In the Evaluation of Bond Portfolio Performance, the Analysis Effect

question 72

Multiple Choice

In the evaluation of bond portfolio performance, the analysis effect refers to

• A) the difference in portfolio duration and index duration.
• B) the extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
• C) short-run changes in the portfolio during a specific period.
• D) the differential return from changing duration of the portfolio during a specific period.
• E) None of these are correct.

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Definitions:

Well-diversified Portfolio

An investment strategy that spreads risk by allocating investments among various financial instruments, sectors, or other categories.

Variability of Returns

The extent of fluctuation in the returns on an investment over a certain period of time, often used as a measure of investment risk.

Business-specific Risk

This is the risk associated with the unique factors impacting a specific company or industry, excluding broader market or economic risks.

Unsystematic Risk

The risk associated with a particular company or industry, which can be mitigated through diversification.