In this article on ChatGPT for Finance Test I have tried to practice maths on Equity, Economics, and Alternative Investment using the ChatGPT tool.
I have a Finance in-course exam this Sunday, Sat 18th. After doing a lot of unhealthy procrastination, I finally started taking preparation for the exam today.
One big problem is, I am scared of math courses, I have always felt that I am not good at maths.
But, for this in-course, I had no other option but to do good. I needed good grades because this was my last course for my MBA program. I needed to finish my MBA.
Also, I failed the course the first time it was offered. This is my retake, which makes me more nervous. What if I fail again?
Note: I didn’t fail because I am a bad student, I failed because I stayed up most nights during the July-Dec session working on different projects.
Using ChatGPT for Finance Test
Prior to today, I used ChatGPT to help me write assignments, but not practice maths.
I asked ChatGPT three questions on three different topics – Economics, Equity, and Alternative Investment.
Can ChatGPT solve an Economics Math Problem?
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If you had studied Economics, you might be well aware of the concept of Comparative Advantage –
Comparative advantage is an economic principle that states that a country should specialize in producing goods or services that it can produce more efficiently, with lower opportunity costs, compared to other countries. In other words, a country has a comparative advantage in producing a good or service if it can produce it at a lower cost (in terms of resources and labor) than other countries.
Here is the problem I gave ChatGPT-
The average weekly output per worker for cars and bikes for Country A and Country B are as follows –
Country A Cars (10 )Bikes (2)
Country B Cars (100 )Bikes (5)
Given the competitive position of the two countries, I asked ChatGPT to determine in which area Country A most likely has a Comparative Advantage over Country B.
To solve this problem, one first needs to look at the relative opportunity cost of producing products (Car vs Bike).
For this part, ChatGPT was on point.
Once we have the opportunity cost ratios, we can deduce which product Country A has a comparative advantage over and should focus on.
We can see that for Country A, the opportunity cost of producing 1 Car is 0.2, whereas it is .05 for country B. Clearly, Country B has a comparative advantage. However, ChatGPT failed to tell whether 0.2 was greater than .05 or not.
The correct answer should have been that country A has a comparative advantage over Country B in producing Bikes. This is because, for Country A the opportunity cost of producing one Bike is 5 Cars, whereas, for Country B, the opportunity cost is 20 Cars.
Can ChatGPT solve an Equit Math Problem?
For this part, I wanted ChatGPT to solve an Equity problem.
In the Stock Brokerage scene, the practice of taking out a margin loan is common.
A margin loan is a type of loan that investors can use to buy stocks, bonds, or other securities. Specifically, a margin loan on equity trading is a loan that is extended to an investor to buy stocks, where the loan is secured by the investor’s equity in the stocks.
When an investor takes out a margin loan to buy stocks, they are essentially borrowing money from a brokerage firm to increase their purchasing power in the market. With a margin loan, investors can buy more shares than they would otherwise be able to afford, which can potentially lead to higher returns if the value of the shares goes up. However, it can also lead to greater losses.
A Trader has $20,000 and wants a Margin loan to secure a greater stock position. If the Trader’s brokerage firm has an initial margin requirement of 0.25, determine the maximum total value of stocks that can be purchased.
The formula for solving this problem is as follows –
Total Funds = Equity/Initial Margin Requirement
ChatGPT had unnecessarily made the solution too complex. The entire solution was divided into multiple steps. In short, it had calculated the value to be $35,625. When the solution was $80,000.
Can ChatGPT solve an Alternative Investment Math Problem?
For the Equity and Economics part, I had given ChatGPT math problems. It got both wrong. So for the Alternative Investment Math problem, I had asked it to solve a conceptual problem.
What is the benefit of picking a Fund-of-Funds instead of a Single Hedge Fund?
And yes, ChatGPT got it right this time. And I am particularly happy that it got the part about Due Diligence.
So there you go. In this article, we have used ChatGPT to solve three different kinds of Finance problems – Equity, Economics, and Alternative Investment.
If you have been playing around with ChatGPT for more fun projects, please leave a comment and share it with the community.