2015 CFAI Mock Morning

D

derswap07

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Q 38. I cannot post the whole q here.
My q is that for 37, we took the equity as 100 MM without leverage but for #38, they are mentioning that there is no leverage but they are showing 200 MM in the formula, Also, they are taking market value of the CTD in the denominator- not futures contract price. Is this right?
Please enlighten me. Thanks.
 
you are to assume the entire $200M is not leveraged, and you use the market value of the CTD.
Thus, the answer would be ((4-6)/5.2) x (200,000,000/98,000) x (1.15) = -902.7
 
I had a similar question on this one.
Does anyone know why we’re using the market price of the CTD bond instead of the futures contract price. I know there are two formulas:
  • # of futures contracts = [(MDURt - MDURb) / MDURf] * (B / f); and
  • # of futures contracts = [(Dt - Di) * Pi / (Dctd * Pctd)] * conversion factor on CTD bond
where f = futures contract price and Pctd = market price of CTD bond
When would we use each of these?
Thanks!
OMGMileyCyrus
 
derswap07 wrote:
they are taking market value of the CTD in the denominator- not futures contract price. Is this right?
Click to expand...
If you have to deliver a Future contract, you would choose the Cheapest To Deliver, right? You wouldnt choose a more expensive one.
 
Audacious wrote:
derswap07 wrote:
they are taking market value of the CTD in the denominator- not futures contract price. Is this right?
Click to expand...
If you have to deliver a Future contract, you would choose the Cheapest To Deliver, right? You wouldnt choose a more expensive one.
Click to expand...
Audacious - that’s super helpful. So if we’re given the option of the futures contract price and the cheapest to deliver (CTD) bond market price, we’ll always choose the CTD bond market price (assuming this is cheaper than the futures contract price). If we’re not given a choice and just presented with the futures contract price, then we’re stuck choosing the futures contract price. Is my thinking correct?
 
The Futures price (to be considered for these calculations) is the CTD X the conversion factor.
*added for clarification: The short, will deliver Futures that are CTD. The long should adjust by the conversion factor to accommodate his need.
If they give you the Futures price, then use it as is (Conversion Factor =1)
 
Thanks guys, I’m still not sure about 200 MM though. In IPS problems, you use what we get in previous answersand use that to calculate other things based on it. Here I would still use 100MM beacuse that is the number given on the top of the item set - 100MM portfolio. ??!!!
 
derswap07 wrote:
Thanks guys, I’m still not sure about 200 MM though. In IPS problems, you use what we get in previous answersand use that to calculate other things based on it. Here I would still use 100MM beacuse that is the number given on the top of the item set - 100MM portfolio. ??!!!
Click to expand...
Yep, this confused me too. We are changing the duration of the assets, not the liabilties..
 
You must log in or register to reply here.
Back
Top