CFA CFA Level 3 300 Hours mock exam Question #29

# 300 Hours mock exam Question #29

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• 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

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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%

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)