So i generally consider these “gimme” questions, but have gotten duped twice now by Schweser notation.
I was taking a pract test and came across a problem that asks for the # of contracts needed, so i applied the standard (DDt-DDp)/(DDctd/conv factor), and none of the answers came up….
The question provided you a portfolio that had 200,000,000 in assets and 100,000,000 in liabilities, each with their own duration, so for “DDp”, i used the weighted average duration of assets and liabilities to get the total portfolio dollar duration.
The answer, however, only used the asset portion of the portfolio to calculate dollar duration, and completely ignored the liabilities. Is this normal?
A separate issue i encountered is Schwser gives you the formula to calculate the effect of leverage on portfolio duration as DDp=(DDi-DDb)/$equity [where DDi is dollar duration invested and DDb is dollar duration borrowed] …
however CFAI asks for the duration of equity (not the portfolio) which is (DDa-DDl)/$ equity作者: mp3bu 时间: 2013-4-1 13:56
I never saw a question that had liabilities built into it. I guess you would use the duration of liabilities as your target duration, no?作者: BC_MBA_student 时间: 2013-4-1 13:56
no… they gave you the target duration, then gave you a portfolio containing 200 million in assets, and 100 million in liabilities, each with their own duration. The answer only considered the dollar duration of assets, totally ignored liabilities.作者: laurab 时间: 2013-4-1 13:56
Liabilities are part of the total portfolio. The duration of the liabilities have been incorporated into the duration of the total asset.作者: SeanWest 时间: 2013-4-1 13:56
