# BAM! Land Mine!

Study Session 10 - Reading 31 - CFAI page 140 - Question 5 While not particularly challenging this CFAI practice question is, in my opinion, not addressed by any LOS. If you have not been working CFAI problems, it is worth checking out.

Dude, what is the question? You’re making me work here…/

I’m not going to type it all out, but it has to do with the return on the on the equity tranche of a CDO.

(0.7)*(0.08) + (0.2)*(0.09) +(0.10)*(x) = 0.11 (0.074) + (0.10)*(X) = 0.11 (0.10)*(X) = 0.036 X = 36% Equity traunch gets 36%

The word “tranche” makes me sick now…

Correct! But it was, in my opinion, a sneaky question that was not covered by any LOS.

I remember coming across this sh!t when I was doing EOC questions. Still, I wouldn’t mind seeing this on the exam, it’s sort of logical.

While we’re on the topic of fixed income, did anyone else find the relative value methodology questions in the CFAI text really mind numbing? Can we see this crap on the exam? It seems unfair.

Any examples? Can’t remember offhand.

Well I left my books at someone’s place but from what I can remember there were questions with excerpts and you had to interpret them. That along with some of the others seemed a bit out of scope terminology wise.

dont worry i highly doubt this will be on the exam … its level 2 stuff guy

I have questions regarding this in general. I started to do some CFAI end of chapters questions and found, especially in derivative section, where the ask questions which is not directly specific to the LOS. For example, LOS state discuss or explain, and then in the EOC problems they hit you with a serious calculation. Should we not assume that the question is there to help us enhance our knowledge rather than as an indicator of a typical question asked on the exam? Thanks

Equity returns of CDO’s should be 0.

Slash Wrote: ------------------------------------------------------- > The word “tranche” makes me sick now… A French word for “slice”. Kind of ironic because it sliced up everything.