Risk Management Quiz Question

A fixed income manager wants to create a portfolio of risk-free coupon bonds that will generate a guaranteed (certain) rate of return over the next 5 years. Assume that the term structure of interest rates is ‘flat’ and can only change by means of parallel shifts. Assume continuous compounding. How should the portfolio manager construct the portfolio?

A) Set the duration of the portfolio equal to 5

B) Set the convexity of the portfolio equal to 5

C) Buy bonds that mature in exactly 5 years

D) Buy bonds that mature before 5 years

Reveal the Answer

Answer is: A) Set the duration of the portfolio equal to 5

Risk Management Professional Certificate

Develop a comprehensive survey of the practice of Risk Management. The major types of risk are identified, risk management tools and techniques are reviewed and financial regulation is covered. Delegates will work through the annual risk report of a publicly traded financial institution. A number of case studies are analyzed to illustrate key principles of risk measurement and management.

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