In the mock, question 50, question about definition of yield beta. I chose C: yield beta captures relationship between portfolio and the futures contract. They say wrong: yield beta captures relationship between portfolio and CTD bond. However, from Schweser, book5, page 10: “The yield beta shows the relationship between the portfolio and the implied yield of a futures contract”. WTF???
Good question, I still have that one on my to-review-list.
Definition in the back of the book is, “A measure of the sensitivity of a bond’s yield to a general measure of bond yields in the market that is used to refine the hedge ratio.” It seems this is saying the same thing as Schweser, no?
Secret Sauce uses two definitions. The first one is based on CTD bond, the second one is based on futures contract. Very confusing … I got that question wrong too by the way.
ng, that’s indeed what smarshy says SChweser states and that’s completely different from CFAI in the mock. I had it wrong, the conversion ratio is what I thought you use for the CTD, the yield beta is purely difference between the portfolio and future underlying. anyone else?
For what it’s worth, I asked a Schweser professor and he responded via e-mail: The conversion factor indeed makes the adjustment for differences in the futures contract and the underlying asset. The yield beta is an additional refinement to find a more accurate number of futures contracts. The yield beta is a measure of the sensitivity of the underlying bond price to changes in the market (think systematic risk in equities). This adjustment reflects the extra risk (systematic) that might affect the performance of the hedge. So, the analyst uses the yield beta when he/she believes the conversion factor does not capture all the extra risk.
Wow, this gets less clear every minute. I propose that if this comes up on the exam in a PM set, we all answer “C”. We’ll either all get it right, or so many people will get it wrong that CFAI throws out the question. My proposal for what to write if it comes up in an AM question will result in jail time.
So I’m still not clear on why CFAI thinks it’s WRONG to state that the YB reflects relationship between portf. and futures.
IMO, this would have to be one of those throw away questions, the distribution of wrong answers would be high. I think the mock exam consists of all their half crappy stuff they can’t put on a real exam.
Half crappy stuff is my achilles heel. Smokin’hot, where are you, btw? New York? Boston? (I’m just curious, I’m not coming for you) (unless you want me to)
I lived in CT, fairfield county until around 9 months ago, for my husband’s job we moved to Louisville KY. It’s actually awesome here, great community, very progressive. Loving it.
I grew up in fairfield county. Nice part of the world. Just remember, the South lost in 1864. Don’t let them convince you otherwise.
very funny… I’m a Jersey girl, not a chance I’ll let them forget.
The implied yield on the futures contract IMO is the yield of the underlying CTD bond (because a futures contract does not really have a yield right) The yield beta is the correficient of the regression between the bond you are hedging and the CTD bond (this is pretty clear in the CFAI books). The way I see it a future does not have a yield, the CTD bond underlying it does; which is why C cannot be right.
smokin’hot Wrote: ------------------------------------------------------- > I lived in CT, fairfield county until around 9 > months ago, for my husband’s job we moved to > Louisville KY. It’s actually awesome here, great > community, very progressive. Loving it. It is a very beautiful area. On weekends I used to drive all the way from Chicagoland to go climbing at the Red River Gorge by Lexington.
smokin’hot Wrote: ------------------------------------------------------- > very funny… I’m a Jersey girl, not a chance I’ll > let them forget. Darn Girl, KY , that is soooo too south for me. Do they want to separate from Union? I live In Indianapolis, this is lowest midwest south I can go. No mas.
Tibwa, next year, last weekend of May, your place??? We don’t have to study, we may as well watch the race. I’d die to go there once.
Got this one wrong too, but didn’t bother researching it. Sounds like the CFA may have gotten a fourth question wrong. I’ll have to research it after work when I have my books. Unbelievable.
tibwa Wrote: ------------------------------------------------------- > smokin’hot Wrote: > -------------------------------------------------- > ----- > > very funny… I’m a Jersey girl, not a chance > I’ll > > let them forget. > > > Darn Girl, KY , that is soooo too south for me. Do > they want to separate from Union? I live In > Indianapolis, this is lowest midwest south I can > go. No mas. you live in Indy!? I used to go there very often…when I was a student at IU, bloomington … good ole Btown!..actually I was even in Indy this past december…visiting a very close friend up carmel…maybe next time I’ll visit you! and yeah…watching the race would be sweeet…
Just looked the CFAI notes book 4 Page 112. It states that Yield Beta is volatility over bond which need to be hedged. So it portfolio need to be hedged this yield beta provide further refinement for hedging and measure how one’s portfolio is sensitive to CTD. (Meansured using a regression analysis Yield on Bond to be hedged = a+ b(Yield on CTD bond) + e