As for the first question, it's not in the CAS study guide, but in the book
study guide, by Hodhes and D'Ambrosio.
At 09:57 AM 7/2/98 -0600, Rich Davey wrote:
>As far as your second question goes, the reason there is no 'noise' is
>because you are calculating an estimated return, not actual. Actual
>would have 'noise' that you can't predict. In calculating the estimated
>return, you have no way to estimate that 'noise', therefore you must
>assume that 'noise' = 0. It's like in statistics (regression) where we
>know there is an error in the model but we assume that is normally
>distributed with mean = 0. Same thing here. Does this make sense or am
>I out to lunch on this?
>
>Can't help with the first part, don't have my CAS manual with me.
>
>>>> Michael McKenney <mmckenne@ins.state.pa.us> 07/02/98 08:06am
>>>>
>Does anyone want to take a stab at explaining the study guide chapter 8
>number 11 (b) to me?
>
>What does 'realized factor returns' mean?
>Why are they treated the same as the risk premium (i.e. why don't we
>have
>to subtract out the risk-free rate on interest)?
>Why do we add this to the expected rate of return to get the probable
>one-year realized return?
>
>
>While I'm at it, I have another question. Why in this same exmple (Study
>Guide #11) which is the same as Book Quiz # 10, is there no unique risk
>involved, i.e. no 'noise'. I would think the solution to each part of #10
>in the Book Quiz should be some number a + the result given by the book
>answer, where a is the 'noise' that Chapter 8 explains each stock as
>containing when describing the Arbritage Pricing Theory.
>
>Once again, I plead for HELP!!!!
>
>
>
>
>