Question
A university endowment fund has sought your advice on its fixed-income portfolio strategy. The characteristics of the portfolio's current holdings are listed below: Bond Credit
A university endowment fund has sought your advice on its fixed-income portfolio strategy. The characteristics of the portfolio's current holdings are listed below:
| Bond | Credit Rating | Maturity (yrs.) | Coupon Rate (%) | Modified Duration | Convexity | Market Value of Position | ||||||
| A | U.S. Govt. | 3 | 0 | 2.727 | 9.8 | $35,000 | ||||||
| B | A1 | 10 | 9 | 6.004 | 56.3 | 35,000 | ||||||
| C | Aa2 | 5 | 10 | 3.604 | 18.5 | 35,000 | ||||||
| D | Agency | 7 | 8 | 4.728 | 32.3 | 35,000 | ||||||
| E | Aa3 | 12 | 0 | 10.909 | 128.9 | 35,000 | ||||||
| $175,000 | ||||||||||||
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Calculate the modified duration for this portfolio (i.e., Mod Dp). Do not round intermediate calculations. Round your answer to three decimal places.
years
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Suppose you learn that the implied sensitivity (i.e., modified duration) of the endowment's liabilities is about 6.90 years. Identify whether the bond portfolio is: (1) immunized against interest rate risk, (2) exposed to net price risk, or (3) exposed to net reinvestment risk.
The portfolio's duration is -Select-less thanmore thanequal toItem 2 the liability's duration, portfolio is -Select-immunized against interest rate riskexposed to net price riskexposed to net reinvestment riskItem 3 .
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The Risk Modeling Evaluation Handbook Rethinking Financial Risk Management Methodologies In The Global Capital Markets
Authors: Greg Gregoriou, Christian Hoppe, Carsten Wehn
1st Edition
0071663703, 978-0071663700
