Rounding error

CFA Level II
#1

Seems many of us r getting the answers wrong bcoz of rounding error… Any suggestion from CFAI or from anybody as to what decimal place we do?? 2,3,4?? Anish

#2

i don’t think there will be this problem on the exam

#3

I hope so too. Somebody just posted a question regarding forwards and the two answer choices were 56.82 & 56.83?? So just concerned.

#4

It seems like going out to 4 decimal places usually gets the right answer in the CFAI EOC questions. Schweser its a crap shoot.

#5

Thanks

#6

4 decimals it is…most questions use 4 decimals…from my experience

#7

4 decimals here too.

#8

FOUR IT IS. Thanks.

#9

I use 4 as well, but I often run into issues with CFAI questions as outside of Derivatives they often round to 2, rule of thumb is just round to the number in the original data provided at each step.

#10

Actually I found when dealing with calculating the market value of swaps, rounding off has a major impact on the answer, esoecially with Interest Rate and Currency Swaps

#11

yes we know there a major impact, but which practice do you recommend, why, and with what materials. With cfai books and q’s I’ve found my approach to work and I believe it’s mathematically correct as I think obrekebee that you can’t have numbers more specific than their original measured values.

#12

I agree with Balck Swan here…number of decimal places given in question!! Anish

#13

why don’t you set it by default to 9, max, and then choose the answer later, based on the choices?

#14

I think the safest bet is rounding to four decimels. I metioned swaps because if you actually round off to more than 4 decimels (say 5 or 6) you get an answer that is completely off target (for e.g look at Example 4 and Example 5 in CFAI books…pages 244 and 250…follow what CFAI does in this example in terms of rounding). For Example 4, the market value is 1.0231 - 1.0180 = 0.0051. Multiply that with $15M, you get $76,500. If you round off to 5 decimel places you get $76,350 ((1.02306 - 1.01797) x $15 M). And if you off to 3 you get $75,000 ((1.023 - 1.018) x $15M). Makes a big difference in my opinion when faced with a multiple choice question.

#15

cpk123 Wrote: ------------------------------------------------------- > why don’t you set it by default to 9, max, and > then choose the answer later, based on the > choices? 500,000*1.23456789 = 617,283.9 500,000*1.23 = 615,000 Difference 2283.9 I am sure we’ll talking about millions or dollars on the exam. Anish