# What's the duration of cash? 2009 Schweser's quicksheet

In 2009 Schweser’s quicksheet, it says: 1. If reducing all interest rate risk, MD_T(cash) = 0 2. If allocation only part of the portfolio to cash, then MD_T(cash)=0.25. Could someone give me an explanation? I can’t find it in notes or books.

any help? Thanks very much!

The duration of cash will be given in the problem so don’t worry about that. When allocating \$ from bonds to cash use the duration of cash as DUR target. If allocating from equity to cash - cash duration is not applicable. If removing all interest rate risk (either stand-alone or allocating from bonds to equity use DUR target = 0)

I do not know where you got the #2 statement. I think it is only part of the explination… I think the 0.25 duration you are referring to is the frequency of when the floating rate resets. If you are in a recieve floating instrument with quarterly payments, then the duration would be somewhere between 0 and 0.25. If it where semi-annual, it would be somewhere between 0 and 0.5.

Thanks so much! I am confused which method to use when create a synthetic cash position. In the notes, there are two ways: 1. The first is in the synthetic cash section: N = -V_p (1+R_F)^T/P_f 2. The second one is in the adjusting portfolio allocation section: N = [(B_t - B_p)/B_f] *(V_p/P_f) B_t = 0 which one should i use?

These two statements are in the 2009 Schweser’s quicksheet page 5.

I find the answer on volume 5 p333 1. The first is in the synthetic cash section: N = -V_p (1+R_F)^T/P_f Here, the stock portfolio has to be identical to the index. It cannot have a different beta. 2. The second one is in the adjusting portfolio allocation section: N = [(B_t - B_p)/B_f] *(V_p/P_f) B_t = 0 This is more general and can be used to eliminate the systematic risk on any portfolio. Note, however, that only systematic risk is eliminated.