L1 -- Mistake?

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Pittsburgh

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Did anybody notice a question that mentioned ".2 percent." To solve the problem correctly, you had to use 0.2... not 0.002?

I think it was in the AM.
 
Do you mean to solve it correctly as in to get one of their answers? Do you remember anything else about the q, because I don't remember that?
 
I don't remember the context. But to use .002 would have resulted in an outlandish answer.
 
I remembered that if you didn't use it it wouldn't work out. Weird...



-------------------------
Dead men assume...
 
I don't remember that, but I do know that on duration questions, a duration of 9 means "9.00" and not "9%" that it implies. This is why you need to use .002 instead of .2
 
Yes...duration questions require that you use the decimal form when you do the "change in Y" or the change in basis points...i.e. a duration of 5.6 with a basis point change of .50% would be

5.6(.0050) to give you the % change in price due to Duration.
 
Actually...let me correct myself....

The Duration value should alway be (-) i.e.

-5.6(.0050)

If it were a negative bp direction it would be

-5.6(-.0050) to make the price change positive...given the opposing yield/price blah blah blah.
 
Yep, and convexity is always positive with option free bonds. I am trying to figure out the context for which you would want to use .002 as .2% outside of bond valuation.
 
And remember one of the questions with the "3%". I forget the specifics...but it said something like if the bp's changed positve "3%" would the value increase or decrease "more than" "less than" "3%".

You had to know that price sensitivity increases with negative shifts in interest rate changes; as opposed to positive shifts....i.e. a decrease in bp's has a greater effect on positive price change than a negative change in bp's has in a positive price change.
 
I think rates went down, price went up by more than 3% because of convexity.

Please, someone tell me that it was a rate DECREASE and not a rate INCREASE. I'm going to go nuts if I missed that one.
 
NO I think it was a ROE question...I've never heard of a company with a .002 profit margin
 
i.e. a decrease in bp's has a greater effect on positive price change than an increase in bp's has in a negative price change.

I can't remember the complete specifics of the question but I know this was the underlying concept. Don't sweat it....It sounds like you got it. I just had too many beers last night.
 
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