2012 Mock Part A ii. Errata?


I am not sure if I am fully understanding this question or it’s an Errata. The questions asks for the duration of the leveraged portfolio. So the formula is Da * (Asset$) = De * (Equity$) + Dl * (Borrowed$). I believe I should solve for Da and not De. The questions says solve for duation of levered portfolio, not that of equity/bond portfolio. Even their legend for formula is kind of messed up. Da = Duration of (Bond Portfolio) and A = (Initial Funds plus borrowed funds), not (Bond Portfolio). Can anyone elaborate on this?. Btw, I got an answer of 3.88 for Da instead of 20.05 for De.

I interpreted this question the same way you did and got 3.88 types answer.

It was confusing since they asked for leveraged portfolio and not specifically asking for the Equity. But duration of assets includes Equity (initial investment) AND borrowed funds.