Fully Hedging vs Synthetic Cash

CFA Level III Derivatives
#1

I’m feeling a little embarrassed trying to figure this out so close to the exam, but can someone help me with differentiating these two concepts? I thought I had them down but just got a Kaplan mock question wrong.

Would a question have to specify synthetic cash or equity for us to use V (1+rf)^T?

In other words, if we just read that someone wants to fully hedge their equity portfolio against market risk, we would just set Bt=0 and in the end not use V (1+rf)^T, right? Whereas, if they actually want the synthetic cash return we ignore all Betas in the formula and use V (1+rf)^T/full contract price.

Am I off on this?

#2

If the question specifically states “synthetic cash/equity” and a risk free rate is given, then do the V(1+rf), and forget the beta stuff (just do the steps that Kaplan states)

All other times, use the traditional formulas. This has not failed me yet.

I think in standard practice you would always use a Future Value (like for pre-investing where you just use V = The Cash Flow to be received, no calculations). The curriculum just ignores that outside of the “synthetic cash/equity” formulas.

#3

That’s what I figured and I’ve had the same practice exam experience (sans the one I just missed).