A fixed-income manager is presented with the following key rate duration summary of his actively managed bond portfolio versus an equally weighted index portfolio across 5-, 10-, and 30-year maturities:

Assume the active manager has invested in the index bond portfolio and used only derivatives to create the active portfolio. Which of the following most likely represents the manager’s synthetic positions?

a. Receive-fixed 5-year swap, short 10-year futures, and pay-fixed 30-year swap

b. Pay-fixed 5-year swap, short 10-year futures, and receive-fixed 30-year swap

c. Short 5-year futures, long 10-year futures, and receive-fixed 30-year swap

Transcribed Image Text:

Tenor 5y 10y 30y Portfolio Active -1.188 2.909 11 12.72 Index 1.633 3.200 8.067 12.9 Difference -2.821 -0.291 2.933 -0.179