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Question 1 Key Rate Duratiorn 6 months 2 years 3 years 5 years 10 years 20 years 30 years Portfolio Benchmark Net 0.1 0.1 0 3 2 2 2 0 3 a) Why would a portfolio manage What is their "rate view" compared to the market? r have th is key rate duration profile compared to the benchmark? hat Litterman/Scheinkman risk factor are they betting on? b) Describe a se to eliminate the key rate duration difference between your portfolio and the benchmark. ries of interest rate swaps (or bond transactions) which could be added to your portfolio c) Describe a few interest rate swaps (or bond transactions) which could be added to your portfolio if you believed the curve would steepen (long interest rates rise, short interest rates fall)? CMBS Portfolio % Balloon You have structured a CMBS portfolio left, and you have sent that to Moodys/Fitch to be rated Property Type Allocation Avg LTV Payments MultiFamily They both respond that this portfolio will get a poor rating and it wont be competitive in the mar They showed you a benchmark portfolio as an ideal for you to model towards 100.00 Apartments 150.00 $150.00 $150.00 150.00 $ 150.00o 60% 60% 60% 60% 60% you could collect more loans, identical to the ones you already have, if you needed to change Office Industrial Retail Hotels the mix of loans in the portfolio 40% Health/Hospitals 150.00 $1,000.00 Moodys/Fitch Benchmark % Balloon Stress Loss % Property Type Allocation Avg LTV Payments Stress Loss of Allocation MultiFamily 200.00 Apartments 200.00 Office Industrial Retai Hotels 50% 60% $ 10.00 60% $ 10.00 60% $ 10.00 70% $ 7.50 20% $ 15.00 20%$ 7.50 5% 200.00 $150.00 70% 70% 50% 50% 5% 15% $ 100.00 $50.00 20% $ 10.00 $70.00 10% Health/Hospitals 100.00 70% $ 1,000.00 a) Compare your sector allocations AVG LTV vs the benchmark. Where do you need to reduce allocations and where do you need to increase allocations to reduce risks in the portfolio? b) Compare your allocations to loans with ballon payments vs the benchmark. Where do you need to reduce allocations and where do you need to increase allocations to reduce risks in the portfolio? ol The rating agencles did not tell you where they estimated stress loss for your portolo, but did show you where their portfolio's portfolio is different from their benchmark, and will stress test differently. Nonetheless, provide a simple trade where you reduce no more than 2 property types and increase no more than 2 in the table belovw Add an explanatory comment for each portfolio change stress loss came out. Given the LTV and Balloon features, your Comment Allocation MultiFamily Apartments Office Industrial Hotels Health/Hospitals 1,000.00