CPM Fixed Income Portfolio Management 3

Question 1

In a falling interest rate environment, which bond portfolio strategy would produce the best price appreciation?

Accepted Answer

Long-duration strategy

Answer

Short-duration strategy

Answer

Money market strategy

Answer

Floating rate strategy

Question 2

A bond with a higher coupon rate, all else equal, will have:

Accepted Answer

Lower duration because more of its value is returned sooner via coupon payments

Answer

Higher duration than a zero-coupon bond

Answer

Higher credit risk

Answer

Longer time to maturity

Question 3

Which of the following bond sectors typically offers the highest yield but also carries the greatest credit risk?

Accepted Answer

High-yield (junk) corporate bonds

Answer

U.S. Treasury bonds

Answer

Agency mortgage-backed securities

Answer

Municipal bonds

Question 4

Duration-matched immunization breaks down when:

Accepted Answer

Non-parallel yield curve shifts occur (e.g., twists or flattening)

Answer

Interest rates remain stable

Answer

There are parallel shifts in the yield curve

Answer

All bonds are investment grade

Question 5

A portfolio manager benchmarked to the Bloomberg U.S. Aggregate Bond Index takes a significant underweight in government bonds and overweight in corporate bonds. This represents:

Accepted Answer

An active credit sector rotation bet

Answer

Passive indexing

Answer

Duration-neutral positioning

Answer

A risk-free arbitrage

Question 6

Which of the following best describes a floating rate note (FRN)?

Accepted Answer

A bond whose coupon resets periodically based on a reference rate (e.g., SOFR), reducing interest rate risk

Answer

A bond with a fixed coupon throughout its life

Answer

A bond that pays no coupons

Answer

A bond callable at any time