I know I’ve asked about this before, but it seems the CFAI contradicts itself. Page 338, Book 5, CFAI Text, there’s an example where they give the WAM as 357 for a 360 month loan, meaning it’s seasoned 3 months, so they calculate the SMM for the 4th month. Then, in Sample Exam #1, there’s a problem involving a WAM of 356: “Since the WAM is 356, 4 months have elapsed.” (Question #13) Then they proceed to calculate the SMM for month 4! My question is, If the WAM is say 357, if asked to calculate the CPR or SMM for the next month, do you calculate it for month 3 or month 4, since the CFAI’s own examples are contradictory?
Not sure, but if you are at the end of the 3rd month, you should use a CPR based on 4 months, because you want to know the mortality rate for the next month, month 4…
Thanks Dreary. I know that if I’m at the end of the 3rd month to find CPR for 4th month; the question is, CFAI won’t say “now you’re at the end of month 3.” They will say WAM=357 or whatever. If they say WAM=357, am I at the end of month 3 or 4? Cause if WAM=360 is month 1, then 359 is month 2, 358 is month 3, and 357 is month 4…
Go with the CFAI text, that makes more sense. If they say WAM=357, your are at end of month 3, so you do a CPR based on 4.
Yeah, but the Sample exam is also issued by the CFA Institute, and I paid $40 for that, and it’s an exam, so I would think they’d get that right! [shrug].
Do you think the final answer would make a difference? I doubt it, especially that they got it confused too.