Câu 34: CFA Level 3

Joan Weaver, CFA and Kim McNally, CFA are analysts for Cardinal Fixed Income Management. Cardinal provides investment advisory services to pension funds, endowments, and other institutions in the U.S. and Canada. Cardinal recommends positions in investment-grade corporate and government bonds. Cardinal has largely advocated the use of passive approaches to bond investments, where the predominant holding consists of an indexed or enhanced indexed bond portfolio. They are exploring, however, the possibility of using a greater degree of active management to increase excess returns. The analysts have made the following statements."¢ Weaver: "An advantage of both enhanced indexing by matching primary risk factors and enhanced indexing by minor risk factor mismatching is that there is the potential for excess returns, but the duration of the portfolio is matched with that of the index, thereby limiting the portion of tracking error resulting from interest rate risk.""¢ McNally: "The use of active management by larger risk factor mismatches typically involves large duration mismatches from the index, in an effort to capitalize on interest rate forecasts."As part of their increased emphasis on active bond management, Cardinal has retained the services of an economic consultant to provide expectations input on factors such as interest rate levels, interest rate volatility, and credit spreads. During his presentation, the economist states that he believes long-term interest rates should fall over the next year, but that short-term rates should gradually increase. Weaver and McNally are currently advising an institutional client that wishes to maintain the duration of its bond portfolio at 6.7. In light of the economic forecast, they are considering three portfolios that combine the following three bonds in varying amounts. Weaver and McNally next examine an investment in a semiannual coupon bond newly issued by the Manix Corporation, a firm with a credit rating of AA byMoody's. The specifics of the bond purchase are provided below given Weaver's projections. It is Cardinal's policy that bonds be evaluated for purchase on a total return basis. One of Cardinal's clients, the Johnson Investment Fund (JIF), has instructed Weaver and McNally to recommend the appropriate debt investment for$125,000,000 in funds. JIF is willing to invest an additional 15% of the portfolio using leverage. JIF requires that the portfolio duration not exceed 5.5. Weaver recommends that JIF invest in bonds with a duration of 5.2. The maximum allowable leverage will be used and the borrowed funds will have a duration of 0.8. JIF is considering investing in bonds with options and has asked McNally to provide insight into these investments. McNally makes the following comments:"Due to the increasing sophistication of bond issuers, the amount of bonds with put options is increasing, and these bonds sell at a discount relative to comparable bullets. Putables are quite attractive when interest rates rise, but, we should be careful if with them, because valuation models often fail to account for the credit risk of the issuer."Another client, Blair Portfolio Managers, has asked Cardinal to provide advice on duration management. One year ago, their portfolio had a market value of$3,010,444 and a dollar duration of $108,000; current figures are provided below: Regarding their statements on the relative duration positions of various approaches to enhanced index bond management, determine whether Weaver andMcNally are correct or incorrect.

1. A. Only Weaver is correct. — đáp án hiện tại
2. B. Only McNally is correct.
3. C. Both Weaver and McNally are correct.