Is there such a thing as a butterfly “twist?” Do they actually mean butterfly “shift?”
sorry-i’m referring to the morning section of 2011 mock
Since none of the answer choices said: “There’s no such thing as a butterfly twist” I would suggest you just assume the 2 terms are interchangeable…
thanks! i initially interpreted as a twist, so i wouldn’t have gotten the barbell effect correct.
I don’t see how portfolio B is overweight the short term and long term maturities… Is it when your key rate duration is low for short term and long term that you are overweight at those maturities? This question threw me off because CFA2 2010 Mock, morning question 17, literally asked for the same calculation. You take the sum($exposure*key rate duration*rate change). Back to this question, since portfolio B has the lowest key rate durations in the short and long term maturities, I thought this would change the least. Any thoughts?
i had no idea what this Q is. Is the number represents weight for each portfolio? If so, Portfolio B looks like a Barbell starting with year 5.
This one screwed me too. I sort of left the 5 year maturity out of my analysis I guess, but they could have made it a little more obvious.
is it because of the key rate duration of 2.3 in the 30yr maturity? This question seems a bit crappy, no?
This got me at first too. If you think about it makes sense, if you draw an upward sloping yield curve and then draw a straight line above it (positive butterfly - less curvature) you will see that the spread between the short term and longer term rates is larger than the intermediate term, hence why portfolio B is the most effected.
I took a long look at this question as it should have been an easy one and I too got it wrong. I think the wording is done so as to through people off course. They mention that interest rates will increase in the next 6 months. Given that, the next maturities to look at are indeed the 5 year which takes you to portfolio B. Then the barbell fits with the positive butterfly to give the worst expected performance. Very crafty question.
portfolio B is a barbell portfolio (the larger durations along the short and long term horizons) …and starting from a normal yield curve - upward sloping and concave - the butterfly twist reduces the curvature of the curve therefore the shorter and upper portions of the curve have to increase more than the middle of the curve…if short and long sections of the curve rise higher than the middle (remember, a rise in interest rates will worsen the bond performance), then the barbell portfolio performs worse the three portfolios are easily distinguishable by looking at the higher duration areas…looking at the bullet portfolio it has a high duration in the middle while the numbers are low are both short and long ends hope this helps