4.The market value of the bond portfolio of an Australian investment fund is $75 million. The duration of the portfolio is 9. Based on the analysis provided by the in-house economists, the portfolio manager believes that the interest rates are likely to have an unexpected shift over the next month. Based on this belief, the manager has decided to change the duration of its entire bond portfolio to 8. The futures contract it would use is priced at $130,000 and has a duration of 9.35. Assume that the conversion factor for the futures contract is 1.1. What actions should the manager take to change the duration of its entire bond portfolio?

a. Should Buy 28 futures contracts to change the duration of the bond portfolio

b. Should Sell 7 futures contracts to change the duration of the bond portfolio

c. Should Sell 68 futures contracts to change the duration of the bond portfolio

d. Should Buy 68 futures contracts to change the duration of the bond portfolio

5.Consider the following statements. Which of the statement is (are) correct?

1.Rebalancing using the percentage-of-portfolio method is directly related to market performance.

2.Calendar rebalancing is unrelated to market behavior

3.Constant-mix rebalancing strategy may offer superior returns relative to the buy-and-hold rebalancing strategy if markets more characterized by reversals than trends.

4.Constant-mix rebalancing strategy implies a risk tolerance that is positively related to wealth and equity market returns.

6.Consider the following statements: Which of the statement is ( are ) correct?

1.In the percentage-of-portfolio rebalancing strategy, less liquid asset class requires wider corridors.

2.For less risk-averse investors, the corridor for an asset class can be wider in the percentage-of-portfolio rebalancing strategy.

3.In percentage-of-portfolio rebalancing strategy higher transaction costs would increase the width of the optimal corridor

4.In percentage-of-portfolio strategy, the volatility of an asset class is inversely related to the optimal width of the corridor