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tobri001
May 15th 2008, 07:43 PM
'''.. well, I thought I was prepared, but that was a doosey. What was up with the having three outcomes for stock at the end of the year? Did we need a p* to figure that out? I was no where near any of the answer choices.

How about determining y(0) (instantaneous rate of return) from all that weird stuff they gave us?

Anyone have any insight? These will drive me nuts until I figure them out.

Thanks!

alekhine4149
May 15th 2008, 07:52 PM
Maybe the 3 possible choices hinted at a binomial tree, but the numbers were so '''''y that I had no idea how to set it up and guessed. Two of the numbers went down to zero - I guess they were a little pessimistic on the outlook there.

For some reason, I don't remember the instantaneous rate of return question you refer to. There was one real world rate of return one I solved that was time consuming but straight out of ASM manual Chapter 5.

alekhine4149
May 15th 2008, 08:05 PM
So how about that currency trade on dollars and euros? Typically, that would be quite easy and fast but sure enough I couldn't find an answer that matched (happened a few times this test). It seemed like they seriously got the answer key wrong there - did they forget to convert back to euros or something?

I also spent ten minutes on the difference between the binomial bonds only to get an answer slightly too big for all the answers in the key. One more question down the drain, no time to find out what happened.

Contra
May 15th 2008, 08:20 PM
I think for the currency trade problem you treat the given call as a put on the opposite. You can then use put call parity to get one of the choices. That's what I did.

alekhine4149
May 15th 2008, 08:31 PM
I think for the currency trade problem you treat the given call as a put on the opposite. You can then use put call parity to get one of the choices. That's what I did.

That's true, but then it seems like you just have to end up with an amount denominated in dollars - $.059 or something like that which was B. Then I try to divide by the spot rate to get it back in euros and it's between A and B, not really close to either.

JDBreeze1
May 15th 2008, 09:24 PM
What about the one where you needed to find the return on the call? I figured you needed Sharpe ratios to figure it out, but how do you get the volatility?

That was a common theme - there were about 5 of them that I'd have gotten if only there was a way to find the volatility!

alekhine4149
May 15th 2008, 09:37 PM
What about the one where you needed to find the return on the call? I figured you needed Sharpe ratios to figure it out, but how do you get the volatility?

That was a common theme - there were about 5 of them that I'd have gotten if only there was a way to find the volatility!

Return on the call? Is that the one where they provide the rate of return on the stock? I think I got that one. If I understand the question you're referring to, it used:

C*e^(return on call) = Delta*Stock*e^(return on stock) + Be^r

I'm not putting in time since time was one year. This is ASM manual chapter 5 I think and it got me an answer on the key - I just forgot which one.

makros5
May 16th 2008, 12:44 AM
Are you sure, the answer is 0.059, I think I got 0.05 and I am pretty confident about that.


That's true, but then it seems like you just have to end up with an amount denominated in dollars - $.059 or something like that which was B. Then I try to divide by the spot rate to get it back in euros and it's between A and B, not really close to either.

alekhine4149
May 16th 2008, 08:23 AM
Are you sure, the answer is 0.059, I think I got 0.05 and I am pretty confident about that.

No, I'm not sure of anything today - I think I was ensnared by one of the easier questions that I thought I prepared thoroughly.

I made mistakes with this exam, and I'm ... pretty much ready to accept it. I only studied 200-300 hours. Passing in November will require at least another 200 hours of hard study, and it will require a different approach. Deeply analyzing definitions, theory, and graphs. And writing down all the questions they asked in my notes for future reference. Less emphasis on computational problems and formulas although those need to be brushed up as well. Time for me to move on. :geek:

tobri001
May 16th 2008, 09:15 AM
Anyone feel good about that graph question on MFE? I thought that the max of an American option was S, so I picked S = pi as my two American options, but that combination wasn't in the answers. Don't reallly remember what I did after that....

That's where the theory was kicking my butt.

Also - on #1 (yes, #1). Was A worded as "uniformly" or "normally" distributed??? We're having an argument here about what it said.

Thanks

tobri001
May 16th 2008, 09:16 AM
Return on the call? Is that the one where they provide the rate of return on the stock? I think I got that one. If I understand the question you're referring to, it used:

C*e^(return on call) = Delta*Stock*e^(return on stock) + Be^r

I'm not putting in time since time was one year. This is ASM manual chapter 5 I think and it got me an answer on the key - I just forgot which one.

I think you calculated .296, and the answer choice was .30

alekhine4149
May 16th 2008, 09:24 AM
Anyone feel good about that graph question on MFE? I thought that the max of an American option was S, so I picked S = pi as my two American options, but that combination wasn't in the answers. Don't reallly remember what I did after that....

That's where the theory was kicking my butt.

Also - on #1 (yes, #1). Was A worded as "uniformly" or "normally" distributed??? We're having an argument here about what it said.

Thanks

It definitely said "uniformly". I remember trying to picture a uniform distribution to see if it fit.

studentofLEEMIS
May 16th 2008, 12:53 PM
'''.. well, I thought I was prepared, but that was a doosey. What was up with the having three outcomes for stock at the end of the year? Did we need a p* to figure that out? I was no where near any of the answer choices.

How about determining y(0) (instantaneous rate of return) from all that weird stuff they gave us?

Anyone have any insight? These will drive me nuts until I figure them out.

Thanks!

To find y(0), you must first find the elasticity. Then you can use Omega = (y-r)/(a-r).

studentofLEEMIS
May 16th 2008, 01:01 PM
Anyone feel good about that graph question on MFE? I thought that the max of an American option was S, so I picked S = pi as my two American options, but that combination wasn't in the answers. Don't reallly remember what I did after that....

That's where the theory was kicking my butt.

Also - on #1 (yes, #1). Was A worded as "uniformly" or "normally" distributed??? We're having an argument here about what it said.

Thanks

For the graph question: I believe the American options were the graphs in the range of 100 - S and the European were 95.12 - S. Because a European does not allow early exercise you would use K*exp(-rt).