Old 5 2010 #28

[briere48]

In reading the TIA solution to this question, it is apparent that the model solution given deviates (albeit slightly) from the methodology of WM. However, am I missing something, or is TIA's solution #1 ALSO not congruent with WM? From page 278 of WM, it seems the off-balance factor should be .96/.98. Thoughts?

[Vorian Atreides]

What part of the Exam's model solution deviates from W&M?

Keep in mind that a lot of Chapter 14 is describing ways of approximating the net impact of a rate change when extension of exposures (which is basically the most accurate way of measuring the impact) is impractical.

Using 0.96 / 0.98 as the measure of the impact of the change in the discount should be acceptable on the Exam, but the model solution would be viewed as being more accurate (since it is essentially the extension of exposures method).

Difference would be that in this case, your off-set factor would be 0.979538 where the model solution's off-set would be 0.97959 (if they had not rounded their answer(s)).