Schweser 2010 Live Mock #29

Afternoon, question #29. I marked B, because I didn’t think this statement was accurate: “In fact, long positions in futures contracts can achieve any reasonable dollar duration.” I could see if they left out the word long, but how do you lower the dollar duration of your portfolio if all you can do is go long. I don’t have the explanation answer guide, just the basic answer key. Thoughts?

Maybe it is relative. Like you have a portfolio of long duration so you long a bunch of shorter duration stuff then your total portfolio duration would be lower? or You long a bunch of floating rate notes? That’s all I got at this point in the day… I would have totally missed that one as well.

here is the full answer: By taking a long position in futures contracts virtually any duration up to 30 years can be achieved. The three main advantages of using futures over cash market instruments are that futures are more liquid, transaction costs are less, and futures are easier to short sell than an actual bond.

Chi Paul Wrote: ------------------------------------------------------- > Maybe it is relative. Like you have a portfolio > of long duration so you long a bunch of shorter > duration stuff then your total portfolio duration > would be lower? > > or > > You long a bunch of floating rate notes? > > That’s all I got at this point in the day… I > would have totally missed that one as well. Ah, duh…

I made a mistake in it. And still don’t get it. “In fact, long positions in futures contracts can achieve any reasonable dollar duration.” wtf? if you want to shorten DD you still will use long futures? I thought it should be short futures.

i didn’t get it either. i thought it was a tricky question because there are big gaps among futures. if i remember correctly 10-year then 30-year. so how to have a portfolio for a duration of 29? don’t tell me use 3 months then rebalance every quarter. :smiley:

i got that one right, but was almost thrown off guard. while no person in their right mind would attempt to use futures dated that far, it can be done technically.