Reading 47: Evaluating Portfolio Performance Los n~Q1-2 interest, between, following, management, activity

youzizhang

 

LOS n: Differentiate between the effect of the interest rate environment and the effect of active management on fixed-income portfolio returns.

Q1. The following are a number of contributions to return for a fixed-income portfolio:

1. Return on interest rate management

2. Return on trading activity

3. Return due to changes in forward rates

4. Return on the default-free benchmark

Which of the above statements are TRUE?

Effect of External Interest Environment        Contribution of the Management Process

 

A)      1, 3                                                                                  2, 4

B)      3, 4                                                                                  1, 2

C)      3                                                                                       1, 2, 4

 

Q2. Which of the following statements in relation to the effect of the external interest environment is FALSE?

A)   Return on the default-free benchmark assumes no change in the forward rates.

B)   The return due to the external interest rate environment is estimated from a term structure analysis of AAA rate corporate securities.

C)   The overall effect represents the performance of a passive, default free bond portfolio.

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