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Cleared FRM part 1 (2,1,1,1). I am grateful to David for his excellent questions and his desire to help us understand the concepts through detailed explanations in forum and for his patience. And thanks to all in the forum for taking out time to answer my questions. Thanks Nicole and BT...

Hi David, If Error term's variance varies with DEPENDENT variable, then also the condition of homoskedasticity is broken right? It makes sense to me as Dependent variable establishes indirect relationship between Error and Independent variable as Dependent variable itself is dependent on...

Hi Josh, Please try using Calculator for this: Since the outstanding balance is PV of the future monthly EMIs, we can calculate required values as below: 1. PV=100,000, N=12*30=360, I/Y=4/12, CPT PMT 2. N=25*12, I/Y=4/12, PMT= 477.41, CPT PV (now its only for 25 years) Thanks...

Ya true. Was just wondering if there is a history of GARP going bit easy on the newly added topics in the immediate exams:-). Anyway it makes sense that we cant predict anything and there are equal chance of testability of these new topics as any other seasoned topic. Thanks Shakti and...

Hi All, I have a similar question too regarding these newly added topics, Diebold chapters, Copula and few others. Historically is there a pattern of testability of newly added topics. How should we go about preparing for these topics etc. Kindly share your experience. Thanks, Praveen

Thank you for your time and explanation Shakti.

Hi Shakti, Right, the short seller will give the dividend back to the lender. If there are not any dividends paid during the lending/lease period short seller would give Only fees to the lender for borrowing the assets. And if there are dividends he would give dividend+fees to the lender. Cost...

''Lease rate The lease rate is to commodities what the dividend is to financial assets: it is the rate received by the owner of a consumption asset from the investor for borrowing the asset. Lease rate payment is clearly a benefit to the owner of the asset. Accordingly, it has the effect of...

Hi David/Forum, Kindly help me understand the ''Daily Gain/Loss'' in the attachment. This is the example taken from "Hull, Chapter 2: Mechanics of Futures Markets", R12.P1.T3.Hull_v3. Page no 21. When futures price decreases from 597 to 596 (from 5th July to 6th July) total loss would be, 1$...

Hi Shakti, Ok, so if we do not subtract the AI from (p1-pv of coupon)*exp(yield*270/365), it will be the Dirty price of bond and if we subtract the the AI, it will be Futures price as well as quoted bond price. And also i understood that (p1-pv of coupon)*exp(yield*270/365) is nothing but the...

Hi Shakti, "To arrive dirty price 270 days in future we compound dirty price today and (you meant minus in place of 'and') pv of coupon at next settlement at 10% the yield which shall give the pv of all the future cash flows after 270 days in future which is nothing but dirty price 270 days in...

wow!! that's very nice. Thanks Nicole and BT! Please let it accrue for now (Amazon gift card).

Hi David/Shakti, I have a similar doubt too. Please refer to attached. In cell D20 we calculated Future price as below: Futures Price=(Dirty Price - PV of coupon) * EXP^(Interest rate * 270/365) Once we arrive at this price, why is AI for 148 days is subtracted from the Future Price...

I think i got it, dollar 7 change is w.r.t 107.93, in terms of percentage it is 6.49%, which is the duration of the bond. Thank you.

Hi David, Duration is % change in price of a bond for 1% (100bps) change in interest rates. Here the price is changing by .07 (from 107.93 to 8) for 1 bp (4% to 3.99%) change. Hence would not duration be change in price for 100 bps change i.e 0.07*100 i.e 7 years? Kindly advise. Hi...

Thanks for the explanation David.

Hi David, That was a very clear explanation. Thank you. So when sample size is >30 the distribution of sample means is assumed to be Normal. Need not worry about how many such samples have to be been taken. as i understand looking at the graph in your project, even thousand trials have not...

Thanks a lot David and Shakti for the explanation. One more question is are we doing this day count conversion because Euro Dollars use ACT/360 and the Convexity adjustment model: Forward=Future-1/2* variance* t1*t2 is based on the assumption ACT/365? Thanks, Praveen

Hi Shakti, Right, i got your explanation about the difference in the two expressions. However, logically speaking continuously compounded rate should be less than its equivalent non continuously compounded rate, whatever formula is used. but here its not the case. And as for my 1st doubt, i...

Hi David/Forum, Reference:R12.P1.T3.HULL_V3 Convexity adjustment for ED Futures: Futures rate (ACT/360) 5.000% = 100 – 95 price 1.250% Per 90 days 5.038% = LN (1.0125)*365/90; Annualised Libor rate is 5%(compounded quarterly). When we want to convert it to a rate compounded continuously we...