Question 14 - Reading 23 Fixed incom part II

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cfapasss

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Question 14 - Reading 23 Fixed incom part II
Why didn’t they divide by the total portfolio value istead of the equity value? the question is asking for the levereged portfolio duration not equity duration!
I also appreciate if someone can explain the answer of question 13 repo duration!
Thanks
 
when they mention equity in the fixed income with regards to duration calculation - it is the portion you have on hand before borrowing. And that is the portion whose duration they want you to calculate.
q13. They want you to comment on the usage of a short repo vs. a long repo and its effect on portfolio duration.
repo is the part you are borrowing. So
Duration Leveraged Portfolio = [Duration Assets (portfolio) * Portfolio Value - Duration Repo * Repo Value]/Lev Portfolio Value.
Since Long Repo will reduce the above more - this becomes the answer ->
a longer duration if the overnight repo is used instead of the 2-year term repo.
 
So the trick in the two questions was that : tbe levereged portfolio = equity portion not total portfolio value
Thanks alot
 
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