23322085
Description
Quiz by Amit Mehta, updated more than 1 year ago
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Created by Amit Mehta
over 4 years ago
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Question 1
Question
Building a dedicated portfolio of coupon-paying bonds to ensure that there are sufficient cash inflows to pay for scheduled cash outflows does not:
Answer
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A rely on coupon payments and the maturing or sale of bonds to meet those cash outflows.
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B qualify for accounting defeasance in which both the assets and the liabilities can be removed from the balance sheet.
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C potentially suffer from the cash-in-advance constraint since sufficient funds must be available on or before each cash outflow date.
Question 2
Question
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:
Answer
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A over-hedged in anticipation of falling rates.
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B under-hedged in anticipation of rising rates.
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C under-hedged in anticipation of falling rates.
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