In this question, the equity position was converted into cash using future. If we calculate the no of future required using beta formula the right answer should be B. However Schweser has calculated by using the formula V(1+rf)^t/qf and given right answer as C. Why can’t we use the beta formula and take target beta as zero. As per text formula,beta formula is general while the second formula is used if portfolio is same as index.Also they mentioned if portfolio is same as index, both formula should give identical result. Please reply back.
I believe synthetic is the key word. If you use the “beta” formula, you are just removing market exposure and not earning the RIsk free rate.
Even if market exposure is zero, it should earn risk free rate. I think as per the CFA Text book, they clearly mention that in case of portfolio same as index, both formula should give identical results
Well in this case the portfolio is not exacltly the same given they use enhanced indexing. As CFAI says both equations would be equal only if the beta of the futures is equal to the discounted beta of the portfolio.
You are right in last part. they mentioned in the foot note that beta for future should be discounted one.