Can someone please explain the solution...
The manager of a bond fund is assessing several choices in attempting to immunize a portfolio. To meet a predetermined liability, the manager needs a 6% return. Which of the choices below would be the best in pursuit of that goal? An immunized strategy with a target return equal to:
A) 6.4% with a 95% confidence interval at +/- 40 basis points.
B) 6.0% with a 95% confidence interval at +/- 10 basis points.
C) 6.0% with a 99% confidence interval at +/- 20 basis points.
Your answer: C was incorrect. The correct answer was A) 6.4% with a 95% confidence interval at +/- 40 basis points.
Of the three portfolios, the portfolio with a 6.4% target return and a +/-40 basis point confidence interval has the best chance of achieving the specified return. The chance of not achieving that return is (1 - 95%) / 2 = 2.5% or one out of 40. The portfolios with the 6% target return have only a 50% chance of achieving the specified return. |
发表于 2011-7-13 16:35
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