mcpass Wrote: ------------------------------------------------------- > AF 2 - CFAI 0 Agreed. I am officially revising my Mock exam score upward. I appreciate those who have pursued this with CFAI, especially following up after their lame “over three months” response. That’s about the worst cover-up I’ve heard in a long time. Not only is it wrong, but (and this is probably because it’s wrong), there’s no mention of anything like this in the curriculum.
motoloco Wrote: ------------------------------------------------------- > After the CFa answer…I am even more confussed Don’t be. Let me summarize: We’re right. They’re wrong.
Holy crap, they are working late over at CFAI. Here is my email and the response I just got. Me: Okay, that makes sense. Although the paragraph for the question said “…wants to change her portfolio mix to 80 percent bonds and 20 percent equity for the next three months…” So the word “for” above should really be “over”, correct? Because one could make the transaction instantaneously, leave them in place for 3 months and then reverse them, thus eliminating any cash duration exposure. CFAI Response: Yes, it could be made more clear. Thanks.
wanderingcfa Wrote: ------------------------------------------------------- > Holy crap, they are working late over at CFAI. > > Here is my email and the response I just got. > > Me: > > Okay, that makes sense. Although the paragraph for > the question said > > “…wants to change her portfolio mix to 80 > percent bonds and 20 percent equity for the next > three months…” > > So the word “for” above should really be “over”, > correct? > > Because one could make the transaction > instantaneously, leave them in place for 3 months > and then reverse them, thus eliminating any cash > duration exposure. > > CFAI Response: > Yes, it could be made more clear. Thanks. While I appreciate your communicating with the CFA, I would have made the following two points: FIRST : There is absolutely no basis for using an assumed duration of cash in order to simulate making a shift between asset classes “over” a given time period. None. SECOND: Even if there were a basis for your argument, it is not in the curriculum and therefore shouldn’t be in this problem set at all. They are wrong either way. Even if you make the word change, the CFAI is still wrong.
Plyon, with all due respect, I can’t tell if you’re helping me or hurting me. When I read schweser, it clearly states that if moving from bonds to stock, bring down duration to .25 and then increase beta to desired level. Intellectually, I completely agree with you and I disagree with CFAI, but at the end of the day I just want to get the answer right.
agree with smarshy…I looked through schweser on this again…and every example where they are shifting from bonds to equity…going through “synthetic” cash in between…if they’ve given the duration …they’ve used it… and you’re right…they haven’t discussed about whether the change instantaenous or OVER a period of three months… does it say anywhre in the cfai text that if it’s instantaenous you don’t use duration? cause that’s not clear in schweser …
For everyone’s benefit, I try to cite primary sources and put my citations in my very first post in a thread. But in case you missed it, here it is repeated In fact, on the pages in curriculum referenced by the guideline answer, they specifically use ZERO (see V5 very first line of p 336: “Because no movement of actual cash is involved in these futures market transactions, the modified duration of cash is effectively equal to zero”. I don’t have my Schweser here with me at work to refute unsubstantiated claims, but nobody else here is offering specific citations, so I think it’s pretty clear that I am trying to be most helpful. However, I have veered into JoeyD-like territory (in making too much of a small point). So don’t worry about this too much, only days before the exam. I don’t think this is a crucial point for the exam. However, if it does come up, I am confident that the question, once subjected to proper peer review, will be graded in a manner consistent with the curriculum and consistent with my thesis.
Plyon, no one doubts that you are trying to be helpful. We’re all after the same thing here: the right answer. Schweser book5, page 19, middle of the page: “To reallocate an amount $V from bonds to equity: 1. Reduce its duration to the duration of the cash portion of the portfolio by shorting bond futures (create synthetic cash) 2) Increase equity exposure by buying equity index futures.” Immediately beneath this is an example, where the cash duration is given as .2, and the example uses it. perhaps we just need to use it if its given, use 0 if its not.
I will check it out when I have access to Schweser later today.
I have just looked at both of these problems and I am still confused. First note that the example on page 336, exhibit 6, of the CFAI text that they are long bond futures. In the schweser example Smarshy notes you are short bond futures (creating “synthetic cash”). Exhibit 7 in the CFAI text has you going short bond futures and uses the duration of cash (same overall movements as schweser example), although it is specifically mentioned in the text that 0.25 is there target. This is really confusing because the rational for not using the duration of cash in exhibit 6 is “Because no movement of actual cash is involved in these futures market transactions, the modified duration of cash is effectively equal to zero”…well there is no movement of actual cash in exhibit seven either. Exhibit 7 also indicates they are doing this to improve liquidity and then the last paragraph on page 336 tells us this won’t improve liquidity at all. What the hell?
plyon Wrote: ------------------------------------------------------- > wanderingcfa Wrote: > -------------------------------------------------- > ----- > > Holy crap, they are working late over at CFAI. > > > > Here is my email and the response I just got. > > > > Me: > > > > Okay, that makes sense. Although the paragraph > for > > the question said > > > > “…wants to change her portfolio mix to 80 > > percent bonds and 20 percent equity for the > next > > three months…” > > > > So the word “for” above should really be > “over”, > > correct? > > > > Because one could make the transaction > > instantaneously, leave them in place for 3 > months > > and then reverse them, thus eliminating any > cash > > duration exposure. > > > > CFAI Response: > > Yes, it could be made more clear. Thanks. > > > While I appreciate your communicating with the > CFA, I would have made the following two points: > > FIRST : There is absolutely no basis for using an > assumed duration of cash in order to simulate > making a shift between asset classes “over” a > given time period. None. > > SECOND: Even if there were a basis for your > argument, it is not in the curriculum and > therefore shouldn’t be in this problem set at all. > > > They are wrong either way. Even if you make the > word change, the CFAI is still wrong. +1000000 and btw who gives a cr*p what schweser says on this? who is writing the questions!!! i guess it’s too late to discuss this, the exam papers must be printed already. I’ll flip my lucky dime if this comes up in the real thing. move on and good luck!
itstoohot Wrote: ------------------------------------------------------- > > and btw who gives a cr*p what schweser says on > this? who is writing the questions!!! > The whole point is that CFAI says don’t use the duration of cash and then their mock exam uses it.
i know i know. in case you missed it my twin brother itstoohot also posted on this subject in the previous page.
This particular calculation is so easy that it would be a shame to miss 3 points on it. That is what bothers me.
eaxctly, this question should be a lay up. free points. this is really pissing me off. i think the mock is wrong. why would they do this transaction over a 3 month period? they dont want to impact the market? this is crap. 3 month vwap for 300 futures. lol this is absurd.
not your fault, if you miss it bec some dude @ CFAI thinks otherwise so be it then. you have enough knowledge to compensate it on the other areas. there’s no value to discuss this for anyone here at this point. reread GIPS, solve a couple ethics Qs. feel better.
yeah. i agree. i am done with this. i think i spent about 10 hours on this f’ing question. i am a sales trader and cover FI futures, i asked a client about this who is also taking level 3 and he even has no idea about this. this guy trades FI all day w/ me. i just hate to give up on free points, it drives me nuts.
OK, I think I’ve found a comfortable place on this. I used schweser, and I took a class with them, and as part of the class they gave us 2 giant books filled with powerpoint slides which essentially outline the curriculum. (It’s the only reason to take the class, imo) Anyway, these slides tend to boil everything down. Regarding this issue, the outline clearly says: “Note: if changing portfolio allocations, assume MD=0. If creating and then staying in synthetic cash, assume MD=.25, unless you are given a value.” So I think that’s right, and I think (based on what others have said) that CFAI screwed this up on the mock (and they have admitted that to a degree). They should have been more clear in terms of stipulating that the position was to stay in sythentic cash for 3 months. If they had, this storm never would have happened. So thanks to Pylon and others for all the help. I think I got this one now.
Still doesn’t jive with the example you gave in schweser on page 19.
dammit, that’s true. Well, there goes that good feeling I just had.