easy quant- mean reverting level

CFA Level II
#1

Let this be one of those questions on quant that you go YESSSS this is easy to: Suppose that the time series designated as Y is mean reverting. If Yt+1 = 0.2 + 0.6 Yt, the best prediction of Yt+1 is: A) 0.5. B) 0.3. C) 0.6. D) 0.8. I reviewed a good amount of quant tonight and i’m exhausted. I think I’m going to coast out of the evening with a bit of ethics reading. *yawn*

#2

A. Mean reversion is Galton! b0/1-b1 T/G

#3

I hope its A.

#4

yep A

#5

it sure is… b0/1-b1 i’d love to see a question like this on a quant vignette. throw me a bone CFAI, throw me a bone!

#6

My eyes will light up on test day when I come across a question like this.

#7

I’ll cry, time for a quant review. The mind goes quickly these days.

#8

If I see this on exam day, christmas came early for me *sniff*…

#9

easy way to calculate: a = .2 + .6*a -> .4a = .2 -> a = .5 -> A