R2 CME - Forecast asset class return

Question 1

Ways to forecast returns

Answer 1

-Formal tools
-Surveys
-Statistical methods

Question 2

F-Grinold-Kroner Method

Answer 2

Question 3

F-CAPM

Answer 3

Question 4

F-Singer terhaar

Answer 4

Question 5

Loss given default, recovery rate, probability of default , counter or pro cyclical?

Answer 5

Question 6

Loss given default, recovery rate, probability of default , counter or pro cyclical?

Answer 6

Question 7

Steps to apply tehaar model

Answer 7

Question 8

Steps to apply tehaar model

Answer 8

Question 9

Given higher sharpe ratio of coutrie b vs a with will happen with Spot rate a/b

Answer 9

Currency of the country with higher sharp rate tends to appreciate over time. so if country b has a higher sharpe the currency b will appreciate and the relationship s(a/b) will fall.

Question 10

Fill the blanks: trade déficit of 4% what will happen with exchange rate

Answer 10

Donward pressure because current account déficit in profitable investment Will atract capital inflow as long atractive investment oportunities persist.

Question 11

Fill the blanks: in the long run what component of grinold Kroner model converge to nominal gdp

Answer 11

All other equal 0, delta E converge
formula is growth = d/p+g+p/e

in the long run p/e will converge to nominal growth rate.

Question 12

Relation of duration and capital Gain or loss vs reinvestment risk

Answer 12

Question 13

Micro attribution

Answer 13

Performance attribution applied to decision made ate the individual investment level.

Question 14

F- fundamental factor model - Carhart model and how to read each factor?
Tip: RMRF, SMB, HML, WML

Answer 14

RMFM: equal igual to one suggest a diversified index
SML: equal to 1 sugest Focus on small caps
HML: equal to 1 Focus on high book to market
WML: equal to 1 Focus on momentum stocks

Question 15

Examples of oportunities to obtan active return in FI funds (4)
Tips:
Duration, curve shape, sector selection, bond selection

Answer 15

Question 16

What’s the difference between absolute vs. bottom up atribution

Answer 16

First one general risk arising from market, size, and style.
Bottom up focus from stock picking.

Question 17

Explain why cap rate don’t has a prociclical nature like long term discount rates and relationship w/ debt /gdp

Answer 17

Cap rate increase with interest rate but also influencied by downward pressure for debt over gdp. high debt increase fiscal presure and potnential lower lomg term interest rates. Compressing cap rates.

Question 18

Shrinkage estimation

Answer 18

Taking weighted avg to reduce impact of extreme values

Question 19

F- expected return of E(R) of real estate

Answer 19

NOI/P+ NOI g - delta cap rate

noi/p current income yield
g= growth in noi > in ling with gpt
cap rate = change cap rate

If cap/rate goes up the value of property goes down.

Question 20

When use historical estimates vs. arch models for estimate future return

Answer 20

Arch based in vol that change over time. VCV historical can be used when have a lot of data.

Question 21

Explain the k/l

Answer 21

Capital to labor unit

Question 22

What is the Dornbusch overshooting mechanism?

Answer 22

A theory describing how exchange rates adjust in response to changes in risk premiums and investment opportunities.

Question 23

According to the Dornbusch overshooting mechanism, what happens to a country’s currency when its risk premiums offer higher risk-adjusted expected returns?

Answer 23

The currency appreciates in the short term.

Question 24

In the first phase of the Dornbusch overshooting mechanism, what happens to the exchange rate?

Answer 24

The exchange rate appreciates as capital flows toward the more attractive market.

Question 25

True or False: The Dornbusch overshooting mechanism suggests that the currency will depreciate in the short term.

Answer 25

False

Question 26

Explain the relationship between business cycles and tiles curve

Answer 26

Question 27

What is a small negative output gap most likely associated with? A. Inflation B. Deflation C. Disinflation

Answer 27

Correct Answer: C. Disinflation • A small negative output gap means the economy is operating slightly below potential. • This eases inflationary pressures without causing outright price declines. • As a result, inflation slows down (i.e., disinflation), but prices still increase—just at a slower rate. • The gap is not large enough to cause actual deflation (a fall in prices). Key Reminder: • Disinflation = falling inflation rate (but still > 0) • Deflation = negative inflation rate (prices falling) • Small gap → Disinflation • Large gap → Possible Deflation