Securities analysis, Financial Management

7. Bill Peters is the investment officer of a $60 million pension fund. He has become concerned about the big price swings that have occurred lately in the fund’s fixed income securities. Peters has been told that such price behaviour is only natural given the recent behaviour of market yields. To deal with the problem, the pension fund’s fixed income money manager keeps track of exposure to price volatility by closely monitoring bond duration. The money manager believes that price volatility can be kept to a reasonable level as long as portfolio duration is maintained at approximately seven to eight years.
Discuss the concepts of duration and convexity and explain how each fits into the price-yield relationship. In the situation describe above, explain why the money manager should have used both duration and convexity to monitor the bond portfolio’s exposure to price volatility.
Posted Date: 11/5/2012 8:40:47 AM | Location : Jamaica







Related Discussions:- Securities analysis, Assignment Help, Ask Question on Securities analysis, Get Answer, Expert's Help, Securities analysis Discussions

Write discussion on Securities analysis
Your posts are moderated
Related Questions
Using details from table 8, let us compute the 6-month forward rate. Simple arbitrage principle, like the one used to compute the spot rates are used in this proc

I need to prepare a monthly cash flow for a company with the given information, and need to comment on the current performance and the future sales increment. Then we need to find

Question 1 What is liquidity risk? What are the causes for liquidity risk? Question 2 Explain the powers and functions of SEBI Question 3 Discuss the various categories

DEFINITION OF BUDGETARY CONTROL As per the ICMA, BUDGETARY CONTROL is the establishment of budgets, relating the tasks of executives to the requirements of a policy, and the c

Price-Yield Relationship of a Callable Bond The price-yield relationship of a non-callable or a non-puttable bond is convex because price and yield are inversely proportional.

The fundamental principle is that when a tree is used to value an on-the-run issue, the resulting value should be arbitrage free i.e., it should be equal to the o

Explain the term- quality of decisions Performance and business risk This is focussed on " quality of decisions ". The comparison of an organisations performance with t

Harrelson Inc. currently has $750,000 in accounts receivable, and its days sales outstanding (DSO) is 55 days. It wants to reduce its DSO to 35 days by pressuring more of its custo

limitations of using a periodic inventory system

Determine the name of some profit margin ratios Other profit margin ratios can also be computed: Gross profit/ turnover Profit after tax/ turnover Advertising co