Study Session 10-11: Fixed-Income Portfolio Management
This is a massive beast of an example; what is the essence we need to extract from this? I doubt we’re expected to regurgitate the process of completing this example on the exam…or do we?
I believe example 4 in 2019 curriculum is different question.
I am having problem understanding the logic behind EOC # 23: Rd 10.
Part of reading 20, section 4.4 Using Options
May i ask why negative duration means increasing in value when interest rate “increases” but not “decrease”?
FI: reading 19, los "discuss criteria for selecting a benchmark and justify the selection of a benchmark"
Long time lurker, first time poster.
In the CFAI text, chapter 19, the “benchmark selection” section is not very clear to me.
Is it enough to remember the SAMURAI mnemonic?
The price of the callable bond needs to be lower than option free bond as the investor has a disadvantage. So, he gets “compensated”.
I know OAS = Z-spread - option cost, and for callable OAS < z-spread
But, shouldn´t the investor also be compensated by receiving a higher OAS than an option-free bond? This IS however an advantage of the issuer, as previously said…
Petit develops investment recommendations for a currency- hedged portfolio of US and European corporate bonds. She expects US interest rates to decline relative to European interest rates. Furthermore, the spread curve for US corporate bonds indicates that the average spread of five- year BB bonds exceeds the average spread of two- year BB bonds by +90 bps. Petit expects the difference between average credit spreads for these two sectors to narrow to +50 bps.
OVERWEIGHT the US bonds
I have one question regarding reading 20, exhibit 65. In this part of the reading, we compare a “less extreme” barbell portfolio to a laddered portfolio and change the yield curve in order to see how the performance of those portfolios reacts.
In general, my understanding was that a barbell portfolio outperforms if curvature increases. This is consistent with the summary in exhibit 67. Anyways, in exhibit 65 the opposite is the case. Can someone explain why, please?
Thank you very much in advance!
The formulas for hedging liabilities with futures and swaps are almost similar, except Swap BPV to be divided by 100. Can anyone explain me the reasoning (logic) behind this difference?
For futures: Asset portfolio BPV + (Nf × Futures BPV) = Liability portfolio BPV
For swaps: Asset BPV+[NP×SwapBPV/100]=Liability BPV
Hi all. So under Liability Driven Investing, CFAI uses a defined benefit plan as an example to illustrate how to deal with type IV liabilities. Earlier in the reading they gave this as Type II liability since you can project the amount using actuarial science. Is it a Type II or a Type IV liability?
My second question is on the Projected Benefits Obligation Formula. For the annuity, It only uses the period for vesting( G years). Shouldn’t it be the total years worked (G + T) years?
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