This stuff is tested in both this year’s and last year’s mocks…watch out! ************************* 1.Effect of the external interest rate environment a.Return on the default-free benchmark assuming no change in forward rates b.Return due to change in forward rates 2.Contribution of the management process a.Return from interest rate management (duration, convex, yield crv ch): How well the manager predicts interest rate changes. Each security in the portfolio is priced as if it were a default-free security. The interest rate management contribution is calculated by subtracting the return of the entire treasury universe from the aggregate return of these repriced securities b.Return from sector/quality management: Repricing each security in the portfolio using the average yield premium in its respective category. c.Return from issue selection: Total return of a security minus all the other components. d.Return from trading activity (residual effect): Total portfolio return minus all the other components
i believe there is an Unexpected changes in fwd rates/external interest environment component in 1)1.Effect of the external interest rate environment as well. can someone confirm?. thanks
i read the piece again and actually the first one (a) is the expected, the second one (b) is the unexpected component, thanks for pointing this out.
For interest rate effect, what is the return of entire treasury universe?