yield beta quiz

CFA Level III
#1

yield beta is which of the following? It came up on 2009 mock exam and i did it wrong (not realizing i am not even sure about so basic stuff till now.) 1) Factor exposure of bond to be hedged / Factor exposure of futures 2) Factor exposure of bond to be hedged / Factor exposure of CTD 3) or any other

#2

Final Answer: B

#3

B?

#4

http://www.analystforum.com/phorums/read.php?13,1143043

#5

So its B?

#6

I would say A. If you look at the Schweser quicksheet, the formula for yield beta has a bond change in the numerator and a futures change in the denominator.

#7

Can someone be kind enough to remind me what a country beta is and it’s related formula? I am drawing a null on this one?

#8

Pg. 120, Vol. 4 Yield on bond to be hedged = a+b(yield on CTD bond) + error term Yield beta: expected relative change between the bond to be hedged and the yield on the CTD.

#9

LGL, I think it would basically just mean the sensitivity of a foreign country to the domestic country factor exposures. For example, if X is domestic, and Y is foreign and country beta of Y relative ti X is 1.5 If X changes by 1%, Y would change by 1.5%.

#10

you multiply with country beta for international investing. Formula is multiply international duration with country beta. Yield Beta is for heding bond futures. Calculation is Yield Beta X (Target - current duration)/ future duration X ( Notional Amount / Futures value/ Conversion Factor)

#11

Thanks guys. So when the bond future under consideration is domestic bond then the Yield Beta multiplicative terms goes away, right?

#12

Thanks guys. So when the bond future under consideration is domestic bond then the Yield Beta multiplicative term goes away, right?

#13

The answer is 2, correct?

#14

it’s both 1) and 2)!!! The futures is the CTD!!! so the yield beta should be exactly the same to the CTD and to the Futures!

#15

level3aspirant Wrote: ------------------------------------------------------- > yield beta is which of the following? It came up > on 2009 mock exam and i did it wrong (not > realizing i am not even sure about so basic stuff > till now.) Me too. I just learnt that 2 days ago from some past sample Q. Is the answer “2”? However, I also largely agree with whystudy. Answer please!!

#16

Double post.

#17

whystudy Wrote: ------------------------------------------------------- > it’s both 1) and 2)!!! > > The futures is the CTD!!! so the yield > beta should be exactly the same to the CTD and to > the Futures! Incorrect; the futures consists of the underlying bond(s) either increased or decreased by a conversion factor. Lemme take it one step further from that same page that sparty419 quoted: “For hedging purposes, the variables are the yield on the bond to be hedged and the yield on the cheapest to deliver bond.” Now if you guys and gals wanna argue semantics, feel free; for those who’d like to get this question correct on the test, there’s your answer.