Hello Dears,
i have a problem understanding the calculation here.
the solution to question 2 is clear until they reach the point and write:
"it appears that Issac’s strategy will not be constrained until the portfolio reaches about 1 billion in size (1.5 Million / 0.15%).’’
where do they get the the 0,15% from?
furthermore: ‘‘if the level of AUM excceds 1 billion, his position size constraints will require the portfolio to hold a larger number of smaller-cap positions.’’
I don’t really get the conclusion.
can somebody help? thanks
First bullet point under #2:
- No investment in any security whose index weight is less than 0.015% (approximately 15% of the securities in the index)
I thought so at the beginning … but it says 0.015% not 0.15% like in the solution … am i missing something?
You’re right: my mistake.
I suggest that you contact CFA Institute (info@cfainstitute.org) and ask them. It looks like an error to me.
Please let us know what they reply.
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● Maximum position size equal to the lesser of 10× the index weight or the index weight plus 150 bps
Given the minimum index weight of 0.015%, so the maximum position size is LOWER of:
min(10 \times 0.015\%, 0.015\% + 150 bps)
= min(0.15\%, 1.515\%)
= 0.15\%
When the portfolio size exceeds $1 billion, then you will have to invest more than $1,500,000 in smaller cap securities, which exceeds the maximum position size of 0.15% of portfolio size
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great explanation. many thanks. I believe this is the kind of questions i should expect on exam day.
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