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Basic Question 10 of 14
Portfolio A has a factor sensitivity to inflation of 1.0. Portfolio B has a factor sensitivity to inflation of 2.5. What is the most appropriate allocation to portfolio A and B to fully hedge the inflation risk?
B. Short 0.67 of portfolio B for every $1.67 invested in portfolio A.
C. Short 0.71 of portfolio B for every $1.71 invested in portfolio A.
A. Short 0.40 of portfolio B for every $1.4 invested in portfolio A.
B. Short 0.67 of portfolio B for every $1.67 invested in portfolio A.
C. Short 0.71 of portfolio B for every $1.71 invested in portfolio A.
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I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain sources of active risk and interpret tracking risk and the information ratio;
describe uses of multifactor models and interpret the output of analyses based on multifactor models;
describe the potential benefits for investors in considering multiple risk dimensions when modeling asset returns.
CFA® 2025 Level II Curriculum, Volume 5, Module 40.