An FI Portfolio Manager Holds 10-Year $1 Million Face Value

question 72

Multiple Choice

An FI portfolio manager holds 10-year $1 million face value bonds.At time 0, these bonds are valued at $95 per $100 of face value and the manager expects interest rates to rise over the next three months.What should the manager do?

• A)The FI portfolio manager should leave the position untouched as changes in the interest rate have no impact on bond prices.
• B)The FI portfolio manager should leave the position untouched as an increase in interest rates will lead to higher bond prices.
• C)The FI portfolio manager should hedge the position by selling a three months forward contract with a face value of $1 million.
• D)The FI portfolio manager should hedge the position by buying a three months forward contract with a face value of $1 million.

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Definitions:

Signaling Cascade

A series of biochemical events and reactions that occur within a cell in response to a signal, often involving activation of enzymes and resulting in a cellular response.

cAMP

Cyclic Adenosine Monophosphate, a second messenger important in many biological processes, including the activation of protein kinases.

Cellular Slime Mold

A group of funguslike amoebozoan protists whose feeding stage consists of unicellular, amoeboid organisms that aggregate to form a pseudoplasmodium during reproduction; compare with plasmodial slime mold.

Dictyostelium

A genus of amoebae that are used as model organisms in molecular biology and genetics.