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PostedbyBillCampbellIII,CFAonOctober9,2013
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IsThisAnswerReasonable?
Postedin:LevelI.

In many of the topics in the Level I CFA curriculum you are required to calculate a numerical
answer: Whatpeoplehavetosayabout

YouhavetocalculateanNPVinQuantitativeMethodsorCorporateFinance FinancialExamHelp123
YouhavetocalculatetheyieldofabondinFixedIncome
YouhavetocalculateaforwardinterestrateinFixedIncome
andsoon Brilliant!

HelloBill!Thankyouverymuchforyour
In many cases, it is easy to estimate the answer before you do the calculation, or, at least,
invaluablearticlesthathelpmepassCFA
establisharangeintowhichtheanswershouldfall.Improvingyourabilitytoestimateanansweror L1examlastyear!Especiallythankfor
narrowtherangeofpossibleanswersisvaluablefor(atleast)tworeasons: SpotandForwardratesbrilliant
explanation.
1.Anestimateorrangemaybeallyouneedtoanswerthequestionontheexam.Forexample,
ifyoucanestablishthattheyieldonabondmustbelessthan4%,andonlyoneoftheanswer Valentine
choices is less than 4%, you know the correct answer without having to do the full (possibly
timeconsuming)calculation.
2.Ifyoumakeanerrorinyourcalculation,havinganestimateorrangewilltellyouimmediately
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that your calculation is incorrect, which may save you some frustration when you are under
pressure.

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