April 2006 Exam

Gareth I still don't agree with you on Wilkie.
They gave I(t) as a force of inflation NOT an inflation index.

Maybe we should agree to disagree and wait for the exam report. (Not that the exam report can be trusted in ANY way.)

Good night, will probably get the best night of sleep in 3 months.

Cheers.
Erik

 

who knows, i cant say without seeing the paper again.

i got the same values as you, and then when i converted assuming I(t) was an index, i got a confidence interval pretty close to the last years inflation figure.

i think in any case, it's not a big deal, as there will only be a mark or so in it.

 

Does anyone else have a hangover?

 

what do you think the pass marks have to be around?

also, what if the term structure question was not a typo? i got bogged down trying to find a nice looking answer but couldn't get one.

 

Only wish if i was in the position to say that.

 

Well I hope around 20-25%


But i guess around 52% ish.

 

Defnitive Answer

Has anybody ever had any definitive answer to the question of exam pass marks?
There's no mention of it on the Institute website, but I read something from the SOA and they give a rough guideline of between 55 and 65%.
I just wonder if there's anything like that for us as well - maybe tutors know, or the people who do exam counselling know (since there's no official line).

 

See http://www.actedoffice.com/forums/showthread.php?t=269 for pass marks discussion...

 

Definitely a nicer paper than the last 2 and smiled when I saw 2 similar questions to last April's paper, though didn't get far with the term structure one as it wasn't quite the same with the extra "T" in it, which above discussion seems to indicate it being a typo. Great.

Other things:
Q1 - Minimum variance proof and inputting figures was a lot to do for 3 marks.

Q2 - Brownian motion definition seemed a bit if a giveaway for 5 marks.

Q8 - B-S seemed nice until you got stick into it, as per above discussion got answers of about £19 for call for 1000 shares and a huge amount for the put at £2, maybe 90p or so per share, which does make sense, but makes me question whether I was interpreting the question correctly. Think you must have had to do something else with it.

Q9 - Proving the put - call parity thing "from first principles" seemed a bit ambiguous in last question. I started from the B-S equations and proved it from there which was fairly straightforward, but I would say "first principles" goes back further than this to proving the B-S equations themselves! Or I guess you could have done it by general reasoning of the equations themselves, either way, there's only so much you want to do for 4 marks. Last part was interesting, with the extra dividend. I reckon there might be a variety of answers for this one, depending on whether you assume that the dividend reduces the share value at the end of the second day, which is what I assumed. As the dividend was "unexpected", I wonder if there might be a different interpretation.

 

For a student like you, who can remember questions to this detail......i respect you.

You are as good as pass, and hopefully might not even bother to check your result.

For me, I just feel more sad.

The more time I spend on this forum after the exams, the more I feel bad.

Is this a reason that the forums die just after an exam?

Anyway.......lets hope all of us pass.

 

agree

Its in the book as one portfolio consisting as one call and discounted share price, and one portfolio consisting of one put and share price/exercise price whatever.........and so on..............

You call it interesting??????????????????????????????

I call it torture.

 

Hi,

I think in the B-S question you're working with two calls, buying one (long) and selling another with a higher strike price (short). I feel that (ACTED, are you listening?) this is a topic where the core reading can expand a bit which will enable you to answer questions like the one in the paper. I can't understand why the core reading does not make use of payoff diagrams for short and long options. They make the analysis of these type of questions much easier. (Or you can just buy Hull and look it up yourself).

But I guess with these type of questions you can never be certain that what you did is the correct, or more importantly the "expected/required", interpretation.

Agree, on question one, I found myself taking too much time on that one, and I was tempted to just write down the solution as in the course notes, and fill in the variables, but the question said derive, so...

Someone else questioned the term structure "typo". If that's not a typo then the examiners was just mean for giving something that doesn't simplify. What's the odds anyway of changing one T to a -, and getting a nice (expected/required) answer. Would be interesting to know how they approach a question if it had a typo, can they leave it out, or what, Acted, any comments? (Maybe it was their intension to set a question with no easy simplifiable answer, to test how the student handles it! Sounds like the kinda excuse one of my lecturers would come up with.)

I also thought that the Brownian motion definition was a giveaway for 5 marks.

Erik.

 

*Erik

Taking a cue from you, I think that the B--S question was more "out of syllabus" than "in the syllabus".

 

The discussions on this exam just go on and on - it's not healthy you know!

Ok for the comment in the last part of the last question:
For the call, exercise at time 1 if the share price went up in the first period.
For the put, exercise at time 1 if the share price went down in the first period.

Without going into detail, did anyone arrive at a similar conclusion?

 

Not sure for the B-S question whether the employee was meant to pay 1.5 for the shares - I read the question as though he did, but think that may be wrong given the employees estimate of a value of £300 (which suggested they were a gift).

If they were a gift then I think the contract was:

- cash of 1.5 plus a long call with a strike of 1.5, plus

- a short call with a strike of 2

The cash plus long call would then be valued as a long call less the K bit of the B_S formula.

Oh well, nothing I can do about it now...

 

Yeah, i got something similar except, for the call, if share price went up in first period then excersise at time 2, not 1. If share price went down in first period then ??

For the put, exercise at time 1 if the share price went down in the first period. If share price went up first period then put worthless at time 1 or 2.

i think??!

 

OK the B-S question (what an appropriate abbreviation) is really bugging me now - is anyone confident they got the right portfolio of calls/puts?

The pf that srs5a quoted - I thought of doing that in the exam but then changed my mind. The problem is, if the share doesn't reach 1.50 then the employees get nothing, whereas with cash they would always have the cash whatever the share price. But then when I tried doing it with options I ran into problems.

Reckon I'll get any sympathy marks for just evaluating a regular call option strike 1.50 in the first part, and then a long call strike 1.50 and a short call strike 2.00 in the second bit?

I think if I don't pass this I'll be extra annoyed seeing as the paper could have been so much worse.Although maybe they'll have to knock a couple of marks off the pass mark due to the typo in the term structure question. Fingers crossed!

 

Alice, my answer is almost the same is yours, but in second part my short call has strike 3.5, but I think your 2 makes more sense now, oops.

Cheers.

 

Erik - I think you're right and not me! So long with strike 1.5 and short with strike 3.5. Say share price of 6 at the end. You buy for 1.5 and sell for 6 using the option you've got. Then you have to buy for 6 so the other party can sell to you for 3.5 using the option you went short on. Your profit is 6 - 1.5 - 6 + 3.5 = 2. So this seems to work. Does it?

OK am going to bet back to the more interesting things in life now and forget all about this exam!

 

well the paper is on the institute website now...time to guesstimate number of marks achieved...

 

Alice, now I remember how I argued that one! You really got me worried, but still I am curious to see the the examiners report and see who's correct and how (Gareth) the chances of passing looks. Wonder what the pass mark on this paper will be. Probably around 55-60% i think?!?! What do you reckon?

Cheers