R22 - FI Portfolio Management Flashcards

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1
Q

Leveraged portfolio return formula

A

Return = R + B/E*(R-c)

R = return on assets
B = dollar amount borrowed
E = equity invested
c = cost of borrowed funds (%)
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2
Q

Leveraged Duration formula

A

De = DaA - DbB / E

De = duration of equity
Da = duration of invested funds
A = total assets
Db = duration of borrowed funds (in years)
B = amount borrowed
E = equity (A-B)
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3
Q

Repo agreement def

A

sell security to someone with agreement to buy it back later.

Security is collateral and repo rate is the interest rate for the loan.

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4
Q

How style of delivery of security in repo agreement affects repo rate:

A

physical delivery of collateral to buyer = lowest rate

held by neutral agent = higher

held by custody account at seller’s bank = even higher

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5
Q

Factors affecting repo rates

A

repo term = longer term is higher rate. if yield curve is upward sloping same thing

quality/quanitty of collateral = lower quality is higher rate

collateral is in short supply = if very short supply then lower rate

prevailing rates increasing = higher repo rate

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