- what was the answer to the 2 period stock option qn? I first did 1 prd and then realized the trick is to do it 2 times but still i didnt find the answer in the choice given. 2) Prob of market normal given stock returns were unchanged ? was it 6%/15.5% ? 3.8%
answer was arnd 55 %… trick was to find that time period was 3 months…as question was so awfully worded…
that problem was soo annoying… i calculated like 3 times and all came out around 53.7% but the answer was 57.6% or something which was b). It wasn’t A) 80%, that i know… what was i doing wrong?! so fustrating… then of course, the 2nd part question i can’t really do unless you have the up/down probabilities
Had the same problem. It was a 12% annualized risk-free rate, so the up probability was e^.03 - .8333 / 1.2 - .8333 = .537. Out of the four guesses, 80% wasn’t it. Another answer was ~36% I crossed off because generally these numbers are in the .52-.65 range when using “normal” numbers, so I went with the “57.6” vs. ~63 answer. The second part I couldn’t answer, BUT there were two answers in the twos and two in the fours. It was an American put option, so you have to adjust the tree for early exercise, at least from what I was able to figure out. I knew this but didn’t put 2 + 2 together. I totally guessed the second part, when I think one of those answers might have been in the fours.
what about about ethics question I went with d toughest …both temp and permanent for both ================= and the one on prob A - 70 % up B - 60 % up whats the max prob…of both going up…nothing given on dependency front… I made a mistake by answering 60*70 = 42 it should have been 60 %
I took level 1 not full, so I don’t remember what was the ethics question. The max/min prob I did 61%. I think the question showed something like: A 27% down probability B 39% down probability I chose 61%. Did you have a box spread question? WTF - box spreads are not in the AIM!
For the FRM Full question, I used the formula P(up) = (e^rt - D) / (U - D), but since the problem specified that both the up AND down movement was 20%, I set U = 1.2 and D = 0.8. Under most situations, U should be the reciprocal of D, but I guess it wouldn’t be here. The result of this is that the price after two periods of moving up then down is the same as down, then up, but it’s NOT equal to the original price. @v.raghavan I got the same as you for the Bayesian problem - 6% / 15.5%.
Did you have a major typo in the Bayesian problem?
Box spread was given in Schweser…but not in enough detail to solve the exam problem… Bayesian problem had a typo…
Bayesian problem didn’t say that in the case of economy being poor the probability of a stock DECREASE was 70%, the word DECREASE was missing, answer ended up being like 37.8% or something. 2 period option problem had a value of ~$2. Box spread I just guessed: sell put, buy call and do 6 box spreads. That question along with about 60 others was complete BULLSHIT!!! PS I liked my second question on the PM session: When estimated EWMA using the maximum likelihood estimator you estimate lambda by minizmizing or maximizing which formula?? I was like WTF??
I know the Bayesian problem was fucked up. I wasted alot of time there. I just wrote 15.5% as my final answer
yah… that box spread was bull… i picked a) though since only a and b had the total costs of putting those trade at 0, and the a) choice had the largest call exposure. it was like, short put, short stock, long call, and long 4x box spread or something.
> > PS I liked my second question on the PM session: > When estimated EWMA using the maximum likelihood > estimator you estimate lambda by minizmizing or > maximizing which formula?? I was like WTF?? that was my 1st PM question… it was maximize, so either b or d, and i picked the more complicated formula with the “m” factor in front of “ln(v)”… it was something like mln(v) - Sum(…u/v) something that was d?
I took B for that one, OMG I was about to panic when I saw that shit, but a chance the rest of the test was okay…
The Bayes formula problem was d) 38.7% or something… i’m sure of it.
adavydov7 Wrote: ------------------------------------------------------- > Bayesian problem didn’t say that in the case of > economy being poor the probability of a stock > DECREASE was 70%, the word DECREASE was missing, > answer ended up being like 37.8% or something. That is what you’re assuming because the first two parts said decrease. It could have been “the same” instead of “decreasing”. I am going to mention this to GARP on Monday because it was relevant to the question. Alchemist1320 Wrote: ------------------------------------------------------- > Box spread was given in Schweser…but not in enough detail to solve the exam problem… But its NOT listed in GARP’s AIMs.
Yea it could stay “constant” but then when you do the calculation none of the answers match what you get whereas when you do it under the “decrease” assumption you get the answer right on so it has to be decrease.
Actually an answer matched with “constant” (I think a - somewhere around 20%) but I couldn’t get it to work with “decrease”. the “decrease” answer I was getting was 4/9’ths where others on here said they got 38.75% (i.e. 3/8’ths).
Using decrease gave one of the options exactly, whereas using constant was close to one option but not exact like when use decrease.
I assumed it was constant and the answer under constant was 20%. Under the constant column, the total number of times it was constant was 100 if you assumed 70% was for constant not decrease. 20 times fell under economy was neutral, 30 under economy was good. Therefore to answer the question of given the stock was constant, what is the probability that the economy was nuetral, isnt the answer simply 20/100 for 20%.