Chapter 11 (Bond Portfolios) Flashcards

1
Q

Cash Flow Matching

A

Matching cash flows from a fixed-income portfolio with those of an obligation.

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2
Q

Convexity

A

The curvature of the price-yield relationship of a bond.

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3
Q

Dedication Strategy

A

Refers to multiperiod cash flow matching.

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4
Q

Horizon Analysis

A

Forecast of bond returns based largely on a prediction of the yield curve at the end of the investment horizon.

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5
Q

Immunization

A

A strategy to shield net worth from interest rate movements.

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6
Q

Intermarket Spread Swap

A

Switching from one segment of the bond market to another.

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7
Q

Macaulay’s Duration

A

A measure of the effective maturity of a bond, defined as the weighted average of the times until each payment, with weights proportional to the present value of the payment.

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8
Q

Modified Duration

A

Macaulay’s duration divided by 1 + yield to maturity. Measures interest rate sensitivity of bond.

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9
Q

Pure Yield Pickup Swap

A

Moving to higher yield bonds, usually with longer maturities.

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10
Q

Rate Anticipation Swap

A

A switch made in response to forecasts of interest rate changes.

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11
Q

Rebalancing

A

Realigning the proportions of assets in a portfolio as needed.

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12
Q

Substitution Swap

A

Exchange of one bond for a bond with similar attributes but more attractively priced.

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13
Q

Tax Swap

A

Swapping two similar bonds to receive a tax benefit.

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