Duration of Cash

motoloco Wrote:
——————————————————-
> Page 335 vol 5 CFA book do indicate “Because no
> movement of actual cash is involved in these
> futures market transaction, the modified duration
> of cash is effectively equal to zero.”
>
> But, the problem 45 of the mock is exact the same
> case, go from stocks to bonds and they do use the
> cash¡¡¡¡
>
> even CFA institute is confused¡¡¡
You correct! They better not give a crap like that in the exam.
 
It seems if you change your position from bonds to cash and remain in cash, Assume duration of cash is 0.25
If you change position from corp bond A to corp bond B then assume 0 or if cash duration is provided take that into account. A friend just mentioned that the Schweser video coveres this and also CFAI one of the problem assume the duration of 0.25
 
Ok frds, here my conclusions
In CFA text, there are 4 or 5 problems when is required to change from stocks to bonds and viceversa. THEY ALWAYS USE CASH DURATION = 0
The only example where they use duration cash = 0,25 is when it is required just to decrease de duration from 6.25 to cash…not to convert to equity…in this case they use cash 0,25
Then..Mock problem is wrong, use duration of cash in this case was incorrect
regards
 
motoloco Wrote:
——————————————————-
> Ok frds, here my conclusions
>
> In CFA text, there are 4 or 5 problems when is
> required to change from stocks to bonds and
> viceversa. THEY ALWAYS USE CASH DURATION = 0
>
> The only example where they use duration cash =
> 0,25 is when it is required just to decrease de
> duration from 6.25 to cash…not to convert to
> equity…in this case they use cash 0,25
>
> Then..Mock problem is wrong, use duration of cash
> in this case was incorrect
>
> regards
You are right with all your points, thats exactly what i said in the post above, however in the mock the duration of cash was provided. So it isn’t incorrect. Treasury bill = cash equivalent contract
 
Blkmoon Wrote:
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> I think if they give it to you use it, if not use
> 0. My hedges were off just a bit until i saw they
> used it, it had the duration for bills as .25 and
> I used 0 instead.
i agree. i wouldn’t ASSUME a duration of 0.25 if not given to you.
 
No intentions to start this over but whoever recall doing “Rose Michael Case Scenario” on 2007 sample exam version 2 the cash duration is given .25
Q28, re-allocation is between equity to bond - they use the cash duration in their calculations
Q29, re-allocation is between equity sectors - the steps described mentions a change to cash with ZERO beta and from Zero beta to whatever..
?? so is it ok to assume:
If cash duration is given, use it when re-allocating between equity/bond or vice versa??
Even if cash duration is given, DO NOT use it in equity/equity re-allocation ??
=(
 
Anish, CFA book has some examples that show unless otherwise it is required by the question, cash beta is zero (equity/equity and equity/bond).
 
Hey Tom, good to see you around.. If this ‘Synthetic’ thing shows up in the AM session then I am leaving a footnote, “cash duration assumed to be 0.” And if it’s in the PM session, then i am still using 0 and just picking the closest answer option !!
:)
 
I reposted on this question (didn’t see this thread in the search).
I’m quite certain this is another CFA Mock error.
 
bump. I did a search on this and couldn’t find anything. Anyone who’s done 2009 Mock exam go over this problem?
Question - to use, or not to use cash duration if given? I’ve used only Schweser and never have I seen it mentioned…always assumed 0.
 
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