1. 1.What are the three major categories of bond portfolio management strategies?
2. 2.Briefly discuss the various active portfolio strategies that are typically employed by managers. What is the essential ingredient in all active portfolio strategies?
3. 3.What are the limitations of using duration and convexity measures to estimate how portfolio values will be affected when interest rates change?
4. 4.What is tracking error? How is it useful in the construction of a bond portfolio?
5. 5.There are two types of tracking error, backward-looking tracking error and forward-looking tracking error. Explain the key differences between them.
6. 6.At a meeting between a portfolio manager and a prospective client, the portfolio manager stated that her firms bond investment strategy is a conservative one. The portfolio manager told the prospective client that she constructs a portfolio with a forward-looking tracking error that is typically between 250 and 300 basis points of a client-specified bond index. Explain why you agree or disagree with the portfolio managers statement that the portfolio strategy is a conservative one.