Question

16 - 20

Questions 16-20 are based on the following information. Bond investment. Suppose, you are a bond portfolio Manager. The composition of your portfolio is as follows 1-year Treasury note (180 days till maturity 5-year Treasury note 2 years till maturity 10-year Treasury note (9 years till maturity 25 10 20. 30-year Treasury bond (8 years till maturity: 25% 30-year Corporate bond (10 years till maturity: 30% You are pessimistic about the economy and hence predict the Fed will cut the interest rate further by 50 basis points. 16. Usually, which of the following bonds in your portfolio has the highest yield? a 1-year T-note b. S-year T-note c. 30-year T-hond d. 30-year corporate bond 17. If you don't adjust the composition of your bond portfolio according to the prediction, then a the total value of the portfolio will increase b. the total value of the portfolio will decrease. c. the total value of the portfolio will unchanged d. none of the above 18. Which of the followings in your bond portfolio will be affected the most by the market interest rate drop? a 1-year T-note b .year T-note c. 10-year T-note d. 30-year T-bond 19. If you are confident about your prediction and would like to act accordingly, you would a exchange the current 30-year T-bond for another 30-year T-bond with 5 years to maturity b. exchange the current 10-year T-mote for another 30-year T-bond with 5 years to maturity c. exchange the current 5-year T-mote for another 5-year T-wote with 5 years maturity d. sell all the bond and liquidate your position 20. In an economic downturn, which of the following is correct? a. Investors sell stocks, pulls out money from the stock market, and invest in bond markets. So, the bond price will increase and the band yield will decrease b. In the bond market, investors sell corporate bonds and prefer the safer Treasury securities. So, the corporate bond price will decrease and Treasury security price will increase. As a result, the corporate bond yield will rise and Treasury security yield will drop c. Both aandb dNeither a morb Questions 16-20 end.

Answer 1

1.
30 year corporate bond as it has the highest risk

2.
the total value of the portfolio will increase

3.
30 year T-bond as it has highest maturity

4.
exchange the current 10 year T note for another 30 year T bond with 5 years to maturity

5.
Option C