You are an active fixed income portfolio manager and are evaluated relative to the benchmark index in
Question:
You are an active fixed income portfolio manager and are evaluated relative to the benchmark index in the table. The duration of your total portfolio has to equal that of the benchmark. You believe that we are heading for a world-wide recession, that credit spreads will widen, and that the treasury yield curve will flatten (long term rates will decline but medium term and shorter term maturities will stay the same). Set up a portfolio that takes advantage of these beliefs by filling in Table "Your bond fund".Justify briefly your answer.
Benchmark Index
Bond Type
Portfolio Weight
Duration of All Bonds in Category (all bonds within bond type have same duration)
Treasury
0.50
7.0
Corporate: Investment Grade
0.35
7.0
Corporate: High Yield Bonds
0.15
7.0
Total Portfolio
1.00
7.0
Your bond fund
Bond Type
Portfolio Weight
Duration of All Bonds in Category (all bonds within bond type have same duration)
Treasury
Corporate: Investment Grade
Corporate: High Yield Bonds
Total Portfolio.
Expert Answer:
To set up a bond portfolio that takes advantage of the stated beliefs we can make the following adjustments to the bond allocations and durations in Y... View the full answer
