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Hi @gitusrini See links at 5th bullet (it's not productive for me to keep re-explaining this each week; please make a search effort) starting "For some reason, we got several questions this week about using the classic Z-lookup table;" at...

Learning objectives: Explain the challenges of modeling time series containing unit roots. Describe how to test if a time series contains a unit root. Explain how to construct an h-step-ahead point forecast for a time series with seasonality. Calculate the estimated trend value and form an...

@alexwallace I just answered you here about FRAs (https://forum.bionicturtle.com/threads/l1-t3-160-valuation-of-forward-rate-agreement-fra-hull.4510/post-87976 ) so I want to be brief: GARP's math here looks fine. The payoff (or payment) of $2,000 is based on +15 months = 12 months to...

Hi @mkaabb96 I'm not sure why you are seeing that (old? mistaken?) version. The latest note should look this. Copying @Nicole Seaman who can take a look Monday. Thanks,

Hi @nicholasjalonso Oh, okay well the randomization is the essence of a simulation. In Excel, it is achieved with RAND() a function so common that it takes no arguments: it generates a (pseudo-) random number between 0 and 1, which you will notice also bounds the CDF probability. A probability...

Hi @nicholasjalonso Please see the 5th bullet in my recent WIFE blog entry at https://forum.bionicturtle.com/threads/week-in-financial-education-2021-03-29.23750/post-87816 . GARP provides a z-lookup table on the exam (see example below, from my linked-to thread). This table enables a candidate...

Hi @nivethasridhar3 It is a good question because it relates to a key feature of these interest rate trees: they are not simulations themselves, nor are they they term structures, these binomial interest rate trees are "maps" that illustrate one sigma (standard deviation) jumps up and down. In...

Learning outcomes: Describe Grinold’s fundamental law of active management, including its assumptions and limitations, and calculate the information ratio using this law. Apply a factor regression to construct a benchmark with multiple factors, measure a portfolio’s sensitivity to those factors...

HI Navjyot (@navjyotbirdy) When the daily price increases from 10.00 to 10.73, there basically two ways to compute the return: 10.73/10.00 - 1 = 7.30% where 10.73/10.00 is a "price relative" (aka, wealth ration). This is a discrete holding period return (HPR), or ln(10.73/10.00) = 7.046% which...

Hi Navjyot (@navjyotbirdy ) In #2.3, because we don't know whether the manager is a star/not, the probability she beats next year is a weighted probability: 39.13% probability that she is a star, which we induced via Bayes Pr[S|3B], multiplied by 75% probability that a star beats; plus 60.87%...

Hi @Eustice_Langham Like variance has a population estimate (aka, parameter) versus a sample estimate (aka, statistic), so do skew and kurtosis. Your displays are correct for skew, but they signify population skews. GARP's 5.9 and 5.10, although they are discussed in sample moments chapter, are...

An additional note about this question set: although they are simple applications, I wrote R code snippets for each of these questions. See link below at my data science blog (or my github). The seasonal series (#1) is a trivial simulation. For Peter's AR(2) series (#2), I found the polynom...

Hi @rohinjain Your solution is correct! (No worries sharing part of the Q&A: it's totally fair use. The Q&A has a mistake and you are pointing that out). Amazingly even after multiple submissions, GARP has fixed part of their mistake but still has not nailed their own Q&A (yikes a bit scary)...

Learning objectives: Describe linear and nonlinear time trends. Explain how to use regression analysis to model seasonality. Describe a random walk and a unit root. Questions: 21.1.1. The following seasonal dummy model estimates the quarterly growth rate (in percentage terms) of housing...

Hi @mkaabb96 This is elsewhere many times discussed but quicker for me to just re-explain it. Cov(i,P) is just applying basic covariance properties (see https://en.wikipedia.org/wiki/Covariance) where w_eur = weight of EUR in the portfolio and the portfolio is weighted between the two such that...

@Akriti1 Yes, while GARP's Chapter is hardly detailed (it is a very brief summary of a deep body of theory. Elton was previously assigned is truly detailed), the section you quote with respect to the flawed question above supports only that choice (A) is false. I assume your realize the straight...

Hi @patriciarodriguez I haven't reviewed the thread above (moving quickly) but your notes appear coherent to me because, super stylistically (GARP's example of course is Crouhy's non-trivial example; e.g,. https://forum.bionicturtle.com/threads/credit-linked-note.365/post-49312): In either the...

Hi @Akriti1 Thanks but um, no, it's a flawed question and perhaps even counterproductive. Why? Because it penalizes a more knowledgeable candidate! If (b) is false, then (c) must also be false: If we can expect the Portfolio to have a beta of 1.0, then we can also expect it to lie on the SML...

Thank you @Branislav good to "see" you on the forum these days!

Hi @RajivBoolell Your interest is off. The senior bond has principal amount of $85.0 million but the annual interest is Libor + 50 bps where Malz assumes L = 5.0% such that amount due to Senior bondholders is given by 85.0 * (1 + 5.0% + 0.50%) = 85.0 * 1.0550 = 89.675. Similarly amount due to...