Need some clarifications. You can just answer yes or no on the some of these questions. Just wanted to double check. Thanks a lot in advance!
Is active return a better measure than alpha?
“The higher the utility investors attach for current consumption relative to future consumtion, the higher the real rate.” Is the higher real rate because of the expectation is worse for the future?
“Decline in GDP grouth results in a negatively sloped yield curve.” Can we say the slope of the yield cureve for a default free government bond becomes inverted during a recession? If not, why?
When the higher rated bond will outperform lower rated bond? Will this happen during recession?
5 “Only changes in default-free real interest rates will affect the price of real, default-free bonds.” At first, I thought the COV(P1,m1) also affects the price of the bond. Am I missing something here?
If you really like buying stuff today, and hate waiting to buy stuff (i.e., you’re a typical teenager), then the only way you’ll wait is if they offer you a lot of money to wait.
Yes, the yield curve flattening or becoming inverted is a warning sign of an impending (or existing) recession.
I think I can understand the statement you mentioned. However, I did a question from CFA book saying “during a recession, the slope of the yield curve for default free government bonds is most likely to: STEEPEN.” It has a choce for “become inverted” but that is not the right answer. Do you mind explaining why Steepening yield curve is more likely than becoming INVERTING?
They mention that “during recession, short rates are often lower b/c central banks tend to lower their policy rate in these times. however, the ths monetary policy on longer term rates will not be as strong…”
That is from Kaplan book, Sorry I thought that is used everywhere… P0=E(P1)/(1+R) +Cov(P1,m1). Cov(P1,m1) is the covariance between the expected future price of the bond and the invetor’s inter-temporal rate of substitution which is also the risk premium. That is why I think the risk premium will also affect the price in addition to the real interest rate, right?
Once the recession is recognized, central banks tend to lower short-term interest rates, leading to a steepening of the yield curve. Before that, it tends to be flat or inverted.
This evening I have decided to read PM session from official curriculum. I read it in Schweser 3 times and solved official curriculum EOCs each time. I have not found that I am getting smarter reading this from official curriculum. Also would say that things are getting more understable by reading same concepts in Schweser.
I dont have any susgestions since I am not good PM as well after I read Kaplan for at least 4 times and did all the question Bank for this section as well as the EOC from the book. But what I started to do recetnly was to take a note on areas I missed or dont unerstand as I go over certain sections. Also, I constantly check the certain readings as I run into a question I dont know and related areas as well. This way, I feel like it is a lot more effective and I retain things a lot better rather doing reading everything from the begining to the end. Everyone is different but this is what I have been doing suggested by one of the AF users.
At this point, I think doing questions is probably more important than anything else especially we have read the book so many times.
