#12 - the solution states that the hedge fund was engaged in stock price manipulation. I must be missing something, but I do not see where that comes into the case.
#37 & 38 - Number 37 - the problem requires altering the portfolios exposure from bonds to cash and the solution shows the use of a target modified duration that is 0.25 for cash. Then, in question #38 it transfers the exposure from cash, but uses a modified duration of 0 for cash. I do not understand when we are suppose to use 0 and when we are supposed to use the 0.25 for cash’s modified duration. At the moment, I have tried solving it each way and luckily there has only been one of the possible solutions in answer choices. however, I would like to know the correct approach. Can anyone shed some light on this? Thank you in advance.
cash should not be used , there is no cash in the portfolio.
I got #12 wrong too , but for a different reason . There is clearly manipulation ( pump and dump)
Next question
For question 38, you are using Beta and not modified duration. Beta for cash is 0.
Thank you for your response. BTW, you have quite a few well written explanatinos on the forum, thank you for those as well.
Your first comment is what I concluded after taking the CFAI 2009 Mock. However, in #37, the bond exposure is transferred to a modified duration of 0.25 (it says, “for cash” in the solution). I dont see why we would not have eliminated the exposure… so make it 0 and the add our equity exposure. Then to make it a bit more confusing, in the following question, that asks us to now transfer the exposure into equities… it is using 0 for the existing duration (instead of the 0.25 in #37). The use of the 0.25 is what does not seem clear.
Regarding #12… Ah, I see it. I’m assuming it is due to the lack of justification to purchase the stock and the quick sale after the PMs presented positive views in the media coverage. Somehow glossed over it.