Fixed Income【Session9- Reading 23】习题精选 return, manager, 2012

mouse123

If a bond portfolio manager specifies liabilities as a benchmark, she is attempting to earn a return that is:

A) equal to or higher than the return promised to the liability holders.

B) as high as possible.

C) the least risky.

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The manager that specifies liabilities as a benchmark must ensure that the rate of return earned in the portfolio satisfies the return promised to liability holders. (This objective may be accomplished by earning equal to or higher than the promised return.)

andytrader

Which of the following is a difference between the investment objective for a liability based benchmark and an index based benchmark? If liabilities are chosen as a benchmark:

A) a return higher than the liability has to be achieved by any means.

B) the objective is only return oriented.

C) the objective is to match the amount and timing of the liability payments.

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The objective when managing a portfolio against a liability is to maintain sufficient portfolio value to meet the liabilities.

andytrader

Why should a pension fund manager NOT manage against a typical broad-based bond market index?

A) The manager might outperform the index.

B) The duration of a typical broad-based bond market index and the liabilities of a pension fund are not similar.

C) This indexing strategy may produce tracking error risk.

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The pension fund manager should define the benchmark in terms of the pension liabilities that must be satisfied. Most broad-based bond market indexes have shorter durations. If the pension fund manager decides to use a bond index, then he should chose one that matches the duration of the pension plan.

andytrader

If a bond portfolio manager has specified the benchmark in terms of a bond index, she is attempting to earn a return that is:

A) less risky than the index.

B) as high as possible.

C) equal to or superior to the index.

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The manager that uses an index as a benchmark is attempting to earn a rate of return that is equal to or superior to the index.

andytrader

Which of the following is a difference between the investment objective for a liability based benchmark and an index based benchmark? If a bond index is chosen as a benchmark the:

A) bond index has to be outperformed on a risk-adjusted basis.

B) objective is primarily return oriented.

C) objective will be less risk averse.

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A passive bond portfolio manager's objective is to get as close to the index return as possible by mimicking the bonds in the index and matching their duration with the understanding that due to management expenses their return will be slightly less than the index. An active bond portfolio manager would attempt to at least meet the index return and outperform it. Outperforming an index on a risk adjusted basis implies using a risk adjusted measurement such as the Sharpe ratio to compare the manager's performance to the index which is not normally done when comparing the manager's performance to an index. In a liabilities based benchmark the portfolio manager's objective is to at least match the value of the liabilities when they come due.

andytrader

When the performance of an investment grade corporate bond portfolio is compared to a relevant bond index, which of the following statements about tracking error is CORRECT?

A) If the return on the bond portfolio is substantially lower than the return on the bond index the tracking error is small.

B) If the return on the bond portfolio closely matches the return of the bond index the tracking error is small.

C) Tracking error refers to how closely the return on the bond index matches traders' expectations and is not related to the return on the bond portfolio.

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Tracking error is incurred when the return on the bond portfolio deviates from the return on the bond index. Greater deviation means higher tracking error.

andytrader

Which of the following bond portfolio investment strategies has active management and is aggressive with large mismatches in all risk factors, including duration?

A) Pure bond index matching.

B) Active management/larger risk factor mismatches.

C) Active management/full-blown active.

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Active management/full blown active is the most actively managed type of bond portfolio and also has the highest potential returns and tracking error. On the opposite end of relative management activity is pure bond indexing which attempts to 100% replicate the index, resulting in the lowest tracking error of the alternative enhancement strategies.

andytrader

Enhanced indexing/minor risk factor mismatches is a bond portfolio management style that:

A) minimizes transaction costs and management fees.

B) has substantial deviation from the relevant bond index in the average quality of the bonds.

C) does not deviate from the duration of the relevant bond index.

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Enhanced indexing/minor risk factor mismatches does allow for some relative-value analysis by incorporating minor mismatches in sector and quality risk factors. There is no deviation from the duration of the index.

andytrader

Which of the following bond management styles results in a portfolio that most closely resembles the return performance of a bond index?

A) Active management/full blown active.

B) Enhanced indexing/minor risk factor mismatches.

C) Enhanced indexing/ matching primary risk factors.

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Enhanced indexing/matching primary risk factors does not try to fully replicate the index, as the pure bond approach does. This style uses a large sample of bonds to represent the risk factors present in the index, and, as a result, more closely resembles the index than the others listed.

andytrader

Which of the following is a difference between enhanced indexing by matching primary risk factors and enhanced indexing that allows minor risk factor mismatches? Enhanced indexing by matching primary risk factors:

A) is essentially an active management strategy.

B) allows larger mismatches between the index and portfolio return.

C) allows smaller mismatches between the index and portfolio return.

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Matching by primary risk factors means that the portfolio will be exposed to the same broad market moving movements as the index. Enhanced indexing with minor risk factor mismatches means that the portfolio will have the same duration as the index, but will have differential movements from the index due to sector, quality, term structure, etc… mismatches. Hence, the matching by primary risk factors will tend to yield smaller differences between index and portfolio returns.