Rounding

[jamespeer]

Is there a general rule when to round and when not to round? Will you be penalised in the exam if you round to say 4 decimal places and the answer rounds to 5 or 3. It results in small differences in overall answers but still not exact to guideline answers. I wonder if this will lose marks in the exam and if so, what is the rule? Seems to differ depending on the subject.

 

[olivia_x]

I have a similar question: when we calculate the future contracts to purchase/sell. Understand that when it’s say 126.6 then we round up to 127. If it is 126.4 we round down to 126 with no issues i hope?

 

[Rob_84]

Would guess that providing you don’t truncate the value too significantly rounding should be ok.
In regards to your point Olivia, you can only trade futures in whole numbers (in the CFA exam) so therefore you need to apply the general rounding pricincipal to the number of futures, if less than 0.5 then round down and if 0.5 or more then the round up.

 

[jamespeer]

VaR example I did earlier: I divided annual std dev by sq rt of 12 to get monthly which I rounded to 2.02%. Answer didn’t round and used 2.0207 to calculate VaR amount so my result differed slightly from ‘guideline’ answer. I did whole question exactly right but my final answer was slightly different due to rounding. Full marks or not? Some other questions I’ve come across, like in the economics material they do round, to a varying number of decimal places. Is there a rule? Do you get penalised for minute differences as a result of rounding? Obviously in olivia’s example it’s clear cut. Not so in other parts of the curriculum

 

[S666]

I just can not see them penalising you for rounding errors unless they are ridiculously big…I would imagine the example above being absolutely fine.

 

[hock]

olivia_x wrote:
I have a similar question: when we calculate the future contracts to purchase/sell. Understand that when it’s say 126.6 then we round up to 127. If it is 126.4 we round down to 126 with no issues i hope?

Thats what the past essay exams say. The twist to this was one past exam (2012 I think) that had a multistep adjustment. Hedge the size of position then reduce beta/duration. The answer key did it in two steps and rounded each part so you end up with 163. If you actually do all the math in one formula and round at the end, the answer would be 164.
No idea why they round early and chose numbers that would result in a conflict but I guess best practice is to break into two stages and round like they do.