Certainty-Equivalent Cash Flows

[Lomonajm]

According to the study notes; this AIM for calculating certainty-equivalent cash flows has been removed for the 2014 tests. There is still a question in the question set (302.3) that addresses this calculation. I see that the question set was updated as of Jan. 2014 so it might be a stale question but I wanted to confirm that this methodology and calculation will probably not be present in the 2014 exams.

Thanks

 

[David Harper CFA FRM]

Hi @Lomonajm

That is correct: the best assumption is that certainty-equivalent cash flows will probably not be queried on 2014 given the AIM's explicit removal going from 2013 to 2014. I don't mean to complicate with precision but:

• The truth is that, because the reading was preserved, we retained the question set as we always do. Revisions would be largely bug fixes or other improvements. In short, when a reading is preserved, we didn't (we don't) change the substance of the question set simply because the AIMs changed a little. The truth is our convenience.
• But conveniently, it doesn't really matter, it's still the right thing to do because, as we need to constantly remind folks, the AIMs are not a strict warranty of the exam questions (e.g., GARP: "GARP: The AIM Statements contain all of the suggested reading and Key Concept information that is in the Study Guide as well as more detailed knowledge points that form the basis for FRM Exam questions."). The responsibility is for concepts in the assigned readings, such that GARP reserves latitude. It has happened more than once that AIMs are added/removed on the margin, yet an underling concept which strictly and literally disappears for a year from the AIM list, yet all the while remained testable. The AIMs are significant as pointers that give structure not as exam warranties.
  
• With respect to this reading, even if I were to edit the question, I would still happen to retain the CE cash flow questions: it is one of the more interesting, actionable concepts in the reading. (although, I would like the reading replaced, it's no secret, i think it's a weak first reading). I hope that isn't too much! Thanks,

 

[Lomonajm]

Thanks!