Reading 29: Fixed-Income Portfolio Management—Part I- LOS desired, details, process, border

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LOS g: Demonstrate the process of rebalancing a portfolio to re-establish a desired dollar duration.

Q1. A portfolio consists of positions in two bonds. The details of the positions are below:

Security	Market Value	Duration	Dollar Duration
Bond A:	$55,580	10.67	$5,930.39
Bond B:	$30,157	19.21	$5,793.16

The total dollar duration is $11,723.55. After a parallel shift of the yield curve, the results change to:

Security	Market Value	Duration	Dollar Duration
Bond A:	$52,133	10.67	$5,562.59
Bond B:	$26,874	19.21	$5,162.50

The new total dollar duration is $10,725.09. Which of the following adjustments will rebalance the portfolio to the original dollar duration?

A)   Sell $2,499.28 of Bond A and buy $4,848.37 of Bond B.

B)   Sell $4,848.37 of Bond A and $2,499.28 of Bond B.

C)   Buy $4,848.37 of Bond A and $2,499.28 of Bond B.

 

 

Q2. A portfolio consists of positions in two bonds. The details of the positions are below:

Security	Market Value	Duration	Dollar Duration
Bond A:	$651,760	14.3	$93,201.68
Bond B:	$259,255	18.9	$48,999.20

The total dollar duration is $142,200.88. After a parallel shift of the yield curve, the results change to:

Security	Market Value	Duration	Dollar Duration
Bond A:	$680,334	14.3	$97,287.76
Bond B:	$274,382	18.9	$51,858.20

The new total dollar duration is $149,145.96. Which of the following adjustments will rebalance the portfolio to the original dollar duration?

A)   Buy $31,703.56 of Bond A and $12,786.20 of Bond B.

B)   Sell $12,786.20 of Bond A and $31,703.56 of Bond B.

C)   Sell $31,703.56 of Bond A and $12,786.20 of Bond B.

 

Q3. A portfolio consists of positions in two bonds. The details of the positions are below:

Security	Market Value	Duration	Dollar Duration
Bond A:	$416,880	3.8	$15,841.43
Bond B:	$610,752	4.4	$26,873.10

The total dollar duration is $42,714.53. After a parallel shift of the yield curve, the results change to:

Security	Market Value	Duration	Dollar Duration
Bond A:	$410,166	3.8	$15,586.32
Bond B:	$598,905	4.4	$26,351.81

The new total dollar duration is $41,938.13. Which of the following adjustments will rebalance the portfolio to the original dollar duration?

A)   Buy $7,588.07 of Bond A and $11,079.74 of Bond B.

B)   Buy $11,079.74 of Bond A and $7,588.07 of Bond B.

C)   Sell $7,588.07 more of Bond A and $11,079.74 more of Bond B.

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