Fixed Income

Question 1

FI Liability-Based Mandates

Answer 1

Duration Matching

Cash Flow Matching

Question 2

FI Total Return Approaches

Answer 2

Pure Indexing

Enhanced Indexing

Active Management

Question 3

Fixed Income Expect Returns

(Decomposing Bond Returns)

Answer 3

Question 4

Levered Return

Answer 4

r_E = r_A + (D/E) * (r_A - r_D)

ie.
A = Assets
D = Debt
E = Equity

Question 5

Fixed Income Portfolio Convexity

Answer 5

Convexity = (Macauley Duration² + Macauley Duration + Dispersion) / (1 + CF yield)²

calculate all with semi-annual data and then divide by n² to get the annual convexity of the portfolio

Question 6

Slope on a Yield Curve

Answer 6

Slope = Long maturity - Short

Question 7

Yield curve Curvature

Butterfly spread

Answer 7

Butterfly Spread = -Short + 2 * Intermidiate - Long

Question 8

$ Duration and PVBP

Answer 8

$ Duration = Modified Duration x MV x 0.01

PVBP = Modified Duration x MV x 0.0001