Absence of Discounting Method in the paper

[DunderMifflin]

There are a few instances where the discounting method isn't given in the GARP practice paper. Is there an assumption which we can take. ( semi annual or continous)?

For eg if a duration based question is given and there are time to maturity and yields given for a zero coupon bond. As per our convention if we have continuous compounding, the time to maturity would be the Macaulay and modified duration but in case of semi annual or annual compounding the modified duration would change. What should be done in these circumstances?

 

[David Harper CFA FRM]

Hi @DunderMifflin Such instances should only be observed in older practice papers, the 2019 paper and the exam itself should not suffer any imprecision (i.e., we have given plenty of feedback to GARP about the need for compound frequency specification). In any case, practice papers prior to 2018 are not highly useful anyway ... The exam should also, in the instructions, specify a default compound frequency (i.e., to be used if none other is specified): this will likely be annual but could also be continuous. Thanks,