Question #75

Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers

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Part of Context Group: Q75-76 First in Group
Shared Context
- If the spot-rate curve experiences a parallel downward shift of 50 basis points: A) Portfolio 1 will experience the best price performance. B) all three portfolios will experience the same price performance. C) Portfolio 3 will experience the best price performance. Explanation The sum of a portfolio's key rate durations is the effective duration of the portfolio. Each of the portfolios has an effective duration of five, so a parallel shift in the yield curve will have the same effect on each portfolio, and each will experience the same price performance. (Module 25.6, LOS 25.j)
Question
If the 5- and 10-year key rates increase by 20 basis points, but the 2- and 20-year key rates remain unchanged:
Answer Choices:
A. Portfolio 2 will experience the best price performance
B. all three portfolios will experience the same price performance
C. Portfolio 1 will experience the best price performance. Explanation
No explanation available for this question.
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