So the CFA answer (solve for swap notional) uses 4.2 as the MDURp ?
Note that, in this case, the portfolio is the liabilities, because the swap needs to make up the duration difference to meet the target of 12. The fixed-income portfolio is only 60% of the liabilities; therefore, 7 × 0.60 = 4.2.
I just don’t get it. The example clearly states that “the assets have a MDUR of 7”, and “liabilities have a MDUR of 12”.
First, if MDUR of $100mn of assets is 7 , then the MDUR of the 60mn fixed income assets must be 11.66. (60/10011.66 + 40/1000).
Second, they are saying that “the portfolio” is the liability portfolio. Ok. But then they use the asset MDUR * 60%. Remember, the liability MDUR is 12, so 12 * 60% = 7.2.
Just seems they are conflating principles.
Am I dumb or is this question poorly worded?