Problem 3

The yield curve at the present time (t=0) is the following

Tenor (years)

Yield (%)

2

5

10

6

Patrick Okonkwo is the senior bond fund manager of a $420 Billion pension fund invested across tenors

and entirely in investment grade corporate bonds. Mr. Okonkwo's time horizon for investment

performance is 1 year. He anticipates changes in the yield curve and is preparing portfolio restructuring

plans for each yield curve forecast. The predicted yield curve scenario is imminent. For each yield curve

forecast state the appropriate portfolio yield curve strategy. Answer in the exam booklet.

Forecast 3A

Tenor (years)

Yield (%)

5

10

Forecast 3B

Tenor (years)

Yield (%)

10

Forecast 3C

Tenor (years)

Yield (%)

10

Problem 3 The yield curve at the present time (tuo) is the following Tenor (years) Yield (%) 1 2 5 4 10 6 Patrick Okonkwo is the senior bond fund manager of a $420 Billion pension fund invested across tenors and entirely in investment grade corporate bonds. Mr. Okonkwo's time horizon for investment performance is 1 year. He anticipates changes in the yield curve and is preparing portfolio restructuring plans for each yield curve forecast. The predicted yield curve scenario is imminent. For each yield curve forecast state the appropriate portfolio yield curve strategy. Answer in the exam booklet. Forecast 3A Tenor (years) Yield (%) 1 3 5 4 10 5 Forecast 3B Tenor (years) Yield (9) 1 1 5 4 10 7 Forecast 30 Tenor (years) Yield (%) 1 2 5 4 10 6