Out of schweser. Have fun: 1.) The pension plan defines its benchmark in terms of meeting a specific amount of cash to satisfy the liabilities (pension benefits) on its books. The manager of a bond portfolio must immunize the portfolio to meet multiple liabilities over time. To do this the manager needs to: A) equate the duration of the portfolio with the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be narrower than that of the distribution of the liabilities. B) make the duration of the portfolio higher than the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be equal to that of the distribution of the liabilities. C) equate the duration of the portfolio with the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be wider than that of the distribution of the liabilities. 2.) The manager of a bond portfolio must immunize the portfolio with respect to a given set of liabilities. The manager is choosing between two immunization strategies: Strategy A and Strategy B. Strategy A has a lower return, lower risk, and a 99% probability of providing the required return to meet the given set of liabilities. The manager should choose Strategy B: A) under no circumstances, because risk minimization is the point of immunization. B) if that strategy’s higher risk is justified by the higher return, and only if the probability of meeting the liabilities is equal to or higher than that of Strategy A. C) if that strategy’s higher risk is justified by the higher return, and the probability of meeting the liabilities is equal to or only slightly lower than that of Strategy A. 3.) In a contingent immunization strategy, which of the following is a reason why the minimum target return might NOT be realized? The minimum target return might not be realized because: A) interest rates move in a nonparallel manner. B) there is a rapid market yield movement. C) the yield volatility changes.
oh - and i thought you were seriously posting 29 questions…
C B A?
C C B
C C A
CBB.
I say CBA
CBB… Jack (o’-'o) , please provide the answers
1.) The pension plan defines its benchmark in terms of meeting a specific amount of cash to satisfy the liabilities (pension benefits) on its books. The manager of a bond portfolio must immunize the portfolio to meet multiple liabilities over time. To do this the manager needs to: A) equate the duration of the portfolio with the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be narrower than that of the distribution of the liabilities. B) make the duration of the portfolio higher than the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be equal to that of the distribution of the liabilities. C) equate the duration of the portfolio with the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be wider than that of the distribution of the liabilities. – The correct answer is C) equate the duration of the portfolio with the duration of the composite of liabilities and have the distribution of durations of the portfolio’s assets be wider than that of the distribution of the liabilities. Necessary conditions to meet multiple liabilities over time are for the durations to be equal and the distribution of durations of the portfolio’s assets to be wider than that of the distribution of the liabilities. 2.) The manager of a bond portfolio must immunize the portfolio with respect to a given set of liabilities. The manager is choosing between two immunization strategies: Strategy A and Strategy B. Strategy A has a lower return, lower risk, and a 99% probability of providing the required return to meet the given set of liabilities. The manager should choose Strategy B: A) under no circumstances, because risk minimization is the point of immunization. B) if that strategy’s higher risk is justified by the higher return, and only if the probability of meeting the liabilities is equal to or higher than that of Strategy A. C) if that strategy’s higher risk is justified by the higher return, and the probability of meeting the liabilities is equal to or only slightly lower than that of Strategy A. – The correct answer is C) if that strategy’s higher risk is justified by the higher return, and the probability of meeting the liabilities is equal to or only slightly lower than that of Strategy A. In immunizing a portfolio a manager must consider a trade off between risk minimization and return maximization. Taking on extra risk under the indicated circumstances is appropriate. The probability of not meeting the liabilities can be allowed to decrease a little. There is no strict rule about the return and risk levels remaining “proportional”. 3.) In a contingent immunization strategy, which of the following is a reason why the minimum target return might NOT be realized? The minimum target return might not be realized because: A) interest rates move in a nonparallel manner. B) there is a rapid market yield movement. C) the yield volatility changes. The correct answer is B) there is a rapid market yield movement. A rapid market yield movement might not give the manager enough time to shift from an active strategy to immunization mode to achieve the minimum target.
Someone want to elaborate on q 2? This seems like crap to me.
q2 two their are saying that better is not better than just good LOL
Q2 is crap
I cannot understand Q2…