 # Ethics in CFAI sample test number 3

I am reviewing this section in which I did terribly. To those who are preparing for this sample, be careful with their crazy tricks;)

The actual has ethics very similar to online exams, in that they often are not straight forward gimmes.

I just took Level 1 version 3 Sample examv5 . This is exam 3 rt. One of the questions in this was : 90 day FRA in which they had give 180 day LIBOR rate. I just want to confirm that I am giving the right exams. Thanks

smeet, yes, that is sample exam 3. i just gave it as well.

Xavier. Did you notice a problem with the question on LIBOR rate. They mentioned a 90 day FRA but gave 180 LIBOR. DOnt we need to divide the LIBR by 4 instead of 2.

smeet, sorry for the delay…yes i noticed this problem. i didn’t divide LIBOR. my understanding is that we use the 180 day LIBOR as the reference rate and use the same to account for the time value basis. it’s a confusing aspect of FRAs b/c 90 days doesn’t figure into the equation at all. i just have this formula memorized as the PV of the notional * the difference in the reference rate at expiry and the quoted rate a@ the time of the contract. is this how you did the problem? = 20M * (0.065 -0.06) * (180/360) / 1 + 0.065 * (180/360) = 50K / 1.0325 = 48,426.

U have used 180/360. On the exam I used 90/360 since it was a 90 day FRA