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
What do you mean by pension funds? Pension funds: Pension funds give retirement income (as the form of annuities) to workers covered through a pension plan. They get cont

You've just won a huge $100 million lottery.  You've decided to invest your winnings in the following way:  $30 million in real estate,  $30 million in  corporate bonds and $40 mil

Q. Display the position explicitly Example: I borrow 7800000 HKD at time t = t 0 at an interest rate r t0 . After one year I pay back 7800000(1 + rt o ). At

Profit and Loss statement:   The Profit and Loss statement is the primary measure of business performance.  As the name suggests, this particular report measure whether the b

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

The following treasury issues can be included for the construction of the curve: On-the-run treasury issues. On-the-run treasury issues and sele

Briefly describe the major differences between a sole proprietorship and a corporation. Under which form would you choose for a business, and why? Describe the meaning of financi

Your firm has presently issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%.  What is the amount of first coupon payment your organization will pa

Definition of 'Hedge Fund': An aggressively managed portfolio of investments that uses advanced investment strategies define as leveraged, short, long and derivative positions

Explain how a country can run an overall balance of payments deficit or surplus. Answer:  A country can run a whole BOP (balance of payments) deficit or surplus by engaging in th