2012 Exam 8A

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sunman9

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Why is there a difference in the following:
if you increase the duration of the 28million from 0 (ie cash) to (6) and then transfer the remaining balance portfolio (96 million) from 7.2 to 6.
resulting in 67 contracts to buy
OR
if you increase the duration to the 28 million from 0 to 7.2 and then transfer the whole balance of the portfolio (126 million) from 7.2 to 6.
resulting in 63 contracts to buy
 
Is this the net amount of contracts?
Do both have the same durations and prices?
 
yes net amount of contracts. I did it the first way, however solutions show the 2nd method.
Cant seem to figure out why the difference exists. Same durations, same contract prices.
 
Good one..also wonder if someone could suggest why CFAI only suggest one way instead of the other in the answer sheet?
Or the other one is more superior than this (i don’t know why…)
 
MrSmart wrote:
The gross amount is 124, not 126.
Click to expand...
doesnt help us really, although I figured that was a typo on CFAI’s part?. More so interested should there be a difference between the 2 approaches or not.
 
the first thing is you do not have the 28 million already at 7.2.
so you need to bring in the 28 million at 7.2 - then change the whole 126 from 7.2 to 6.0.
hence there is ONLY 1 way to go about it.
 
sunman9 wrote:
MrSmart wrote:
The gross amount is 124, not 126.
Click to expand...
doesnt help us really, although I figured that was a typo on CFAI’s part?. More so interested should there be a difference between the 2 approaches or not.
Click to expand...
Mathematically the same, it cancels out. Try it again with the new gross amount.
 
MrSmart wrote:
sunman9 wrote:
MrSmart wrote:
The gross amount is 124, not 126.
Click to expand...
doesnt help us really, although I figured that was a typo on CFAI’s part?. More so interested should there be a difference between the 2 approaches or not.
Click to expand...
Yeah I punched it in and the 126 is just a typo. I dont quite understand why there is a difference. Should be the same?
Mathematically the same, it cancels out. Try it again with the new gross amount.
Click to expand...
 
cpk123 wrote:
the first thing is you do not have the 28 million already at 7.2.
so you need to bring in the 28 million at 7.2 - then change the whole 126 from 7.2 to 6.0.
hence there is ONLY 1 way to go about it.
Click to expand...
Why does it matter in terms of the process? end goal should be to have the total at 6?
 
I got no idea what you’re doing . If you show your math, it can be critique better
 
Assuming price is 1 and duration of contract is 1.
6*28 -1.2*96 = 52.8
7.2*28 - 1.2*124 = 52.8
 
not sure why it is 124 … while question clearly states 126 …. and 96 instead of 98???
 
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