Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity 5yr, average coupon rate 2%. [2] Average maturity 5yr,

The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity

The following portolios of fixed-income funds are available as choices of investments: [1] Average maturity 5yr, average coupon rate 2%. [2] Average maturity 5yr, average coupon rate 8%. [3] Average maturity 15yr, average coupon rate 6%. [4] Average maturity 25yr, average coupon rate 4%. [5] Average maturity 25yr, average coupon rate 10%. You are a fund manager and a portion of your current asset allocation [AA] (long position) is in the above Fund [3]. Your current projection in the next two years is a rising level of interest rate of an additional 5%. Which of the following asset re-allocation should you do? a. Rotate (sell) Fund [3] to (buy) Fund [1]. OO b. Rotate from Fund [3] to Fund [2]. OO c. Do nothing and maintain your current AA in Fund [3]. d.Rotate from Fund [3] to Fund [4]. e. Rotate from Fund [3] to Fund [5]. Of. Liquidate your current Fund [3] and invest the proceeds in equity securities.

Step by Step Solution

3.42 Rating (161 Votes )

There are 3 Steps involved in it

Step: 1

ANSWER When projecting a rising level of interest rates it is generally advisable to reduce exposure to longerterm fixedincome funds as their prices tend to be more sensitive to interest rate changes ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Calculus

Authors: Ron Larson, Bruce H. Edwards

10th Edition

1285057090, 978-1285057095

More Books

Students also viewed these Finance questions

Question

a. Where is the person employed?

Answered: 1 week ago

Question

In Exercises, find the second derivative of the function. y 1 5x +1

Answered: 1 week ago