# Your Intepretation>>> - R23 CFAI Practice Problems Q14 Page 266

Hi all,

I was one of those who was tricked by this question.

I know they say in the statement under

Ibahn 2 “purchase additional bonds that have the same duration as the current porfolio.”

I used 125 million as the portfolio value size and hence got 4.1 option A.

Maybe it is just late at night here in Australia or it also occurred to me that

• the dollar duration for the 100 or 125 million portfolio would both be \$5,125,000

• it doesn’t explicitly state that they will add \$25million, just that they will use funds from a \$25million overnight repo agreement that we need to just use the \$100million as the portfolio size.

If someone can clarify that my thinking is correct on why I got it wrong that would be great.

Thanks guys and girls.

Hey i just came across this same problem, i used the 125m to work out the duration too

did you manage to figure this one out?

you have a 100M portfolio, you leverage it with \$25M

\$Duration after leverage = 5125000

so duration = 5.125 (or 5.13)

Sorry guys but I come across the same issue here and they say “we use 25m USD through repo agmt IN ADDITION to the current 100m ptf…” that makes up 125m, this doesn’t help in my eyes.

when they ask you to calculate the duration here - they are aking for duration of the equity. and that is 100 M because your leverage was 25M which does not count

thanks CPK123 but DD should be divided by the market value of your portfolio ( DD = MV x 0.01 x D) which is the overall market value 125M (debt + equity = total invested assets ) in my eyes. The main formula is however clear.

thanks indeed

nope. when they want duration of equity - it should be divided by your equity PORTION only.

Due to the leverage implied by the 25M portion - the equity duration went up to 5.125 …

thanks CPK123, you are my benchmark!

Best Regards