You are responsible for the management of a large mutual fund that trades in high- grade corporate and government bonds. At the present time, the average term-to- maturity of the bonds in the fund is 8 years. The analysts working for you feel very strongly that interest rates are going to fall dramatically in the near future. a) Based on this prediction, what actions would you take to increase the profits or minimize the losses experienced by your fund? b) Had the analysts instead forecasted a dramatic rise in rates, what actions would you take to increase the profits or minimize the losses experienced by your fund?

You are responsible for the management of a large mutual fund that trades in highgrade corporate and government bonds. At the present time, the average term-tomaturity of the bonds in the fund is 8 years. The analysts working for you feel very strongly that interest rates are going to fall dramatically in the near future. a) Based on this prediction, what actions would you take to increase the profits or minimize the losses experienced by your fund? b) Had the analysts instead forecasted a dramatic rise in rates, what actions would you take to increase the profits or minimize the losses experienced by your fund