Amit Mehta
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R19

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Amit Mehta
Created by Amit Mehta over 4 years ago
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R19

Question 1 of 2

1

Building a dedicated portfolio of coupon-paying bonds to ensure that there are sufficient cash inflows to pay for scheduled cash outflows does not:

Select one of the following:

  • A

    rely on coupon payments and the maturing or sale of bonds to meet those cash outflows.

  • B

    qualify for accounting defeasance in which both the assets and the liabilities can be removed from the balance sheet.

  • C

    potentially suffer from the cash-in-advance constraint since sufficient funds must be available on or before each cash outflow date.

Explanation

Question 2 of 2

1

Consider the following characteristics of a company’s debt liabilities: MV = $50M, ModDur = 6, BPV = 30,000.

The asset portfolio consists of the following: MVbonds = $65M, ModDur = 3, BPV = 19,500, long 70 interest rate futures contracts with a BPV of 75.

The asset manager, following a contingent immunization approach, is:

Select one of the following:

  • A

    over-hedged in anticipation of falling rates.

  • B

    under-hedged in anticipation of rising rates.

  • C

    under-hedged in anticipation of falling rates.

Explanation

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