Mr. Spice asks Mr. Myers how a fixed-income manager would position his portfolio to capitalize on his

Question:

Mr. Spice asks Mr. Myers how a fixed-income manager would position his to capitalize on his expectations of increasing interest rates. Which of the following would be the most appropriate strategy?
a. Lengthen the duration.
b. Buy fixed-rate bonds.
c. Shorten the duration.

Frank Myers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investment Committee, Fred Spice, is very interested in learning about the management of fixed income portfolios. Mr. Spice has approached Mr. Myers with several questions.
Mr. Myers has decided to illustrate fixed-income trading strategies using a fixed-rate bond and note. Both bonds have semiannual coupons. Unless otherwise stated, all interest rate changes are parallel. The characteristics of these securities are shown in the table below.

Fixed-Rate Note Fixed-Rate Bond 107.18 Price 100.00 Yield to maturity 5.00% 5.00% Periods to maturity 18 8. 3.5851 Modif

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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