Câu 16: CFA Level 3

Andre Hickock, CFA, is a newly hired fixed income portfolio manager for Deadwood Investments, LLC. Hickock is reviewing the portfolios of several pension clients that have been assigned to him to manage. The first portfolio, Montana Hardware, Inc., has the characteristics shown in Figure 1. Hickock is attempting to assess the risk of the Montana Hardware portfolio. The benchmark bond index that Deadwood uses for pension accounts similar toMontana Hardware has an effective duration of 5.25. His supervisor, Carla Mity, has discussed bond risk measurement with Hickock. Mity is most familiar with equity risk measures, and is not convinced of the validity of duration as a portfolio risk measure. Mity told Hickock, "I have always believed that standard deviation is the best measure of bond portfolio risk. You want to know the volatility, and standard deviation is the most direct measure of volatility."Hickock is also reviewing the bond portfolio of Buffalo Sports, Inc., which is comprised of the following assets shown in Figure 2. The trustees of the Buffalo Sports pension plan have requested that Deadwood explore alternatives to reduce the risk of the MBS sector of their bond portfolio. Hickock responded to their request as follows:"I believe that the current option-adjusted spread (OAS) on the MBS sector is quite high. In order to reduce your risk, I would suggest that we hedge the interest rate risk using a combination of 2-year and 10-year Treasury security futures. I would further suggest that we do not take any steps to hedge spread risk at this time."Evaluate Hickock's suggestions concerning the appropriate strategy for hedging interest rate risk and his suggestion NOT to hedge spread risk. Hickock is correct:

1. A. only with regard to hedging interest rate risk.
2. B. only with regard to his suggestion not to hedge spread risk.
3. C. with regard to both suggestions. — đáp án hiện tại