Mock 2012 Q39 (Spoiler Alert)

Bond/equity 27.5bil / 27.5 bil

balance target Bond/Eq 40/60 - amount need to be reblanced 5,5bil

Sato wants to know if other derivatives could be used to rebalance the portfolio. In response, Watanabe describes the characteristics of a pair of swaps that, together, would accomplish the same rebalancing as the proposed futures contracts strategy.

Ques

  1. Which of these is most likely to be a characteristic of one of the two swaps Watanabe describes to Sato?

A. Receive LIBOR.

B. Pay return on Nikkei 225 Index.

C. Receive return on Nikko Bond Performance Index.

pls give ur explaination

Ans A - Total return Swap

Current mix is 50:50…Target 60:40

So basically Sato wants to reduce bond exposure & wish to gain equity exposure…

If using Swap, he would like to pay bond return or gain equity return

B - incorrect coz it pays equity return

C - incorrect coz it receives bond return

Whose 2011 mock?

Hank: CFAI mock 2011

They said need to use a pair of swap together.

the answer is A, receive LIBOR.

I agree that B&C is not correct (opposite position) but with a libor receiver swap, it become sth like a pay fixed swap (receive float LIBOR).

Is that another swap pay LIBOR - receive equity index return?

Why do not use a swap pay bond index - receive equity index ?

I am looking right at the 2011 CFA mock and question 39 is entirely different. Sure you got the right year?

Sorry , …2012 one

it involves series of swaps:-

FI swap

Pay Bond return - receive libor

then Equity swap

Receive return on Equity - pay libor