CFAI EOC Reading 30 - Q13

Can someone please explain why using the duration of an overnight repo vs. A 2 year repo increases the levered portfolio duration more? Thanks.

the repo is a liability. the shorter the duration of the liability the less you subtract from the numerator in the leveraged duration formula. assets (dur) - liab (dur) / equity = leveraged duration

I’m a bit confused. I was always under the impression that the duration of assets = duration of the leveraged portfolio Not that the duration of equity = duration of levered portfolio Can you please confirm? Thanks

http://www.analystforum.com/phorums/read.php?13,1157186,1240358#msg-1240358

Yea…this messes me up too. my statement is based on page 109, under the duration of equity forumla. The calc comes up with a duration of EQUITY for the bond portfolio of 11.5. Then it says “Duration at 11.5 is almost 3 times the duration of the unlevered bond portfolio”, so it sounds like they are calling the 11.5 the duration of the levered bond portfolio. I think to bottom line is that borrowing funds with a duration of 0 (or some other low number), and then buying assets with a meaningfully higher duration will increase overall portfolio duration.

Thanks for the help it makes sense now. Goodluck