Reading 29: Fixed-Income Portfolio Management—Part I- LOS matching, factors, justify, method, Bruce

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LOS d: Review and justify the means, such as matching duration and key rate durations, by which an enhanced indexer may seek to align the risk exposures of the portfolio with those of the benchmark bond index.

Q1. Bruce Turner, CFA, is composing a fund to track a benchmark bond index. He decides to use enhanced indexing by matching primary risk factors. This method aligns the risk exposures of the portfolio by investing in:

A)   a sample of bonds to match the primary index risk factors with the goal of minimizing construction and maintenance costs.

B)   all the bonds in the index in the same proportion as the index and using leverage to enhance returns.

C)   all the bonds in the index in the same proportion as the index and using derivatives to enhance the returns.

 

Q2. In aligning the risk exposures of a bond portfolio to those of a benchmark bond index, the purpose of matching key rate durations is:

A)   to better match cash flows.

B)   to make adjustments for convexity.

C)   to hedge twists of the yield curve.

 

Q3. The goal of enhanced indexing by small risk factor mismatches is to:

A)   match duration while allowing the manger to tilt the portfolio in favor of other risk factors.

B)   choose a subset of risk factors to match and manage, which may or may not include matching duration.

C)   match duration with a sample of bonds that are presumably undervalued so as to produce a higher return.

[此贴子已经被作者于2009-3-5 17:47:08编辑过]

wzaina

 

 

LOS d: Review and justify the means, such as matching duration and key rate durations, by which an enhanced indexer may seek to align the risk exposures of the portfolio with those of the benchmark bond index. fficeffice" />

Q1. Bruce Turner, CFA, is composing a fund to track a benchmark bond index. He decides to use enhanced indexing by matching primary risk factors. This method aligns the risk exposures of the portfolio by investing in:

A)   a sample of bonds to match the primary index risk factors with the goal of minimizing construction and maintenance costs.

B)   all the bonds in the index in the same proportion as the index and using leverage to enhance returns.

C)   all the bonds in the index in the same proportion as the index and using derivatives to enhance the returns.

Correct answer is A)

Choosing a sample of bonds to match the primary risk factors is called enhanced indexing by matching primary risk factors. The goal is to match the risk factors while lowering construction and maintenance costs. The manager can also be selective when choosing the sample and try to select bonds that are the most undervalued.

 

Q2. In aligning the risk exposures of a bond portfolio to those of a benchmark bond index, the purpose of matching key rate durations is:

A)   to better match cash flows.

B)   to make adjustments for convexity.

C)   to hedge twists of the yield curve.

Correct answer is C)         

Matching total duration will not necessarily hedge against changes in shape of the yield curve. Matching the durations of a few key rates along the yield curve will better hedge the fund against twists of the yield curve.

 

Q3. The goal of enhanced indexing by small risk factor mismatches is to:

A)   match duration while allowing the manger to tilt the portfolio in favor of other risk factors.

B)   choose a subset of risk factors to match and manage, which may or may not include matching duration.

C)   match duration with a sample of bonds that are presumably undervalued so as to produce a higher return.

Correct answer is A)

This is the goal of enhanced indexing by small risk factor mismatches.

 

[此贴子已经被作者于2009-3-5 17:47:38编辑过]

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