CPM Fixed Income Portfolio Management

Question 1

Duration is primarily used in fixed income portfolio management to measure:

Accepted Answer

A bond's price sensitivity to changes in interest rates

Answer

Credit quality of a bond

Answer

The bond's annual coupon payment

Answer

The bond's time to maturity only

Question 2

If a bond portfolio manager expects interest rates to rise, the appropriate adjustment would be to:

Accepted Answer

Decrease portfolio duration by shifting to shorter-maturity bonds

Answer

Increase portfolio duration

Answer

Add more long-term bonds

Answer

Eliminate all cash positions

Question 3

Convexity in a bond portfolio measures:

Accepted Answer

The curvature of the price-yield relationship, improving duration's accuracy for large rate moves

Answer

The linear relationship between price and yield

Answer

The bond's credit rating

Answer

The portfolio's dividend yield

Question 4

A bullet portfolio strategy concentrates bond maturities around a single target date, while a barbell strategy:

Accepted Answer

Splits holdings between very short-term and very long-term maturities

Answer

Also concentrates maturities at one date

Answer

Holds equal weights across all maturities

Answer

Focuses exclusively on floating rate bonds

Question 5

Spread duration measures a bond portfolio's sensitivity to changes in:

Accepted Answer

Credit spreads

Answer

Risk-free interest rates

Answer

Foreign exchange rates

Answer

Inflation expectations

Question 6

Which of the following best describes an immunized bond portfolio?

Accepted Answer

A portfolio structured so that assets and liabilities have matching durations, protecting against interest rate changes

Answer

A portfolio invested only in government bonds

Answer

A portfolio with zero credit risk

Answer

A portfolio with the highest possible yield