CFAI 2013 PM Question 50 - CFA Level 3

This topic has 10 replies, 3 voices, and was last updated Oct-17 by Alta12.

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- vincentt
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  19 Oct 2017 at 6:46 am
  
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  @alta12 @RaviVooda‌
  For the 9th Itemset question 50, it ask about how to achieve the new target duration, in exhibits 2 there’s info on CTD and also future contracts, how do we know when to use CTD or futures?
- RaviVooda
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  19 Oct 2017 at 7:37 am
  
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  @vincentt, can you paste the question, I am not able to lcoate it.
- vincentt
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  19 Oct 2017 at 7:40 am
  
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  50. Given Bixby’s new target duration and the data in Exhibits 1 and 2, the most appropriate action using Treasury futures is to sell:
  A. 646 contracts.
  B. 789 contracts.
  C. 811 contracts.
  
  @RaviVooda‌ here u go
- RaviVooda
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  19 Oct 2017 at 7:44 am
  
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  @vincentt‌ we settle all bonds with Cheapest to deliver bonds
  
  (4.25-5.5)/5.3 * (300,000,000/97750) * 1.12 =811 contracts
- vincentt
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  19 Oct 2017 at 7:45 am
  
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  @RaviVooda‌ so the future price is for anything apart from bonds?
- RaviVooda
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  19 Oct 2017 at 7:46 am
  
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  @vincentt two forms here
  
  no of contracts = ((target duration – current)* price )/Dollar duration per futures contract
  
  it is same as (((target duration – current)* price )/(duration of CTD bond * Price of CTD)) * CTD conversion factor
- vincentt
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  19 Oct 2017 at 7:55 am
  
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  @RaviVooda‌ can you tell me which reading and los is the first one?
  
  So you’re saying the future price contract in exhibit 2 is just a distraction and it’s irrelevant in this context?
- RaviVooda
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  19 Oct 2017 at 8:00 am
  
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  @vincentt both formulas are in fixed income reading only. Both are in the same LOS.
  
  in exhibit 2, had the duration of futures contract been given, we can calculate it. In this case since it is not given we can use the cheapest to deliver bond where all details are given
- vincentt
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  19 Oct 2017 at 8:04 am
  
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  they look similar hence i missed that one out, thanks for point it out @RaviVooda‌
- RaviVooda
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  19 Oct 2017 at 8:15 am
  
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  @vincentt I too didn’t closely notice it until u asked me. When I solved problem, I however used CTD bond and got it right 🙂
- Alta12
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  19 Oct 2017 at 9:57 am
  
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  @vincentt @ravivooda I used CTD too. Didn’t notice the futures price distractor.
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