CFA CFA Level 3 300 Hours mock exam Question #29

# 300 Hours mock exam Question #29

• Author
Posts
• JewelSwizz
Participant
• CFA Level 2
1

Could somebody help on how the result to this question is choice C? I al a bit lost in return computation. I cannot find 2.1%. Thanks

• jerrylow
Participant
• CFA Level 3
0

• jerrylow
Participant
• CFA Level 3
0

same…….i could not get the answer 2.1% either.

• jerrylow
Participant
• CFA Level 3
0

I am guessing….

Coupon yieldÂ  Â = 2.56%

%change in bond price = 0.18%

Credit spread changeÂ  Â = -0.47%

YTMÂ  changeÂ  Â = -0.99%

ForexÂ  = 0.78%

total = 2.06%

I definitely want to defer to another for a correct answer.

• 0

Hey @jerrylow, @jewelswizz, thanks for spotting this error, it seems that we have missed out Q29’s explanation in depth in the email. You seem right @jerrylow

Here’s the explanation and workings, hope this helps!

Total expected return = Rolling yieldÂ Â± E(Change in price based on investorâ€™sÂ benchmark yield view)Â Â± E(Change in price due to investorâ€™s view of credit spread)Â Â± E(Change in price due to investorâ€™s view of currency gains or losses)

Rolling yield = Coupon income + Rolldown return

Coupon income =Â Annual coupon payment/Current bond price

=Â \$2.50/\$97.50

= 2.564%

Rolldown return = (Bond pricet=1 – Bond price t=0) / Bond price t=0

=Â (97.68 – 97.50)/97.50

=0.185%

Therefore,Â Rolling yield

= 2.564% +0.185%

= 2.749%

E(Change in price based on Steven’sÂ benchmark yield view)

= [â€“MD Ã— Î”Yield] + [1/2 Ã— Convexity Ã— (Yield)2]

= [-4.72Ã—0.0020]Â + [1/2Â Ã— 0.20 Ã—Â 0.00202]

= -0.94396%

E(Change in price due to Stevenâ€™s view of credit spread)

=Â (â€“MD Ã— âˆ†Spread) + [Â½ Ã— Convexity Ã— (âˆ†Spread)2]

= (-4.72Ã—0.0010) + [1/2 Ã— 0.20 Ã— 0.00102] = -0.47199%

E(currency gains or losses) = 0.78% (given)

Therefore, total expected return

= 2.749% -0.944%Â -0.472% + 0.78%

= 2.11%

Viewing 4 reply threads
• You must be logged in to reply to this topic.