Exam Feedback May 2019 Part 1 Exam Feedback

[Detective]

in regards to the previous chain thread....

(1) Asked which is correct related to MBS with choices?
-2 Choices that I think were wrong
-"OAS" being a spread to interest rate paths (but the way it was worded seemed wrong)
-The prepayment option of MBS is attractive when PV of scheduled principal payments is less than the outstanding principal

Yes, these two were wrong. But i forgot the answer I put down but i know for a fact i didn't select these two.

(2) If you think stock value will double what strategy is best?
-Protective Put
-Covered Call
-Bull spread of call options
-Bear spread of call options (or might have said put options)

I said bull spread of call options.

Also, yes for that other question, I said poison pill as well.

for the 1-day 99% to 10-day 95% VAR. You had to...

1) divide by 2.33
2) times by 1.65
3) times by sqrt 10

that's what I did at least.

On 1, I see, yeah I was not sure on that one. I picked the last one, but it doesn't sound right anymore to me.

On 2. I think you're right. I picked covered call, but after reviewing definition of covered call that is definitely not answer.

On VaR, wow I missed that 95% on the exam and thought it was 99%. No wonder I couldn't get as close I would like (I thought issue was my approximation of sqrt(10), but guess I have to read more carefully next time).

I'm not sure what the marginal passing score is for this exam though. Does anyone have a rough idea how many questions you need to pass this exam?

There was also a ethics question about confidentiality. I said you need consent before you can use confidential information.

I agree on the ethics question (that was only reasonable answer).

It's all speculative, but I think mid-high 60 / low 70 for pass.

 

[VWJETTY]

Hmmm....yes, it's all relative to how you do relative to everyone else. I did somehow, I think, see a few questions that were quite representative of what was on the GARP mock. There was also that question about the executive bonus of receiving 80k bonus in a lump sum or breaking it out into 40k and given the accrued continuously compounded interest, to find the difference between the two.

I still feel like it's going to be close. I did BT mocks (A,B,C, and D) and then did GARP mocks (both 2018 and 2019 even though they're essentially the same) and did two Kaplan Schweser mocks and watched all the Schweser review courses and read all the Schweser books. I'm also a CFA charterholder so there are some overlap between the two curriculum but it's still a different exam so it still requires studying.

I'd say i was scoring in the mid 60's and slowly crept to the high 60's on those. The Schweser mocks were a little confusing but i thought they were good practice. And obviously the BT material is legit as well. So for me it's gonna be cutting it close i think.

 

[nikic]

Guys, just dropping in about the pass rate. I sat for mine in May 2018 (when the pass rate was incidentally the lowest ever, at 40%!).

I am dead certain I scored no more than 65/100. Yet I got a comfortable pass of 2-2-1-1 in the end. The passing mark is certain to be below 65 based on anecdotal experiences others share, and may even be in the mid to high 50s. Heck I was certain I got 11 mistakes in FMP yet I scored in the first quartile there. Go figure!

 

[Detective]

Hmmm....yes, it's all relative to how you do relative to everyone else. I did somehow, I think, see a few questions that were quite representative of what was on the GARP mock. There was also that question about the executive bonus of receiving 80k bonus in a lump sum or breaking it out into 40k and given the accrued continuously compounded interest, to find the difference between the two.

I still feel like it's going to be close. I did BT mocks (A,B,C, and D) and then did GARP mocks (both 2018 and 2019 even though they're essentially the same) and did two Kaplan Schweser mocks and watched all the Schweser review courses and read all the Schweser books. I'm also a CFA charterholder so there are some overlap between the two curriculum but it's still a different exam so it still requires studying.

I felt a lot of the questions were basic finance or common sense, like the one you cited. For example, the bonus of 80k in 1yr vs. breaking up 40K in 6 months and 40K in 1 year was something you should be able to solve simply knowing time value of money. Though it was a tricky one for me, b/c it was like in the 90s for me and I didn't have a calculator at that point.

I was expecting some heavy quant or deep theory questions but didn't really see those. I am not sure if GARP watered down the quality of the test given more people are showing interest in taking it in recent years, or the BT questions were more thought-provoking and actually taught you concepts.

Based on answers and discussion thus far, I think you probably did pass.

I'm studying for CFA level 1 now in June (that one seems harder than FRM L1, but just an artifact of their being more content that is covered and not on the actual difficulty of content).

 

[VWJETTY]

yeah you gotta stop jinxing me there buddy haha so hush! hahaha

I'd say the difficulty level of this exam is somewhere between L1 and L2 of the CFA. A lot of conceptual questions. I just remembered there was one about the optimal level of risk for a bank question. The time burner ones were the currency swaps questions, which I just left blank and came back to fill in an educated answer later bc i wanted to spend more time on the stuff I knew or should now to get points on rather than on lengthy problems that were worth the same weight.

 

[VWJETTY]

Guys, just dropping in about the pass rate. I sat for mine in May 2018 (when the pass rate was incidentally the lowest ever, at 40%!).

I am dead certain I scored no more than 65/100. Yet I got a comfortable pass of 2-2-1-1 in the end. The passing mark is certain to be below 65 based on anecdotal experiences others share, and may even be in the mid to high 50s. Heck I was certain I got 11 mistakes in FMP yet I scored in the first quartile there. Go figure!

hmmm....good to know. I've done research and ppl have commented that the MPS is probably lower but obviously nothing is concrete here. Also, the fact that the exam was more difficult meant that naturally people scored lower, and even though you scored low, you still scored relatively well against your peers.

So effectively, there's some sampling bias here and to some effect, I'm pretty sure there's some variation between populations (candidates for each exam) that needs to be taken into consideration. But thankfully, we have chi-square for that

 

[nikic]

hmmm....good to know. I've done research and ppl have commented that the MPS is probably lower but obviously nothing is concrete here. Also, the fact that the exam was more difficult meant that naturally people scored lower, and even though you scored low, you still scored relatively well against your peers.

So effectively, there's some sampling bias here and to some effect, I'm pretty sure there's some variation between populations (candidates for each exam) that needs to be taken into consideration. But thankfully, we have ch-square for that

Oh yes for some reason the paper must've been incredibly difficult when I sat (hence the lowest pass rate), so my experience may not tally with everyone else's. Regardless, good luck! 65% is still pretty much a solid enough bar to depend on, with a downward bias if the paper was difficult.

Good luck!

 

[Detective]

Guys, just dropping in about the pass rate. I sat for mine in May 2018 (when the pass rate was incidentally the lowest ever, at 40%!).

I am dead certain I scored no more than 65/100. Yet I got a comfortable pass of 2-2-1-1 in the end. The passing mark is certain to be below 65 based on anecdotal experiences others share, and may even be in the mid to high 50s. Heck I was certain I got 11 mistakes in FMP yet I scored in the first quartile there. Go figure!

How do you know May pass rate (i.e. do you have a source), and does it include or not include no shows? A good pass rate should not include no shows, but I wouldn't be surprised if no shows were included to make it seem like a lower pass statistic.

yeah you gotta stop jinxing me there buddy haha so hush! hahaha

I'd say the difficulty level of this exam is somewhere between L1 and L2 of the CFA. A lot of conceptual questions. I just remembered there was one about the optimal level of risk for a bank question. The time burner ones were the currency swaps questions, which I just left blank and came back to fill in an educated answer later bc i wanted to spend more time on the stuff I knew or should now to get points on rather than on lengthy problems that were worth the same weight.

Good to know and good luck to you as well, will post back late June if I passed or not. Though I wouldn't feel too bad if I failed given I spent like ~4-6 weeks preparing (and really it was mostly weekends).

 

[Nicole Seaman]

How do you know May pass rate (i.e. do you have a source), and does it include or not include no shows? A good pass rate should not include no shows, but I wouldn't be surprised if no shows were included to make it seem like a lower pass statistic.

@Detective

For reference, GARP provides the pass rate each exam period and David creates this table each exam period to show the historical pass rates: https://www.bionicturtle.com/pass-rate-information/.

 

[Paramveersaini]

This is quite fruitful discussion. I paid extra attention on GARP mock in last three days. Noted the LOs covered there and quite a lot questions were on same line. I solved 74 questions overall and 38 of these are sure shot right. For remaining 36, assuming WC scenario of 60% right....Around 22 must be right. For remaining 26 unattempted questions, I put A,B. So assuming only 20% right would mean 5 right. So my score should be around 38+22+5 = 65 in WC.

I studied alone without any coaching and still getting approx. 65. This should be score of average exam taker. Expecting most people who would pass are going to stay between 55(minimum passing requirement) to 75 range. By this logic, anybody who is sure of 50 questions and have marked rest 50 randomly should be able to sail through..May be in lowest passing quartile though.

 

[VWJETTY]

Oh nice! Thanks!

 

[Paramveersaini]

Furthermore:

1st question was simple mean reversal value of b. b>1 must be right choice.
2. Country risk - right answer must be countries which have more social security schemes have more chances of default.
3. Property and casualty insurance company's risk mitigation - I choose wrong option. "year wise increase in insurance charges". Right answer must be "Insurance holder paying some fixed amount of cover in case of damage"
4. Right option strategy - I selected bull spread one. It can never be protective put and gain is limited for covered call.

 

[shantharam1]

Furthermore:

1st question was simple mean reversal value of b. b>1 must be right choice.
2. Country risk - right answer must be countries which have more social security schemes have more chances of default.
3. Property and casualty insurance company's risk mitigation - I choose wrong option. "year wise increase in insurance charges". Right answer must be "Insurance holder paying some fixed amount of cover in case of damage"
4. Right option strategy - I selected bull spread one. It can never be protective put and gain is limited for covered call.

I remember going for Protective Put because profit is unlimited, which is not the case in Bull Spread.

Adding to the questions,
There were questions on Cheapest-to-deliver, Binomial Theorem (Somewhat like probability of atleast one), No. of futures to hedge the portfolio when Beta of porfolio was 8 and of futures was 5, Premium bond based on YTM and Coupon rates, 0<Alpha+Beta<1 for stability, etc.

 

[Rohanm94]

Furthermore:

1st question was simple mean reversal value of b. b>1 must be right choice.
2. Country risk - right answer must be countries which have more social security schemes have more chances of default.
3. Property and casualty insurance company's risk mitigation - I choose wrong option. "year wise increase in insurance charges". Right answer must be "Insurance holder paying some fixed amount of cover in case of damage"
4. Right option strategy - I selected bull spread one. It can never be protective put and gain is limited for covered call.

For a mean reverting series isn't B<1?

 

[VWJETTY]

protective put caps your gains since you own the stick and buy a put. I selected bull spread with calls. but that also caps your gains too. I i didn't think any of the answers would yield unlimited gains though.

Mean-reverting is B < 1

Does more social security schema mean you have a higher probability of country-risk default? I'm not sure i put that as an answer.

For the # of contracts to hedge a position, there was one with the cheapest to deliver figure. I thought that was tricky. I ended up divding by the CTD # and it gave me an answer that matched. Not sure if that's correct tho.

 

[michael.ccs1995]

For a mean reverting series isn't B<1?

I thought it should be > 0 though. The larger the number the faster the reversion is. I don't see any points of limiting b to <1.

Two questions from me -
1. Does anyone remember a question regarding Gaussian Copula? I have completely no idea on this.
2. There is a question regarding the best derivative strategy to apply VaR approach. Any input?

 

[VWJETTY]

1. Yes, is this the one talking about like merging two different distributions?
2. I said it would be good to use for forwards. Not options since their payoffs are not symmetrical.

 

[michael.ccs1995]

There was a question on Bayes Theorem could not get the correct answer. Anyone got correct match ?

I recall there is one bayes problem asking if a company is a star company given consecutively profit for 2 years. I have to square the probability (cuz it should be 2 years consecutive profit) to get the final answer.

 

[michael.ccs1995]

1. Yes, is this the one talking about like merging two different distributions?
2. I said it would be good to use for forwards. Not options since their payoffs are not symmetrical.

I'm afraid not. The question is asking if the two variables in Gaussian Copula followers normal distribution, or if the pmf follows normal.
The second question I believe we got following choices: precious metal deriv, call options deriv, forward exchange rate deriv and the last option I could not remember.

 

[Makkvar]

There was a very short question about normal distribution ,, mean and stad deviation given and asked to calculate mean return...I knew it is a very simple question but i couldn't solve it... anyone has idea?