The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity 5yr,...

Transcribed Image Text:

The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity 5yr, average coupon rate 2%. [2] Average maturity 5yr, average coupon rate 8%. [3] Average maturity 15yr, average coupon rate 6%. [4] Average maturity 25yr, average coupon rate 4%. [5] Average maturity 25yr, average coupon rate 10%. You are a fund manager and a portion of your current asset allocation [AA] (long position) is in the above Fund [3]. Your current projection in the next two years is a rising level of interest rate of an additional 5%. Which of the following asset re-allocation should you do? a. Rotate (sell) Fund [3] to (buy) Fund [1]. OO b. Rotate from Fund [3] to Fund [2]. OO c. Do nothing and maintain your current AA in Fund [3]. d.Rotate from Fund [3] to Fund [4]. e. Rotate from Fund [3] to Fund [5]. Of. Liquidate your current Fund [3] and invest the proceeds in equity securities. The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity 5yr, average coupon rate 2%. [2] Average maturity 5yr, average coupon rate 8%. [3] Average maturity 15yr, average coupon rate 6%. [4] Average maturity 25yr, average coupon rate 4%. [5] Average maturity 25yr, average coupon rate 10%. You are a fund manager and a portion of your current asset allocation [AA] (long position) is in the above Fund [3]. Your current projection in the next two years is a rising level of interest rate of an additional 5%. Which of the following asset re-allocation should you do? a. Rotate (sell) Fund [3] to (buy) Fund [1]. OO b. Rotate from Fund [3] to Fund [2]. OO c. Do nothing and maintain your current AA in Fund [3]. d.Rotate from Fund [3] to Fund [4]. e. Rotate from Fund [3] to Fund [5]. Of. Liquidate your current Fund [3] and invest the proceeds in equity securities.

Answer rating: 100% (QA)

ANSWER When projecting a rising level of interest rates it is generally advisable to reduce exposure to longerterm fixedincome funds as their prices tend to be more sensitive to interest rate changes ... View the full answer