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#61




Question: Fall 2014 #6
Does anyone understand part (bi) of problem 6  below are my questions (while looking at the solution).
1. Shouldn't the dollar return (A) be S3  S2 rather than S3/S2? Seems like they are calculating a percentage return 2. They calculate the expected value of S3/S2 using probabilities from time t=3. I would have expected this to use probability from time t=2? 3. When calculating the E(Xt/Xt1), why are the inflation terms taken to the exponential? Appreciate any help!! 
#62




Quote:
I think the wording on this question is a bit poor, when they say dollar return, they mean % return in US dollars so thats why it S3/S2 * X3/X2 S3 = 1.2 * S2 * .6 + .95 * S2 * .4 so S3/S2 = 1.2 * .6 + .95 * .4 Its to the exponential because the solution the SDE for Xt is lognormal, check out Ch. 11 Neftci  section 4.2 Geometric SDEs 
#66




Also, what is everyone doing on the last day before the exam? I'm feeling pretty good about the stochastic calculus portion, and wishing I had spent more time on APM. So I'm spending the day going over the old QFI exams to make sure I understand the answers on APM material (specifically, how much information to provide). I'm also putting alot of emphaiss on getting through the questions quickly, and getting partial credit for quickly jotting down anything that I do know when I'm short on time.
Anyone else have tips or words of wisdom for the exam day? 
#67




Quote:
The material is really challenging but remember that you can miss many questions and still pass. If I had to give one piece of advice the day before the exam, it’s that you need to be good with time management on exam day. Make sure you are budgeting 3 min per point. FSA exams are a huge time crunch for pretty much everyone. It’s not like the prelims. If there is a 1 point question that asks you to compare and contrast eight things — just spend your three minutes and move on. It’s not worth it. Also, one huge mistake people make — do not spend too much time on the material that you know. For example, say there is a half point question asking you to describe delta hedging. It’s not the time to spill out every little detail you know. You just get 1.5 minutes, so they are not expecting much. Maybe a sentence or two. Also bullet points and incomplete sentences are totally fine! Remember to read each question fully and if they ask you to do something (make a recommendation, etc.) then specifically do that. Spill it out very clearly — I recommend x. Don’t make them search for it or play both sides. Lastly, I’ve said it many times before and I’ll say it again — familiarize yourself with the formula sheet! You will get this on exam day and you don’t want to be flipping through hunting down a formula. You should know where it is already! 
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