# Last quick quiz

1/ How do you call a psychological trap when someone wants to take excessive risk in recent investment to make up for historical loss? 2/ In determining yield advantage, do we have to incorporate currency effect. In question 15.3 - afternoon test 2 - Vol 2 - Schweser they don’t while they do in question 9D in morning test 3 - Vol 1 - Schweser. 3/ What do you think about the pass rate this year? Anyone?

1. Loss aversion 2. Yield advantage should be difference between rate on bond and that country’s risk free rate, haven’t seen it presented differently. 3. 90%

Question 2: What you indicate is excess return above risk free rate. You use excess return to compare 2 bonds when currency risk is fully hedged. What I indicate here is break even yield analysis. You subtract yield between 2 bonds to compute yield advantage and divide for duration of one bond (which is higher). However, in question 9D they incorporate currency effect here. Question 9D- schweser - morning test 3 rx = 4.55% => yield for bond X cx = 3.05% => cash rate for currency X ry = 7.05% => yield for bond Y cy = 5.65% => cash rate for currency y Yield advantage of bond X is [(4.55%-7.05%)+(5.65%-3.05%)]=0.1% incorporating currency effect. Question 15.3 - schweser - afternoon test 2 yield on Nakhon Metal bond (denominated in Baht) = 5.2% cash rate in Baht = 2.5% yield on Powhatan bond (denominated in US dollar) = 4.5% cash rate in US = 6.5% When performing break even yield analysis, they don’t account for currency effect Yield advantage of Nakhon Metal bond = (5.2% - 4.5%). Could you explain that?

Pls note that it’s Schweser 2011 quiz