CFAI Two Bond Hedge Q 189, its, difference, different, increase

sharksfan

CFAI V4 P 189 Q6
For Increase in yield and drease in yield calculation, I have slightly different answers for both 2 Yr and 10 Yr bonds. For example, for 2 y increase in yield, I get 106.122/106.65 = -0.4951%, but CFAI has -0.528%.
Not sure why there is a minor difference. I know its small, but it kind bothrers me because this is a straight forward calcuation.

kingstongal

its not the % change you want. You want the absolute change -106.122-106.65 = -.528
You would do the same for the 10 year - 109.25 - 111.19= - 1.94
You would do the same for the MBS - 97.955 - 100 = - 2.045
Do the same for the Increases, and you get .65, 2.41 and 1.1 for the 2 yr, 10 yr and MBS.
Then take the absolute value averages = example for 2 yr: ( .528+.65 ) /2 = .589
You get 2.175 for the 10 year and 1.573 for the MBS.
Your first equation is now: .589 H2 + 2.175 H10 = 1.573

neil1234

no, you actually would have -1.573 above. .589 H2 + 2.175 H10 = -1.573 since you have to have a - in front of MBS change
and despite what the curriculum says, you can compute the averages without using absolute values if you’re careful…

bodhisattva

Thanks, Dallas. INow they all make sense now