Hi all,
Has anyone done the 2008 AM paper? Just reviewing Q10; the guideline answers seem pretty chunky compared to what I’ve written down. And after being told that the guidelines often include a lot more than is needed to get full marks i thought i’d try and compare. My answers word for word below…
A(i) - Not consistent. “Other management effects” returned -0.12%; this is a loss not an excess return. A(ii) - Yes, consistent. “Interest Rate Management Effect” shows effect of actively managing duration and convexity; this is +0.58% for Paolello; consistent with their strategy.
B(i) - Simulates what benchmark would have returned if forward interest rate curve was followed. B(ii) - Unexpected change is produced from the actual change in interest rates - here that change would be a decrease in the interest rate environment. Anyone got answers to compare? I can see that i probably wouldn’t have got full marks but guideline answers seem way too detailed…
Thanks
A(i) I would give full marks for it
A(ii) I would give full marks for it, although it would be nice if you added “yield-curve shape change” to the answer
B(i) I would give 1 mark possibly out of 2. Your answer probably lacked the keyword “calculated at beginning of period”
B(ii) I probably would not give any mark here, as unexpected interest rate effect is produced from unexpected falling yields, not from actual change in interest rates. Actual change in interest rates implies that you are talking about both expected and unexpected effects.
I would also give answers as short as this, because of the time constraint.
My answers were:
A(i) Not consistent. The criteria to evaluate how well the firm identifies undervalued securities and sectors is negative, as measured by -0.12%, other management effects. The manager has thus performed below expectations
A(ii) Consistent. The criteria to evaluate the firm’s performance is positive, as measured by 0.58%, interest rate management effect. The manager has thus performed positively.
B(i) Expected interest rate effect is the effect of interest rates in an external environment based on forward rates
B(ii) [Blank]
Ah cool - yeah agree on your comments on my answers. I need to be cognisant of keywords/terminology rather than trying to phrase it my way!
Your answers look similar to mine. Feel like the easy points on the AM are for things like this; literally just regurgitating definitions from the curriculum…
Be wary though - this is an easy question. Some challenging questions may test the deepest obscure definitions! In my opinion, definitions that relate to some formula are easiest to tackle.