Where did question number 5 come from ? The calculating equity return on CDO?? it’s no where in the lOS nor did I even see anything remotely close to this in the reading ??
Question 13, why does duration increase if overnight repo is used opposed to the 2 year repo?
> Question 13, why does duration increase if
> overnight repo is used opposed to the 2 year repo?
LOS a: evaluate the effect of leverage on portfolio returns?
>Question 13, why does duration increase if overnight repo is used opposed to the 2 year repo?
Net duration = Asset duration - liabilities duration so if overnight repo is used –> less negative –> net duration higher.
Question 5 - ignore, if it comes up in the exam, cry.
Question 13. Dp = I DI - B DB / E
two year has longer duration, over night has zero duration
in itself the two year has a longer duration but when you insert this into the formula the duration of the bond reduces as DB increases.
yeah question 5 was weird, it was pretty much a level II question. I managed to get it, but I wouldn’t sweat it. It’s not really hard, just kinda a pain and relevent to nothing in the LOS IMO.
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