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Hi Marc (@msoler96), Yes, let's see if i can retrieve how I did that. The key rate model is solving for the discount factor as a function of the previous discount factors and the par yield. Recall the definition of a par yield: is it the coupon rate that prices the bond (aka, PV) exactly to par...

Hi @Cassandra Yes, I agree, that's an excellent analysis. Thank you, and sorry for any confusion. The numbers and visuals tell the truth, but I know why the words got distorted: there is a classic long-term problem interpreting the first clause: "VaR estimated using the delta-normal model tends...

Hi @finhoe Here is that page from our XLS: https://www.dropbox.com/s/g1m993l6jyvusj6/081920-capm-sml.xlsx?dl=0 Please note the Cov(Port, Market) employs covariance property (see https://en.wikipedia.org/wiki/Covariance): cov(aX, bY) = ac*cov(X,W) + ad*cov(X,V) + bc*cov(Y,W) + bd*cov(Y,V). In...

HI @ktrathen In regard to GARP's book 3 EOC 19.14 ... ... I agree with you about the $88.7039 (and it is a necessary step) but that is the price of a bond maturing in 7.0 years with its first (the next) coupon in six months (we typically do price a bond that pays the first/next coupon in six...

Hi @liyi1989 I format to 4 decimals, [2nd] [Format] 4 [Enter], however please note that if you store to memory and recall from memory--ie.., [STO] and [RCL]-- you don't need to worry about the precision (stored values are accurate). Styles vary but when i work some of these problems with the...

Sure thing @tornellFRM I haven't had a chance to further inspect this question, but one thing freshly occurs to me: multiplying the t-stat by sqrt(12) by way of increasing the value might render an insignificant coefficient into significance. You wouldn't do that, right? For example, the monthly...

@Nicole Seaman You would think they would have announced something, but then again, we're talking about GARP so .... CFP added remote proctoring and think other exams as well https://www.cfp.net/news/2020/07/cfp-board-adds-remote-proctoring-option-for-september-2020-cfp-exam

@td00553150 The relationship here is narrow, it asserts: if F(4.5, 5.0) < Coupon(%), then P(4.5) < P(5.0) under an assumption of unchanged term structure. That the 5-year bond has a higher price than the 4.5 year bond can be expressed either way: in the natural way time marches, as your Q&A...

@td00553150 No, to me, nothing wrong, that's an accurate statement. Notice if i take my true statement above and switch the inequality, it matches your Q&A: ... although instead of the saying "The decrease in value is the value of a lost forward rate agreement, which in this case is positive,"...

@tornellFRM okay thank you. We just discourage "bumping" (re-posting) for what I hope are obvious reasons. I didn't immediately reply because I couldn't instantly decide if the answer is wrong (probably) or just meaningless (possibly). Whenever I disagree with GARP's materials, which is often, I...

Hi @tornellFRM is there any reason you are re-posting the same question (cc @Nicole Seaman )?

HI @liyi1989 Yep, definitely a mistake. Nice catch! The question is correct to specify the borrowing (financing) rate in per annum terms per "If the bond in Question 11.11 is financed at 2% (per annum), what is the net return?" as such consistency avoids confusion when reading inputs, but then...

Hi @td00553150 It's imprecise at best. We know what it's trying to say because it belongs to an ancient LO ("Assess the impact of maturity on the price of a bond and the returns generated by bonds"). What is true is the following: If the forward rate is higher than the coupon rate, then the...

Hi @Eustice_Langham We're applying Bayes to solve for P(G|U) = P(U,G)/P(U) = [P(U|G) * P(G)] / P(U). The denominator is the unconditional P(U) which is the sum of two joint probabilities: P(U) = P(S,U) + P(G,U) = (70%*80%) + (30%*30%). For me, it's almost always helpful to translate the tree...

Sure thing. Re shortcut: no, not to my knowledge. But you'll notice that in this typically upward-sloping zero curve, the par yields are just below the zero rates; e.g., at 2 years, 6.46% versus 6.50%; at 1.5 years, 5.98% versus 6.0% For this reason, on a multiple-choice (exam), it's actually...

Hi @ktrathen I agree with the solution. Par yield is something that is easily validated. Please see below (this XLS is here https://www.dropbox.com/s/76vxbf5nkbg4u4v/081620-sa-par-yield.xlsx?dl=0) 6.46% is correct because that is the per annum coupon rate that prices the bond exactly to par...

Hi @dtammerz Yes, the models (formulas) are equivalent; there is no substantive difference because β(0) is a constant and ln[β(0)] is another constant and therefore, in the general form, can be represented without the LN(.). Let's illustrate with an exponential trend that begins at $5.00 and...

@Elizabeth_Babalola Yes, good catch! Our mistake. The total gain is the difference of differences: (5.2% - 4.0%) - (L + 0.6%) - (L - 0.1%) = 1.2% - 0.7% = 0.50%. Thank you for spotting this mistake

@Nicole Seaman maybe we have a FAQ on this already, but we need a link I can send people to when they are asking me/us to cross-reference. We have an open forum, not every visitor understands that support takes time. We need to have a boilerplate response. This is a good use case because...

@payals66 yes, it's covered specifically in Chapter 2. Like i said, we are not going to do this with you every instance. We are very busy updating content and giving support on much more substantive issues (learnings).