motoloco Wrote: ------------------------------------------------------- > Page 335 vol 5 CFA book do indicate “Because no > movement of actual cash is involved in these > futures market transaction, the modified duration > of cash is effectively equal to zero.” > > But, the problem 45 of the mock is exact the same > case, go from stocks to bonds and they do use the > cash¡¡¡¡ > > even CFA institute is confused¡¡¡ You correct! They better not give a crap like that in the exam.
It seems if you change your position from bonds to cash and remain in cash, Assume duration of cash is 0.25 If you change position from corp bond A to corp bond B then assume 0 or if cash duration is provided take that into account. A friend just mentioned that the Schweser video coveres this and also CFAI one of the problem assume the duration of 0.25
Because equities dont have durations… They have beta
Ok frds, here my conclusions In CFA text, there are 4 or 5 problems when is required to change from stocks to bonds and viceversa. THEY ALWAYS USE CASH DURATION = 0 The only example where they use duration cash = 0,25 is when it is required just to decrease de duration from 6.25 to cash…not to convert to equity…in this case they use cash 0,25 Then…Mock problem is wrong, use duration of cash in this case was incorrect regards
motoloco Wrote: ------------------------------------------------------- > Ok frds, here my conclusions > > In CFA text, there are 4 or 5 problems when is > required to change from stocks to bonds and > viceversa. THEY ALWAYS USE CASH DURATION = 0 > > The only example where they use duration cash = > 0,25 is when it is required just to decrease de > duration from 6.25 to cash…not to convert to > equity…in this case they use cash 0,25 > > Then…Mock problem is wrong, use duration of cash > in this case was incorrect > > regards You are right with all your points, thats exactly what i said in the post above, however in the mock the duration of cash was provided. So it isn’t incorrect. Treasury bill = cash equivalent contract
Blkmoon Wrote: ------------------------------------------------------- > I think if they give it to you use it, if not use > 0. My hedges were off just a bit until i saw they > used it, it had the duration for bills as .25 and > I used 0 instead. i agree. i wouldn’t ASSUME a duration of 0.25 if not given to you.
No intentions to start this over but whoever recall doing “Rose Michael Case Scenario” on 2007 sample exam version 2 the cash duration is given .25 Q28, re-allocation is between equity to bond - they use the cash duration in their calculations Q29, re-allocation is between equity sectors - the steps described mentions a change to cash with ZERO beta and from Zero beta to whatever… ?? so is it ok to assume: If cash duration is given, use it when re-allocating between equity/bond or vice versa?? Even if cash duration is given, DO NOT use it in equity/equity re-allocation ?? =(
Anish, CFA book has some examples that show unless otherwise it is required by the question, cash beta is zero (equity/equity and equity/bond).
Hey Tom, good to see you around… If this ‘Synthetic’ thing shows up in the AM session then I am leaving a footnote, “cash duration assumed to be 0.” And if it’s in the PM session, then i am still using 0 and just picking the closest answer option !! 
I reposted on this question (didn’t see this thread in the search). I’m quite certain this is another CFA Mock error.
bump. I did a search on this and couldn’t find anything. Anyone who’s done 2009 Mock exam go over this problem? Question - to use, or not to use cash duration if given? I’ve used only Schweser and never have I seen it mentioned…always assumed 0.
I used a duration of 0 in the 2009 mock Q54 and obviously got it wrong. To be honest I would use 0 again, unless I see somewhere in the question a cash future with a duration that is not 0. This is just another regular stuff-up by CFAI. They force us to study this sh1t so hard and so thoroughly that we begin to pick up their own errors.
if its given to you use 0.25 as the duration of cash. if its not then use zero.
If you’re going from bond to equity target duration = o…because you’re aren’t truly going to a cash position in the interim step. If you are going bond to cash the more accurate duration would be = .25 (the approx. duration of T-Bills) or the exact duration if provided. CFAI screwed up the answer key was the consensus. I went through their 3 pages of errata last night for the text book and it really pissed me off how many math mistakes or incorrect explanations. I can understand simple typos, but that amount of mistakes is unacceptable in material that has been in the books for several years now.
I believe we need to use MD 0.25 for cash. I agree with sponge bob. Curriculum screwed up. I checked 07 to 09 mocks. This type question shows up every year. If it is from bond to equity, they always use 0.25. I cannot believe people before us didn’t question them if they screwed up in mock every year. Books? Considerably fewer people read the books, right? And they were written by different people. Who knows what they are doing. I also checked Schweser video. The instructor clearly said, if given then given, otherwise assume 0.25.
The easiest way to remember it, imo, is to understand what the .25 is…it is the approximate duration of T-Bills. If you’re going from bonds to cash you want a return of some sort…the T-Bills gives this “cash” return and therefore the applicable duration (unless the specific is given…say .23). If you aren’t truly going to cash you use the zero (say from Bonds to equity).
I haven’t done the mock yet, but did anyone get in touch with the CFAI regarding this?