Is the rebalance ration “old DD/newDD”, or is it “(old DD/new DD) - 1”?
seen both versions…
It will depend but in general smarter to use the 2nd version as that will tell you the amount of money you need to transact.
It’s called rebalancing RATIO. so it should be an amount divided by another amount only, i.e. “old DD/new DD”. Substracting 1 and this will be become a formula and not a ratio anymore.
The 2011 exam says otherwise, question 5A.
They might give you credit either way but it’s important to understand what the # means.
Agreed with CFAist. Ryohko-- I think you may be asking this question because one of the CFA exam guideline answers has both versions grouped together. My interpretation is that the CFA is being over-detailed with their response.
In my opinion:
Old DD/New DD is the RATIO.
Old DD/New DD - 1 is used to determine the $ amount required to be added or detracted in the rebalance.
It depends on the context of the question and what they are looking for.
The ratio is old DD / new DD.
The _ adjustment _ is (old DD / new DD) – 1.