You are a bond fund manager and you have the following information on the three bonds in your portfolio and you currently have 33% of your money in Bond A, 33% in Bond B and 34% in Bond C.
Credit rating
Term to Maturity
Yield to maturity
Bond A
AAA
5 Years
5%
Bond B
AA
10 Years
6%
Bond C
A
20 Years
8%
You believe that the yield on the AAA Bond A is correct at 5%. However, you believe that the correct spread between AAA and AA bonds should be 50 basis points and between AA and A bonds should be 100 basis points. A sensible strategy that reallocates your portfolio weight is to have:
Question 11Select one:
A.
35% in Bond A, 35% in Bond B and 30% in Bond C.
B.
20% in Bond A, 30% in Bond B and 50% in Bond C.
C.
60% in Bond A, 20% in Bond B and 20% in Bond C.
D.
40% in Bond A, 40% in Bond B and 20% in Bond C.