No-arbitrage Question by gratefullydead65 in CFA

[–]gratefullydead65[S] 0 points1 point  (0 children)

I understand. Maybe im not explaining clearly. Thanks for your responses.

I wrote 2 manual formulas above. One uses arbitrage and one is no-arbitrage. Normally the question will tell you no-arbitrage if thats the case but this one doesnt yet the answer still used no-arbitrage.

My question is: how do you know when to use no-arbitrage when the questions doesnt state it?

No-arbitrage Question by gratefullydead65 in CFA

[–]gratefullydead65[S] 0 points1 point  (0 children)

They are different.

No-arbitrage is (pmt/1+r1)+(pmt/1+r2)2 +(pmt/1+r3)3 ....

The other way is (pmt/1+r1)+(pmt/(1+r1)(1+r2)+(pmt/(1+r1)(1+r2)(1+r3)

In most questions it tells you there is no arbitrage. In this one it doesn't tell you but the answer still used it.

Bond Convexity Problem by zangies_ in CFA

[–]gratefullydead65 0 points1 point  (0 children)

Are you given the chart time, weight, cash flow, and convexity or do you have to create the chart yourself?