I know some of them have areadly been discussed here. However, I am still confusing. //////////////////////////////////////////////////////////////////////////////////////////////////////////////// Q12 Which of the following is least likely to be an advantage of the strategy recomended by leBeau to satisfy multiple liabilities over an investment horizon? The strategy: A. is easy to understand B. requires less money to fund liabilities. C. uses available bonds to satisfy liability schedules D. assumes a conservative rate of return for cash balances. The answer is A. Why D is not correct? My understanding: B and C belongs to mulitple liabilities immunization. A and D belongs to cash flow matching. //////////////////////////////////////////////////////////////////////////////////////////////////////////////// Q23 A call option the bank purchased from a dealer for $30. The current market quote for the option is $35. For the option position described, determine the amount at risk of a credit loss and which party currently bears the risk. A. The credit risk is $30 and all of it is borne by the bank. B. The credit risk is $35 and all of it is borne by the bank. C. The credit risk is $30 and a portion of it is borne by the dealer. D. The credit risk is $35 and a portion of it is borne by the dealer. The answer is B. My understanding: Isn’t the credit risk the value of the position? Thus, $35-$30=$5 ? //////////////////////////////////////////////////////////////////////////////////////////////////////////////// Q30 Dividend yield will be 1.95% Shares outstanding will decline 1.00% Long-term inflation rate will be 1.75% per year An expansion rate for P/E multiple of 0.15% per year Long-term corporate real earnings growth at 3.5% per year Given the above forecasts for the European market, the expected long-term equity return using the Grinold-Kroner model is closest to: A. 4.85% B. 6.35% C. 7.35% D. 8.35% The answer is B. My calculation is 1.95%+1.00%+1.75%+0.15%+3.5% = 8.35% Tjhe shares outstanding will decline, so we will add the percentage to the price, right?
Q30 should be D.
Q12 both A and D do apply to cash flow matching, but the question asks which of the following is the least likely to be an advantage of multiple liability immunization (since the guy recommended multiple liability immunization), D is kind of irrelevant to multiple liability immunization, whereas A applies since multiple liability immunization is more difficult to understand, both B and C are advantages of multiple liability immunization. Q23 $30 and $35 in the question are market values of the option (not to be confused with market value of underlying), the bank but an option for $30 and now it is valued at $35, so that is the value at risk, hence credit risk is $35. Q30 The right answer is D or 8.35%, you add decline in shares in Grinold-Kroner formula. CFAI had a typo in the answer key, if you take the mock, you’ll get that question again, with the right answer provided.
Cool! Great Thanks! Volkovv!