CFA CFA Level 3 300 Hours mock exam Question #29

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300 Hours mock exam Question #29

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      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

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

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      I am guessing….

      Coupon yield   = 2.56%

      %change in bond price = 0.18%

      Credit spread change   = -0.47%

      YTM  change   = -0.99%

      Forex  = 0.78%

      total = 2.06%

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

       

       

       

       

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      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 yield ± E(Change in price based on investor’s benchmark yield view) ± E(Change in price due to investor’s view of credit spread) ± E(Change in price due to investor’s view of currency gains or losses)

      Rolling yield = Coupon income + Rolldown return

      Coupon income = Annual coupon payment/Current bond price

      = $2.50/$97.50

      = 2.564%

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

      = (97.68 – 97.50)/97.50

      =0.185%

      Therefore, Rolling yield

      = 2.564% +0.185%

      = 2.749%

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

      = [–MD × ΔYield] + [1/2 × Convexity × (Yield)2]

      = [-4.72×0.0020] + [1/2 × 0.20 × 0.00202]

      = -0.94396%

      E(Change in price due to Steven’s view of credit spread)

      = (–MD × ∆Spread) + [½ × Convexity × (∆Spread)2]

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

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

      Therefore, total expected return

      = 2.749% -0.944% -0.472% + 0.78%

      = 2.11%

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