You are an active fixed income portfolio manager and are evaluated relative to the benchmark index in the table. The duration of your total portfolio has to equal that of the benchmark. You believe that we are heading for a world-wide recession, that credit spreads will widen, and that the treasury yield curve will flatten (long term rates will decline but medium term and shorter term maturities will stay the same). Set up a portfolio that takes advantage of these beliefs by filling in Table "Your bond fund".Justify briefly your answer.

Benchmark Index

Bond Type

Portfolio Weight

Duration of All Bonds in Category (all bonds within bond type have same duration)

Treasury

0.50

7.0

Corporate: Investment Grade

0.35

7.0

Corporate: High Yield Bonds

0.15

7.0

Total Portfolio

1.00

7.0

Your bond fund

Bond Type

Portfolio Weight

Duration of All Bonds in Category (all bonds within bond type have same duration)

Treasury

Corporate: Investment Grade

Corporate: High Yield Bonds

Total Portfolio.