Question #67
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 27
Status: Unattempted
Correct Answer: A
Question
An active bond portfolio manager would most appropriately buy bonds when expected spot rates are:
Answer Choices:
A. less than current forward rates
B. greater than current forward rates
C. equal to current forward rates
Explanation
When expected spot rates are less than the forward rates priced by the market, bonds are
undervalued (they are discounted at too high a rate) and hence should be purchased.