Actuarial Outpost SOA IFM sample question 15
 Register Blogs Wiki FAQ Calendar Search Today's Posts Mark Forums Read
 FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

 Investment / Financial Markets Old Exam MFE Forum

#1
10-19-2018, 02:22 PM
 eastla_student Member CAS Join Date: Jun 2017 Location: East LA Studying for IFM Favorite beer: 805 Posts: 33
SOA IFM sample question 15

Is it me or is SOA IFM sample question 15 erroneous?

It says the table is giving us the expected return and volatility for stocks X, Y and the market. Then the table column heading says we are getting the required return for stocks X, Y and the market.

The problem then asks us to find the required return for stock Y, assuming CAPM holds.

Isn't the required return = E[X] - risk_free_rate? In that case, the answer should be 2.52 and I don't need to find the risk free rate at all.
__________________
P/1 FM/2 IFM
#2
10-19-2018, 02:57 PM
 eastla_student Member CAS Join Date: Jun 2017 Location: East LA Studying for IFM Favorite beer: 805 Posts: 33
never mind

It's in the errata for 1st Ed of ASM IFM, a correction to the definition of required return. My mistake
__________________
P/1 FM/2 IFM
#3
10-20-2018, 12:21 AM
 tkt Member CAS SOA Join Date: Jun 2011 Location: Des Moines College: Drake University Posts: 507

Assuming the CAPM holds, the expected return of a security is equal to the required return of a security. Thus, assuming the market is in the CAPM equilibrium, these two terms are often used interchangeably.

The risk premium of X (not the required return of X) is the expected return of X minus the risk-free rate.
__________________
Tong Khon Teh, FSA, CFA
Product Manager, Actuarial
coachingactuaries.com

 Posting Rules You may not post new threads You may not post replies You may not post attachments You may not edit your posts BB code is On Smilies are On [IMG] code is On HTML code is Off

All times are GMT -4. The time now is 12:59 PM.

 -- Default Style - Fluid Width ---- Default Style - Fixed Width ---- Old Default Style ---- Easy on the eyes ---- Smooth Darkness ---- Chestnut ---- Apple-ish Style ---- If Apples were blue ---- If Apples were green ---- If Apples were purple ---- Halloween 2007 ---- B&W ---- Halloween ---- AO Christmas Theme ---- Turkey Day Theme ---- AO 2007 beta ---- 4th Of July Contact Us - Actuarial Outpost - Archive - Privacy Statement - Top