Was doing schweser exam practice book 2. I remember was the afternoon paper 1 in the risk management / derivatives portion. The question says that there is a portfolio of 70% equities and 30% bonds. I’d like to know when we calculate beta or duration of portfolio are we supposed to only look into the specific allocations. Meaning apply beta calculation to only equity portion and duration for bond portion of portfolio.
The general formula for bonds to determine number of futures contracts is as follows N = (Dt - Dp / Df) x (Vp / Vf * multiplier) x yield beta
When we calculate target duration for portfolio, are we supposed to look at the entire portfolio (70% eq a+ 30% bonds) or just the 30% of portfolio with bonds.
By looking at the entire portfolio, the standard formula does not seem to be able to do the trick here. Exam answer seems to indicate just the portion of the bond though.
Any comments??