So what’s the consensus with this? I was actually going to post this exact question before I saw it here! Is it possible for it to be (beta t - beta p)/ beta f x ((Vp(1+rf))/Pf)? i.e. always use (Vp)(1+rf) whenever it’s given? Schweser just uses the beta formula for reallocating from equity to bonds (or visa versa) and the VP(1+rf) formula when asking only about synthetic positions. Very confusing!
I agree, this really confused me on the Mock. I thought I had done problems with Schweser using beta. I suppose they must not have given the Risk Free Rate in those problems … at any rate, it seems from the Mock and Samples that when switching between Equity and Cash synthetically they prefer the RFR method.
Also, if you were trying to create synthetic cash but your portfolio had a higher beta than the index underlying the futures (like some sort of cross hedge) you were using, would you need to multiply the top by the beta?
they teach one as moving assets and the other as “synthetic” so that might be a perceived difference. even though they might be the same thing. sorry, don’t have time/inclination for too many of these theoretical threads at the end (even though i’ve started a couple myself).