CIIA Exam Preparation


No Image

Calculate the holding period return of an investment in bond C after one year assuming that the assumptions of the “pure expectation hypothesis”

Calculate the holding period return of an investment in bond C after one year assuming that the assumptions of the “pure expectation hypothesis” will prevail in one year. [Note: Calculate first the price of bond C based on the forward rates in one year and then compare the result with the initial investment and coupon. Use a forward rate in one year for 1 and 2 years of 3% in…


No Image

Fixed Income: Spot Rate Calculation – Forward Rate Calculation

Fig 1: Question setup Question: Calculate the 1, 2 and 3 year spot rates (also called “pure discount” or “zero” rates) for an issuer with rating AA. Fig 2: Formula – Valuation of Coupon-Bearing Bonds Fig 3: Calculation of spot rate Question: Determin the forward rates in one year for 1 and 2 years time to maturity (based on current spot rates) Fig 4: Formula – Relation between Spot Rate…


No Image

Options: What is the gamma of the call option on a stock using the following parameters? (CIIA)

How to calculate gamma; you are given the parameters: Stock Price, Excercise Price, Interest Rate (either simple or compound), Time to Maturity, Standard Deviation The formulas in the first graph are from the permitted “Formulae Final Examination” (page 21) What is the gamma of the call option on a stock using the following parameters? source: CIIA ; used here for educational purposes; fair usage… Anyone using Apache Openoffice Calc to recalculate…


No Image

Immunizing a Bond Porfolio by Matching Duration and Convexity of Pension Assets and Liabilities

This post covers part of a Fixed Income March 2014 CIIA exam question that required the calculation of three weights (three unknown weightings) based on modified duration and convexity. The formula for portfolio duration is needed for equation (2) and the modified durations from the table (highlighted in yellow) as well as the modified duration for the liabilities (given; below the table) The formula for portfolio convexity is needed for…


No Image

Put-Call Parity Theorem – Graphic aswell as Formula

Put-Call Parity Theorem – Graphic aswell as Formula The graph above is from the CIIA course book; used here for educational purposes. The above table (put-call parity equation based combinations) shows that we can price a call or a put based on the the instruments that make up its synthetic version. An example: Let’s take a 3m American put and a 3m American call on the shares of ABC Corp,…



No Image

Discounted Cash Flow Analysis – CIIA Final Exam September 2005 Question/Answer to b)

1 Appendix data (outtake) to question below 2 The Question 3 My Calculations (just for Alpha CFM) 4 Solution I was just revising for the CIIA Final Exam when I came across the 2005 September Exam. It took me an unbelievable amount of time to understand how the present value of the annual cash flow  (PV of annual CF) aswell as the present value terminal value was calculated in the…


No Image

PPP Model – Swiss Franc (CHF) overvalued vs EUR, EUR undervalued vs CHF

This chart was published today by BofA ML, showing the Swiss Franc (CHF) overvalued by approx. 5% vs EUR. From wikipedia: PPP exchange rates can be useful for making comparisons between countries because they stay fairly constant from day to day or week to week and only change modestly, if at all,from year to year.  Second, over a period of years, exchange rates do tend to move in the general…


No Image

Calculating Variance of a Portfolio with 2 Market Returns – CIIA Foundation

Using the data from the following table, evaluate the risk measured by the standard deviation) in CHF of a portfolio invested 75% in the Swiss market and 25% in the UK market, rounded to the nearest integer. [table] Description,Percentage Standard Deviation in CHF of the Swiss Market return,15% Standard Deviation in CHF of the UK market return,13% Covariance between the Swiss market return in CHF, and the UK market in…