CFAI sample 2 question 12 question, course, create

meghanjackson

Did this freak anyone else out? I had no idea how to calculate it. Schweser of course said we didn’t need to know any calcs on how to create a two bond hedge, but here one is in the sample. Do you guys know this stuff?

economicz

is this the one where you had to add together the portfolio and hedge? CFAI did the calcs basically for you if you chose the right hedge
it was a round about way to just evaluating a hedge effectiveness if so. spread was 168bps if i remember right and the monthly hedged loss was considerably less in scenario analysis.
tricky question…

spartan1

Annual spread was 168 bps, so you had to find monthly of 168/12=14.
Difference in Ginnie mae change in spread was -7.4 bps for either an increase or decrease. I had no idea this would be referred to as teh “cost” of the hedge. So since monthly yield of 14 was greater than 7.4 “cost”, it was worth it. They also had a duration hedge thrown in as a distractor I guess. Seems simple enough now, but I’m not sure if this was presented in Schweser.

mar350

ilvino -1. not on my list of things to understand.

jcfa2011

Makes two of us. Schweser specifically states (just checked), you will not have to perform any associated calcs… thanks again guys.

ninja1024

if def wasn’t presented in schweser, but like you said—pretty simple to figure out.

Kiakaha

btw, you didn’t have to do calcs to determine the % of each bond you need to sell in order to hedge….i think hedge effectiveness is fair game.

spartanag07

i don’t think they asked for that anywhere on sample 2… then again even though i just took it i can’t even comprehend what you’re saying, so i’m going to say it’s my fault.

cfalevel2011

no, i mean Schweser says calcs on determining % to hedge with each bond isn’t on the exam.
this example was definitely not that however as the hedge had already been determined (or one of 2 options)

BC_MBA_student

i gotcha. thanks for your patience and understanding. ha…not too with it these days