CFA Exams

D

derswap07

New member
Joined
Apr 22, 2008
Messages
0
Reaction score
0
2014 CFA morning exam Q 10 -1 B:
” ii.
The fixed-income allocation on 1 July using the percentage-of-portfolio rebalancing method
would be 73%.
While the fixed income and large-cap equity allocations are within the stated tolerance bands on
30 June, the 24% cash allocation is outside its allowed tolerance band of 21% ± 2%. Whenever a
tolerance band is exceeded, all asset classes in the portfolio must be rebalanced back to their
target weights.”
I do not understand why> They have asked only for the FI and that is wiyhin range!!
 
This question got me as well.
Key is to understand that even though the FI component of the portfolio is within range of its target, having 1 component of portfolio outside of its range will force the entire portfolio to be rebalanced.
You can’t rebalance 1 component without rebalancing the others.
 
Makes sense. I never thought that way. Also, in part B, For realized IS component, they took Decision price in denominator !! should it not be Benchmark price? I normally mix up and make mistakes here. Is there any easier way to remember this?
 
Same mistake by me here as well but now I remember this trap.
 
I’ve never seen the denominator as decision price rather than benchmark price.
Do they make this up as they go along? We can only go by the examples in the curriculum?
 
Hi Magician, can I ask what you mean in the post above?
by throwing cash out of the portfolio you would still indirectly rebalance all other components (i.e. lower overall assets hence weights of components except cash go up).
Thank you, Carlo
 
derswap07 wrote:
Makes sense. I never thought that way. Also, in part B, For realized IS component, they took Decision price in denominator !! should it not be Benchmark price? I normally mix up and make mistakes here. Is there any easier way to remember this?
Click to expand...
Someone please correct me if I’m wrong, but I think they tried to throw people off on this question. In most practice questions (page 25 of Book 6) and in Schweser, the closing price the day before is relevant because the manager decides to buy the stock before the open of the market the next day. On Question 10d in 2014 CFA exam, I believe the closing price on Monday (12.24) is irrelevant because the manager decided to buy the shares on Tuesday afternoon during normal trading hours, and not before trading opened like in most practice questions I’ve seen. Had Raffo decided to buy CTAC before trading opened on Tuesday morning, the 12.24 closing price would have been used in the denominator but that wasn’t the case in this question.
 
Tommy,
So you are saying that decision price becomes the benchmark price ?
 
That is what I believe but it is becasue the decision was made during trading hours. This is different than noticing an investment opportunity on Monday night while doing research, and making the decision to place an order during the day on Tuesday.
I know the CFA used the decision price in the denominator in the answers (contrary to everything I’ve seen), but in this case I believe the Decision Price and Benchmark Price are the same b/c the decision was made when the markets were open. We have no evidence that Raffo even knew about CTAC before Tuesday afternoon based on how the question was worded. I’m basically trying to reconcile that question with what is in the books and limited practice problems, so I can’t say for sure, but that is how I read it.
To be honest, the answer here is less than clear when you base it on what the CFA provides in the text. Is this something we could ask the CFAI to clarify? I don’t even know how to do that.
 
Imagine that it is June 7th, 2014; you’re writing this exam and feeling like a champion. Flash forward to August and that feeling of success becomes replaced with despair and anguish - you failed, BAND 10.
The 2015 exam will be like all the ones before it, namely, there will be marks that you must get and then there will marks that are awarded for the select few who know the tricks and learned the minutia.
DO NOT assume that anything is off limits for the exam, but assume that there will be questions that put a slight twist from normal. Don’t do what Johnny don’t does, instead you need to practice, revise, and repeat.
 
Magician…, it has been pointed out to me already… as the exam approaches my sense of humor all but vanishes… I am hoping it is one of those temporary conditions.
Thanks for taking the trouble to revert.
All the best, Carlo
 
You must log in or register to reply here.
Back
Top