The manager estimates that accelerated economic growth in Australia will increase the level of government yields-to-maturity by
Question:
The manager estimates that accelerated economic growth in Australia will increase the level of government yields-to-maturity by 50 bps. Under this scenario, which of the three portfolios experiences the smallest decline in market value?
A. Bullet portfolio
B. Barbell portfolio
C. Equally weighted portfolio
A Sydney-based fixed-income portfolio manager is considering the following Commonwealth of Australia government bonds traded on the ASX (Australian Stock Exchange):
The manager is considering portfolio strategies based upon various interest rate scenarios over the next 12 months. She is considering three long-only government bond portfolio alternatives, as follows:
Bullet: Invest solely in 4.5-year government bonds
Barbell: Invest equally in 2-year and 9-year government bonds
Equal weights: Invest equally in 2-year, 4.5-year, and 9-year bonds
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