Currently Alpha’s portfolio consists of large cap U.S. stocks, bonds, and adjustable-rate mortgage-backed securities. John Wortek and Jack Benson are advisors with Pheifer Advisors, located in New York. Pheifer provides investment advice to wealthy investors and institutional investors and has been doing so for over ten years.
Sumner (Portfolio Manager) would also like to keep the fixed income portfolio structured so that it is dedicated to the firm’s obligations and is immunized against interest rate risk. Benson states that a barbell strategy exploits a flattening of the yield curve but can immunize a portfolio against interest rate risk in a manner similar to a bullet bond portfolio. Discussing mortgages, Wortek states that the effective duration will drop precipitously when interest rates fall and that the convexity properties are different from a traditional fixed income instrument.
Ques) Regarding Wortek’s and Benson’s statements concerning mortgages and portfolio immunization:
A. one is correct.
B. both are incorrect.
C. both are correct.