You are the manager of a large portfolio of liabilities comprising 90-day commercial paper, along with...
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You are the manager of a large portfolio of liabilities comprising 90-day commercial paper, along with 3-, 6- and 10-year bonds. New advice suggests that the yield curve is likely to make a parallel shift downwards, a move that is apparently not currently predicted by the market. (a) Outline how you would alter your portfolio to take advantage of the predicted move in the yield curve. Broadly, what will be the impact of this portfolio restructuring on the portfolio duration. (b) Outline how you would use futures to take advantage of the predicted move in the yield curve. Assume that both 3- and 10-year bond futures are available to you. You are the manager of a large portfolio of liabilities comprising 90-day commercial paper, along with 3-, 6- and 10-year bonds. New advice suggests that the yield curve is likely to make a parallel shift downwards, a move that is apparently not currently predicted by the market. (a) Outline how you would alter your portfolio to take advantage of the predicted move in the yield curve. Broadly, what will be the impact of this portfolio restructuring on the portfolio duration. (b) Outline how you would use futures to take advantage of the predicted move in the yield curve. Assume that both 3- and 10-year bond futures are available to you.
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Answer rating: 100% (QA)
Portfolio Restructuring a To take advantage of the predicted parallel shift downwards in the yield curve the manager can consider the following adjust... View the full answer
Related Book For
Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye
Posted Date:
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