CFAI 2012 Question 8A - Ari Patheo

CFA Level III Derivatives
#1

This is an easy looking one about changing portfolio beta and duration.

Answer for Q8 Ai. is to sell 464 equity futures.

Sell 241,67 (rounded to 242) equity futures to reduce equity allocation.

Sell 221,53 (rounded to 222) equity futures to adjust beta.

For me, the correct answer would be to sell 463 equity futures, because i would add the unrounded numbers (241,68 + 221,53 = 463,21) and round the result to 463.

It’s the same in Part Aii, where I would buy 64 futures instead of 63 (the CFAI result).

Any thoughts on this one?

#2

If you read your own comments, you will see the solution. Answer for a is 242+222= 464 (rounding) and same for part ii.

#3

Sorry, my question was why is CFAI adding the rounded numbers.

For me, adding the unrounded numbers would be more exact. So I would say 463 would be the best answer and not 464.

The more often you round, the worse your results will get…

#4

Yeah, CFAI is rounding early and getting one contract off. I wouldn’t worry about it. As long as you write the unrounded numbers and then show they sum to 463, it should be fine.