Chapter 16 - Chapter 1 Introduction to Bond Portfolio...

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1 Chapter 1 – Introduction to Bond Portfolio Management 1. Fixed income Investment Process: 1. Determine Objectives. 2. Portfolio Strategy 3. Monitor performance and 4. Make any necessary adjustments 2. Portfolio Constraints: 1. Maximum allocation to a firm or sector 2. Minimum credit rating standards 3. Limits on the use of leverage in the portfolio 4. Short sale limitations 5. Maximum derivative positions 3. 2 basic categories of fixed-income investors: 1. Cash flow matching to a set of liabilities or 2. Manage against a fixed income benchmark 4. Different types of liabilities: 1. Amount and Timing is known – example GIC of an insurance company 2. Amount is known but Timing is uncertain – Life insurance policy 3. Amount is not known but Timing is known – Floating rate note 4. Amount is not known and Timing is also not known – Auto and home insurance 5. Bond Index vs Liabilities as a benchmark 1. Liability based investors are funded investors ex. Banks who invest the deposit money
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This note was uploaded on 04/04/2012 for the course ECON 313 taught by Professor India during the Spring '12 term at University of San Francisco.

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Chapter 16 - Chapter 1 Introduction to Bond Portfolio...

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