reduces long calls and long put portfolio
option payoff od a given portfolio. i think answer was something about 37500

 

[Albertikos]

One question on currency hedging had 0.9495 beta, dont remember but I marked long 85 contracts. Anyoner remembers that q?

Option questions:

one was short butterfly to long vol---> agree
short puts to protect from appreciating AUD and some benefit from depreciation
time to expiry (theta) reduces long calls and long put portfolio ----> Agree
option payoff od a given portfolio. i think answer was something about 37500

 

[nikic]

One question on currency hedging had 0.9495 beta, dont remember but I marked long 85 contracts. Anyoner remembers that q?

Option questions:

one was short butterfly to long vol
short puts to protect from appreciating AUD and some benefit from depreciation
time to expiry (theta) reduces long calls and long put portfolio
option payoff od a given portfolio. i think answer was something about 37500

- was that a question on currency hedging or the CSI Index hadging?
- yes, it was a short butterfly
- was it short put or long put? Was the question asking from the perspective of AUD or some other currency? Cause if AUD is the foreign currency, then you need to go long put which protects you against the appreciating AUD but allows you to benefit from a depreciating AUD. Again this is just a conceptual question. If you understand the concept it should have been correct.
- I got this wrong. I put my answer as the one containing dividend. Definite wrong
- Was this option payoff for the copper or something? I think 37,500 feels correct.

 

[ab88]

One question on currency hedging had 0.9495 beta, dont remember but I marked long 85 contracts. Anyoner remembers that q?

Option questions:

one was short butterfly to long vol
short puts to protect from appreciating AUD and some benefit from depreciation
time to expiry (theta) reduces long calls and long put portfolio
option payoff od a given portfolio. i think answer was something about 37500

short calls** i guess. made sense during exam. yes foreign currencya nd domestic currency matters here to take position. don't remmeber that. but marked short calls as answer.

 

[ab88]

- was that a question on currency hedging or the CSI Index hadging?
- yes, it was a short butterfly
- was it short put or long put? Was the question asking from the perspective of AUD or some other currency? Cause if AUD is the foreign currency, then you need to go long put which protects you against the appreciating AUD but allows you to benefit from a depreciating AUD. Again this is just a conceptual question. If you understand the concept it should have been correct.
- I got this wrong. I put my answer as the one containing dividend. Definite wrong
- Was this option payoff for the copper or something? I think 37,500 feels correct.

i thin it was option payoff ..yes on Copper expiry spot of $2.95 and strike $2.5 something

 

[Albertikos]

-
- yes, it was a short butterfly
- was it short put or long put? Was the question asking from the perspective of AUD or some other currency? Cause if AUD is the foreign currency, then you need to go long put which protects you against the appreciating AUD but allows you to benefit from a depreciating AUD. Again this is just a conceptual question. If you understand the concept it should have been correct.
- I got this wrong. I put my answer as the one containing dividend. Definite wrong
- Was this option payoff for the copper or something? I think 37,500 feels correct.

was that a question on currency hedging or the CSI Index hadging?

I think this one was straight if you choose the correct numbers.... it was with the formula B*-B (Portfolio value/(Index future* multiplier).... The multiplier was 300...

 

[nikic]

was that a question on currency hedging or the CSI Index hadging?

I think this one was straight if you choose the correct numbers.... it was with the formula B*-B (Portfolio value/(Index future* multiplier).... The multiplier was 300...

Oh yes, it gave a value for example Beta at 1.5 and wants to reduce it to 0.6. So the answer is (0.6 - 1.5) * (Portfolio value/(Futures * Multiplier)). Very direct. Answer was to go short of course.

The one with CSI index was a bit longer because you had to calculate the Beta. I can't recall what was the desired hedge amount. Also straightforward I believe.

 

[ab88]

Oh yes, it gave a value for example Beta at 1.5 and wants to reduce it to 0.6. So the answer is (0.6 - 1.5) * (Portfolio value/(Futures * Multiplier)). Very direct. Answer was to go short of course.

The one with CSI index was a bit longer because you had to calculate the Beta. I can't recall what was the desired hedge amount. Also straightforward I believe.

So there were two questions with beta ,in one we were suppose to change beta and other one was it CSI( Without beta we had to take position in 80 contracts )? What was second one? Got long 85 there

 

[nikic]

So there were two questions with beta ,in one we were suppose to change beta and other one was it CSI( Without beta we had to take position in 80 contracts )? What was second one? Got long 85 there

If the question was to reduce Beta or to fully/partially hedge, then the answer must've been to go Short. IIRC in both questions, the portfolio in question was long in nature.

Now what I can't remember was if did either of them say that the Beta had to be increased (or to increase exposure to the market). If yes, then the answer would be to go Long.

 

[Albertikos]

If the question was to reduce Beta or to fully/partially hedge, then the answer must've been to go Short. IIRC in both questions, the portfolio in question was long in nature.

Now what I can't remember was if did either of them say that the Beta had to be increased (or to increase exposure to the market). If yes, then the answer would be to go Long.

Think that you need to choose to be short!

 

[ab88]

O

If the question was to reduce Beta or to fully/partially hedge, then the answer must've been to go Short. IIRC in both questions, the portfolio in question was long in nature.

Now what I can't remember was if did either of them say that the Beta had to be increased (or to increase exposure to the market). If yes, then the answer would be to go Long.

One I remember vaguely was somehing like short 400 somehing contracts. Inthis we had to change beta for sure.

Other one had options like short/long 80,85 contracts. It had beta of 0.9495. don't exactly remember question

 

[nikic]

yes - i believe that was correct. they gave clients the right to cancel contracts, and when those clients took them up on the offer, they ran into cashflow problems given the maturity mismatch (funding long-term assets with ST funding/"rolling over of contracts")... could be wrong, but pretty sure that was the correct answer

So what was the answer provided in the exam? I thought I chose an obvious answer but can’t seem to recall it. Did the answer speak about the clients right to cancel contracts? Was there one or multiple answers that talked about the cash flow problem? Cause I remember choosing an answer which addressed the cash flow problems, but not sure about the cancellation of contracts part.

 

[nikic]

Also, for how banks deal with Unexpected Losses, what’s the answer?

 

[dahoang92]

Also, for how banks deal with Unexpected Losses, what’s the answer?

I can't recall that. But for unexpected loss, bank should use it for economic capital. Expected loss are already accounted in pricing of product.

Some of the question I remember and not very sure of the answer.

1. For a pension plan, what is the effect of rising interest rate when the assets of the plan is stable. I choose the plan is deteriorating and negative for investor, because if interest rise and asset stable then present value will decrease?

2. The question give the term of 2 zero-coupon bond, the weight of investment and ask to calculate the portfolio duration and convexity. I remember something like duration is the term of the bond and convexity is the term^2. The portfolio duration and convexity is the weighted sum of the two. Not quite sure.

3. The margin call of future contract. The price of gold is decreasing for day 1 and stay the same for day 2. All of the answer is incorrect to me. I choose the answer that variation margin is 55000 for day 2 or something, but if price of day 2 is the same, the holder of future should not post variation margin because it must be fulfill for day 1 already, right?

4. Question on warrant and price of stock after announcement of warrant. Not quite sure about the solution? Anyone remember that question and how to calculate that? I think the price will reduce by n/(n+m) (%) but it not in the answer in my first try.

5. Question give the par rate and calculate the spot rate.

6. Question on calculation of EWMA correlation.

7. The stack and roll strategy question. I choose something like the strategy will profitable if future price increasing, right? Because it means it is in backwardation: future price is smaller than spot price and future price will increase in the future. If future price increasing then you can buy at lower price and sell at better price in the future, is that correct?

8. Question on volatility term structure. Lucky to get it right.

 

[nikic]

I can't recall that. But for unexpected loss, bank should use it for economic capital. Expected loss are already accounted in pricing of product.

Some of the question I remember and not very sure of the answer.

1. For a pension plan, what is the effect of rising interest rate when the assets of the plan is stable. I choose the plan is deteriorating and negative for investor, because if interest rise and asset stable then present value will decrease?

2. The question give the term of 2 zero-coupon bond, the weight of investment and ask to calculate the portfolio duration and convexity. I remember something like duration is the term of the bond and convexity is the term^2. The portfolio duration and convexity is the weighted sum of the two. Not quite sure.

3. The margin call of future contract. The price of gold is decreasing for day 1 and stay the same for day 2. All of the answer is incorrect to me. I choose the answer that variation margin is 55000 for day 2 or something, but if price of day 2 is the same, the holder of future should not post variation margin because it must be fulfill for day 1 already, right?

4. Question on warrant and price of stock after announcement of warrant. Not quite sure about the solution? Anyone remember that question and how to calculate that? I think the price will reduce by n/(n+m) (%) but it not in the answer in my first try.

5. Question give the par rate and calculate the spot rate.

6. Question on calculation of EWMA correlation.

7. The stack and roll strategy question. I choose something like the strategy will profitable if future price increasing, right? Because it means it is in backwardation: future price is smaller than spot price and future price will increase in the future. If future price increasing then you can buy at lower price and sell at better price in the future, is that correct?

8. Question on volatility term structure. Lucky to get it right.

1. Won’t rising rates make it easier to fund the pension plan? As for the impact on the shareholders fund (i.e. shareholders equity), I am not too sure. I selected that it decreases. My logic was that when rates rise, fixed income asset prices drop but the pension plan's liability remains constant...hence a net negative impact to shareholders equity. This question was referring to a defined benefit plan. Somebody please let me know if my understanding of this is correct.

Read here more for information on this: https://www.brookings.edu/research/...erest-rate-for-defined-benefit-pension-plans/

3. I also chose variation margin of 54000. Only sensible answer in my opinion.

4. Wasn’t it asking for the price of the warrant given the price of a call? Answer is N/(N+M) * Price of call

5. I don’t remember this. Par rate? Or you mean discount rate (the question in a table format where you were asked to find the spot rate of the bottom row)? There was also a question where you given semi annual compounding rate and asked to find the monthly compound rate.

6. I applied standard formula and got an answer.

7. I can’t recall my answer now, but won’t rising futures prices hurt a stack and roll strategy?

8. How was this question framed again? Can’t recall it!