Question: Your client has asked you to construct a 2 million bond portfolio. Some of the bonds that you are considering for this portfolio have embedded

Your client has asked you to construct a £2 million bond portfolio. Some of the bonds that you are considering for this portfolio have embedded options. Your client has specifi ed that he may withdraw £25,000 from the portfolio in six months to fund some expected expenses. He would like to be able to make this withdrawal without reducing the initial capital of £2 million.

A . Would shortfall risk be an appropriate measure of risk while evaluating the portfolios for your client?

B . What are some of the shortcomings of the use of shortfall risk?

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