CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

A portfolio manager is reviewing a research report generated from running the Monte Carlo simulation model for 4 pass-through securities. There is an obvious error about the data of one security. Which one is it?

A. A or B
B. C
C. D
Explanation: Higher interest rate volatility implies lower prices of these pass-through securities. For security C, the price is 95 when the volatility is 10%, and its price should be less than 95 when the volatility is 12%. However, it's estimated to be higher (97).

User Contributed Comments 2

User Comment
Paulvw Given these are results from a Monte-Carlo analysis, this would call into question ALL of the securities' results. Since Monte Carlo analyses will (probabilistically) even produce extreme results, the table above can easily be produced by a Monte Carlo run with too few scenarios.
b25331 Mathematically the price ranges given should increase with interest rate volatility. This is not true for the 15% group.
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