The answer is C - corporate since it contributes the spread duration.
however, the question is asking “which sector that poses the most tracking error relative to the benchmark”, personally I think it is A - Treasury, since the dollar duration of Treasury with benchmark is the bigger than corporate.
what’s your view?作者: Sunshine4ever 时间: 2013-4-22 09:15
Treasury have zero spread duration作者: hardwork24 时间: 2013-4-22 09:15
yeah, I know. But duration does not mean “spread duration” only. Given the duration of treasury is 5, it also contribute the tracking error if the yield curve move downward or upward parellel. right?作者: svgleeson 时间: 2013-4-22 09:16
contribution from spread duration is what the question is about
since spread duration of treasury is 0 - contribution is 0.作者: jmh530 时间: 2013-4-22 09:17
I think you are right on with this.
The question is about tracking error vs a benchmark, not spread duration. Page 19 of CFAI book 4 lists the 7 primary drivers of tracking error in a bond portfolio. Having a higher duration Treasury portfolio vs the bm certainly qualifies as a driver of tracking error.
I think answer could be A or C.作者: ba736 时间: 2013-4-22 09:17
Thanks ftwcfa, I totally agree with you. That’s why I’m confused.作者: cchang 时间: 2013-4-22 09:18
Even then its C
calculate the wt avg duration of the portfolio & benchmark secor wise & see the differences
As in for Treasury duration contribution is 0.2792 * 5 = 1.40 whereas benchmarks 0.30 * 3.8 = 1.14, the difference is +ve 0.26
for corporate duration contribution : 2.13 (portfolio) - 2.36 (benchmark) = -0.23—– its -ve & would be the reason for tracking error…作者: Carson 时间: 2013-4-22 09:18
tracking error could be caused by either direction, the larger absolute value of duration, the larger contribution to tracking error. Your formular has proved treasury contribute more.作者: siavosh 时间: 2013-4-22 09:19
where did you find the 2011 CFA Mock? is it posted on the CFA wbsite? thanks作者: pawn 时间: 2013-4-22 09:20
@markCFAIL, haha, pronouncation leads my spelling.
Yes, you are right, it’s CFAI’s problem. Anyway, it’s their examination.作者: Houjichasan 时间: 2013-4-22 09:20
Where is this exam? is it on CFAI’s website?作者: fishmarket 时间: 2013-4-22 09:21
Where is this exam? is it on CFAI’s website?作者: pogo 时间: 2013-4-22 09:22
Where is this exam posted?作者: lunarfollies 时间: 2013-4-22 09:23
This was errata. Search for 2011 mock scores and you will see we discussed it already. Correct answer is A as it is written. Correct answer is C with the errata change.作者: dreampak 时间: 2013-4-22 09:24
Agrred with rahuls.
Sector, duration contribution(PORTFOLIO), duration contribution(BMK)
————————————————————————————————
Treasury, 1.396, 1.140
MBS, 0.916, 0.916
Corp, 2.129, 2.355
—————————————————–
Total 4.44, 4.41
Basically, you can’t decide whether Treasury or Corp contribute more to duration mismatch. Spread duration does.
We don’t hve time to calc all this during the exam, though. As an intuitive thought, total duration is not provided on purpose and keep the question straightforward.作者: Chuckrox8 时间: 2013-4-22 09:24
Level3Once wrote:
This was errata. Search for 2011 mock scores and you will see we discussed it already. Correct answer is A as it is written. Correct answer is C with the errata change.
^^^^作者: wizofoz 时间: 2013-4-22 09:25
So what’s the final verdict on this one? - Is the final correct ans A or C?
I have gove with C - Corporates
