Question
If your stock portfolio raises by 5% when the 10-Year treasury market declines 3% what is the sensitivity of your portfolio compared to that of
If your stock portfolio raises by 5% when the 10-Year treasury market declines 3% what is the sensitivity of your portfolio compared to that of the bond market? Next, in 3 months you expect the FED will drop interest rates by 0.25%, what is your expected portfolio return on that day? (Assume demand curve is normally sloped.)
| a. The sensitivity of my portfolio is 0.6 (a positive relationship between stocks and bonds), so in 3 months time, when the FED announces they will lower rates by 0.25%, my portfolio will drop 0.15% on that day. Provided the sensitivity remains stable. | ||
| b. The sensitivity of my portfolio is 20, so when the FED lowers rates by 3% my portfolio will rise 60%. | ||
| c. My portfolio is not sensitive to the treasury market at all. | ||
| d. The sensitivity of my portfolio is -1.67 (an inverse relationship between stocks and bonds), so in 3 months time, when the FED announces they will lower rates by 0.25%, my portfolio will rise 0.4175% on that day. Provided the sensitivity remains stable. |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
