Câu 35: CFA Level 3

Ethan Edwards, CFA, is a fixed income portfolio manager for Searcher Securities. Edwards has been reviewing the pension fund of Cicatrix Corp., a large account with $55 million in fixed income securities. He is considering proposing a contingent immunization strategy to the trustees of the Cicatrix pension fund. The average age of Cicatrix employees covered by the plan is 41. In a recent meeting, the trustees of the plan informed Edwards that a 6.0% return was an acceptable minimum for the next six years. The Cicatrix pension bond portfolio was set up in a classical immunization strategy four years ago. At that time the objective was to fund a $75 million liability in 10 years. The allocation was a barbell strategy using zero-coupon bonds with half of the bonds maturing in 4 years and half maturing in 15 years. The 4-year bonds are now maturing, and Edwards is hoping to use the proceeds to create a contingent immunized portfolio. Edwards plans to once again use a barbell structure, with half of the portfolio invested in maturities shorter than the 6-year time horizon set by the trustees and the other half in the original 15-year bonds. One of the trustees of the Cicatrix pension fund asked Edwards whether rebalancing the portfolio was a concern when using classical immunization strategies. Edwards responded by claiming that as the yield curve shifts and time passes, the portfolio will need to be rebalanced. Edwards also stated that the costs to rebalance are high but can be mitigated by limiting the investment universe to highly liquid securities. Another trustee asked Edwards to assess the feasibility of pursuing a multiple liability immunization strategy for the fund and report his findings. Among other items, Edwards' response contained the following information:"¢ Assuming parallel shifts in interest rates, multiple liability immunization is possible for the Cicatrix pension fund as long as the duration of the immunization portfolio is equal to the duration of the liability stream."¢ As an alternative to multiple liability immunization, the Cicatrix pension fund could employ a cash flow matching strategy. A cash flow matching strategy would be free from immunization risk, and typically would require less capital to fund the pension liabilities. In order to minimize immunization risk in the event of a nonparallel interest rate shift, determine which of the following portfolio structures is preferable (assuming the entire portfolio will be restructured).

1. A. Buying a series of 6-month T-bills.
2. B. Buying zero coupon bonds maturing in 6 years. — đáp án hiện tại
3. C. Buying high coupon bonds with a duration of 6.