Quants- Forecasting return

CFA Level II Quant
#1

Intercept coefficient- 0.148923

large cap index- 1.205602

If the large capitalization index has a 10% return, then the forecast of the fund’s return will be:

A) 16.1.

B) 13.5.

C) 12.2.

Explanation

The forecast is 12.209 = 0.149 + 1.206 × 10, so the answer is 12.2.

My question is when to take input as a % and when to take decimal? In this example, they used a % form. However, most of the times I have seen input in a decimal form.

Can someone please clarify. Thanks.

#2

There’s no definitive answer to this.

It’s however the person who created the model chose to do it.

Finance types are notorious for dropping percent signs for no good reason.