Schweser 2010 Volume 1 Exam 3 *** Morning Exam Q9D *** I think there is a typo in the answers - can you please confirm or correct me if I’m mistaken? See my calculations below. Specifically, why did Schweser calculate Bond X’s currency advantage over Bond Y by reversing the formula? I think the answer is… YIELD ADVANTAGE for Bond X over Bond Y = Yield (dis)advantage + Currency (dis)advantage = [4.55 for X - 7.05 for Y] + [3.05 for X - 5.65 for Y] = -2.50% + -2.60% = -5.10% HOWEVER, Schweser thinks the answer is… YIELD ADVANTAGE for Bond X over Bond Y = Yield (dis)advantage + Currency (dis)advantage = [4.55 for X - 7.05 for Y] + [5.65 for Y - 3.05 for X] = -2.50% + 2.60% = +0.10% *** Afternoon Exam Q18.4 *** Schweser calculates Dollar Duration (DD) differently in Q 15.1 and Q 18.4. See my calculations below. Specifically, in question 18.4, Schweser OMITS PRICE in the DD equation - WHY? In question 15.1, DD = Price x Value x DUR x change in r = 104.98 x ($10mm / $100 par) x 10.32 x 0.08 = $866,710 In question 18.4, Schweser OMITS PRICE in the DD equation - WHY? DD = Value x DUR x change in r = $25mm x 9.90 x 0.005 = $1,237,500 Thanks in advance for your guidance!
*** Morning Exam Q9D *** I think there is a typo in the answers - can you please confirm or correct me if I’m mistaken? See my calculations below. Specifically, why did Schweser calculate Bond X’s currency advantage over Bond Y by reversing the formula? I think the answer is… YIELD ADVANTAGE for Bond X over Bond Y = Yield (dis)advantage + Currency (dis)advantage = [4.55 for X - 7.05 for Y] + [3.05 for X - 5.65 for Y] = -2.50% + -2.60% = -5.10% foreign currency premium/discount = Rdc - Rfc 3.05% for X - 5.65% for y = -2.6% discount on Y (or 2.6% premium on X = X currency advantage) the long way to do this is to calculate return on X and Y with respect to Rdc using Rlc+Rc or Rlc+Rdc-Rfc for x => 4.55%+4.55%-3.05%=6.05% for y => 7.05%+4.55%-5.65%=5.95% In DC terms, X has 10bps advantage. For # 15 and 18 Question 15.1 uses the price in the equation because we need to MV of the position, where as in Question18.4 I assume that MV of a 180day LIBOR loan remains at 25mn. Where my issue is is that in 15.1, DDctd is given for 1% change in rate, so you adjust it to reflect 80bps change in rate. If you adjust the DDctd in 15.1, why do you not make the same adjustment in 18.4 to reflect 50bps change in rate you are trying to hedge for? Thanks.
bidder for the breakeve spread analysis bit it was because they specifically said that bonds should be compared in terms of excess returns (not total returns) therefore we needed to adjust for the currency as well - just another ittle thing to remember on saturday! shanghaiexpo - not sure if you’ve seen but there’s an errata for Q18 where the CTD duration of $6,932.53 is for 50bps not 100bps
thnx grgkir001 … i was not aware that there was an errata. makes much more sense now. Thanks!