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Reading 16 - BB 9. Mistake?

I think wrong here.

If we look scenario 1.  They solve P&L of net position (70% original exposure and 30% hedged).  They have 5M - 1.2M =3.8M.

The 5M is for 100% original but it’s only 70% now.  So I use, 70M * 0.05 = 3.5M for 70% original exposure.

The net P&L I think should be = 3.5M -1.2M = 2.3M instead of 3.8M.

Any help thank you.

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Another_attempt wrote:

I think wrong here.

If we look scenario 1.  They solve P&L of net position (70% original exposure and 30% hedged).  They have 5M - 1.2M =3.8M.

The 5M is for 100% original but it’s only 70% now.  So I use, 70M * 0.05 = 3.5M for 70% original exposure.

The net P&L I think should be = 3.5M -1.2M = 2.3M instead of 3.8M.

Any help thank you.

Here, please look at what we are doing:

1. we have a swap position of 30 M -P/L on it is -1.2 M

2. we have portfolio of 100 M. P/L on it is 5M.

Now net P/L will be 5–1.2 = 3.8 right? 3.8 M.

You have taken 70% of portfolio return. There is no position of 70% so rethink on those lines.

Hope this clarifies.