CFAI Volume 5, Page 300, Example 3 Q2 asks to analyse the return on your hedged portfolio. A2 says using Equation 10, the return on the hedged portfolio is equal to 0%. What numbers did they plug in to the Equation to get 0%??? Here is the Equation: R hedged = R + s (1-h)

I just did this. R hedged = R +s (1-h) = .01 + (-.05)* (1-.08) = .01-.01 = 0

How enlightening - why couldnâ€™t they have printed that in the answers?! Thank you so much!

You are welcome

derswap07 Wrote: ------------------------------------------------------- > I just did this. > > R hedged = R +s (1-h) > = .01 + (-.05)* (1-.08) > = .01-.01 > = 0 There is an error above: R hedged = R +s (1-h) h is .8 not .08 (min variance hedge ratio 100-20 = 80%) = .01 + (-.05)*(1-.8) = .01 - .01 = 0

Thanks for pointing this out inbead.