does anyone know where the -.005 comes from? Ive seen it pop up as -.5 in different texts and not sure how they got there as CFA books seem to use -.005 consistently. Just trying to wrap my head around this. Thank you for any insight.
Hellow Irish23, So the -.005 is equivalent to the -.5, haha. Now before you lose your mind, let me explain. If you use the -.005 then enter the expected return numbers and standard deviation numbers into the formula as whole numbers. If you use the -.5 then enter the expected return numbers and standard deviation numbers into the formula as percentages. For example: Assume Expected return is = 10% Assume standard deviation is = 7% and A - risk aversion (this is always given as a whole number) = 5
With -.005
10 [-.005*5*(7^2)] = 8.775
With -.5
.1 [-.5*5*(.07^2)] = 8.775
Not many folks on here actually know where the .5 or .005 come from a logical perspective but possibly Google knows lol. One of those things you just memorize and move on.
If you use absolute numbers for R and variance, use 0.005. If you use decimal numbers, use 0.5.
I believe Flashback means whole, not absolute, since your expected return could technically be negative, haha. But then why would you consider that investment to begin with… it will obviously have negative utility… I have twisted myself into a pretzel! lol NO! WAIT! What if you short though and you want the expected return to be negative 
haha I’m losing my mind…
Hahaha…I am like a Zombie. Burned-out like never before. Lol!
Surely 9000 pages of CFAI curriculum between all 3 levels fried all our brain cells to a crisp, haha I wonder if those brain cells regenerate in the post-CFA era… Should’ve bought some brain cell spread forwards, because the quality of mine is deteriorating as they approach liability horizon (exam day).
I literally spent the entire morning working on getting to the EAR on a loan using interest rate options and kept putting numbers in the wrong place and confusing the steps involved.
Yeah the burnout is real.
Literally did that reading last night. Was fun!! Sarcasm
It’s weird. The study guide notes I’m using says this section of the reading is vital and often tested, yet the curriculum has zero EOC practice problems on interest rate options, even though there’s a LOS with a “calculate” command word in it. The EOC practice can leave a lot to be desired sometimes. Sigh.
There are some questions with IR puts calls and IR collar on previous AM sessions. Be prepared. It may appear in vignette as well.
I second flashback. They test collars a quite a bit but they’re layups once you have your steps down.