BSAS Exam 2011 Discussion?

Don’t see any thread here so figured I should start one -------------------------- So the BSAS exam stated that should interest rates rise (China is curbing inflation by raising interest rates), then forward prices will likely go into backwardation… which just sounds wrong to me. If we’re going with the formula F = S*e^(r+lease) then the forward rates should be increasing and thus create contango wouldn’t it? Can someone please tell me what I’m doing wrong here?

Can you post more details? I don’t have the exam.

The question goes like this- the outlook for the economy is that storage capacity for a commodity (no specifics) is expected to expand significantly over the next few months. At the same time, they also noted that China is expected to increase interest rates to manage excess liquidity and to contain inflationary pressures. The question asks you to discuss the impact on the structure of the future price. The answer key states that Increase in storage means lower storage costs, so lower storage costs will lower futures prices (ok, I get that) BUT Increase an increase in interest rates will likely dampen demand, so spot rates will decline and this will also cause future prices to decline. --------- I take issue with the second part of this answer - in most of the readings, cost of capital (ie: interest rates) should INCREASE the cost of future prices… So where is this whole “interest rates rising dampen demand so futures prices should decline” coming from?

ahh i will look into that one… Understand how it would seem confusing when an increase in the risk free rate will increase futures prices. ---- meanwhile, can anyone explain this one? In the very first question: the Woods’ pension expense increases with inflation, while the private annuity contract is not indexed to inflation. Wouldn’t this imply that there needs to be some sort of different treatment for each component when calculating the return? or am i overthinking it?

Yea I thought the way they treated that was pretty simplistic in that they only considered what they needed for return in the next year only but didn’t consider that that return needs to be a little bit higher to compensate for that non-indexed bond.

batgirl4ever Wrote: ------------------------------------------------------- > Yea I thought the way they treated that was pretty > simplistic in that they only considered what they > needed for return in the next year only but didn’t > consider that that return needs to be a little bit > higher to compensate for that non-indexed bond. The way I’m thinking about this is that the only way they use the annuity figure as is that the IPS is providing a return calc for current year - if it was for next year, thats when I’m guessing you’d bake in the inflation adjustment for the other 3 components and not for the annuity.

Advice to those who haven’t tried this exam - SKIP IT. I thought it was a waste of $100. Completely wrong answers or topics tested which are no longer covered. Vague answers. Additionally, I thought that the fixed income section was incredibly difficult. Scored 73% in the AM and after encountering sooo many issues gave up on scoring PM. I have a list of questions which I think were wrong or poorly worded or not covered at all anymore: Q 25 VAR IS computationally challenging for large corp. Q 35 Which index is Inv Mgr’s index? Q 36 (you are supposed to square risk measures and then take the square root) Q 41 Not covered anymore Q 44 response A and C are exactly the same Anyone else? Agree / Disagree?

nm

Could you please send us the link to buy this mock exam. i am not able to find it

http://www.bsas.org/BSAS_CFA_Exam_Preparation/CFA01.asp For what its worth.

this confused me too - how am I supposed to infer that “a hike” will dampen demand? if it’s a first hike of many, demand should not be a factor. If it’s the last one and is the straw that breaks the camel’s back, maybe then demand falls. poorly written question.

i thought that it would too, but since the amt coming from va was kinda small relative to port size, i figured treating it separately would have been way too much trouble and just didn’t bother. lumped it in and came in with the final # right on the nose, which I usually don’t in these sorts of problems… but I hear u… this can get unnecessarily confusing…

yes. totally agree. wtf. I thought I was going crazy there… orthographic errors throughout the exam text… #fail

BSAS EPIC FAIL this year. Q 44 response A and C are exactly the same Favorite question on there had answer choices that went something like… 44) What is the best course of action for ABC-bank (need to adjust so answer C is correct) A)forward sell Yen B)forward sell dollar C)forward sell Yen

EPIC for BSAS reputation!