QUESTION SEVEN

a). Discuss rate anticipation swaps as a bond portfolio management strategy. (10 Marks)

b) You manage a portfolio for Ms. Greenspan, who has instructed you to be sure her portfolio has a value of at least $350,000 at the end of six years. The current value of Ms. Greenspan's portfolio is $250,000. You can invest the money at a current interest rate of 8%. You have decided to use a contingent immunization strategy.

i). What amount would need to be invested today to achieve the goal, given the current interest rate? (6 marks)

ii). Suppose that four years have passed and the interest rate is 9%. What is the trigger point for Angel's portfolio at this time? (That is, how low can the value of the portfolio be before you will be forced to immunize to be assured of achieving the minimum acceptable return? (6 marks)

iii) If the portfolio's value after 4 years is $291,437 what should you do? (4 marks)

c). In an increasingly globalized investment environment, comparability problems become even greater. Discuss some of the problems for the investor who wishes to have an internationally diversified portfolio. (10 marks)