INV3702 INVESTMENTS FIXED INCOME
ANALYSIS EXAM PRACTICE SOLUTION 2026
TESTED QUESTIONS WITH FULL ANSWERS
◉ Individual Investors. Answer: Personal taxable accounts, trusts,
and defined contribution plans such as 401Ks, 403bs, and IRA.
◉ Liability-driven Investors. Answer: Pension funds and insurance
companies that hold long-term, predictable obligations.
◉ Credit Risk Tolerance. Answer: Endowments, family offices, and
some mutual funds may tolerate more credit risk for higher returns.
◉ Immunization. Answer: A strategy that sets the portfolio's
duration equal to the investment horizon to offset price and
reinvestment risk.
◉ Cash Matching. Answer: A strategy that buys bonds whose
maturities match each future liability date.
◉ Maturity Matching. Answer: A strategy that matches the maturity
of assets to the maturity of liabilities, reducing price risk.
,◉ Active Duration. Answer: An interest rate forecasting strategy
where the manager adjusts the portfolio's duration based on rate
movements.
◉ Passive Management. Answer: Strategies like buy and hold,
indexing, and matching strategies that involve minimal trading.
◉ Buy and Hold. Answer: Purchase bonds and keep them until
maturity with minimal trading.
◉ Indexing. Answer: Replicate a bond index to match its
performance.
◉ Duration Matching. Answer: Set the portfolio's duration equal to
the investment horizon to eliminate interest rate risk.
◉ Horizon Matching. Answer: Combine cash matching for near-term
liabilities with duration matching for longer-term liabilities.
◉ Active Strategies. Answer: Interest rate forecasting, spread
analysis, valuation analysis, and credit analysis aimed at enhancing
portfolio income.
, ◉ Interest Rate Risk. Answer: The uncertainty in a bond investor's
total return caused by fluctuations in market interest rates.
◉ Price Risk. Answer: The risk of loss due to a decrease in the
market price of a bond.
◉ Reinvestment Risk. Answer: The risk that cash flows from a bond
will be reinvested at lower interest rates.
◉ Spread Analysis. Answer: Trading to profit from expected changes
in yield spreads between sectors, maturities, or credit qualities.
◉ Credit Analysis. Answer: A strategy focusing on predicting credit
rating changes to profit from price changes.
◉ Valuation Analysis. Answer: Comparing a bond's actual yield to its
estimated fair yield based on characteristics.
◉ Most Labor-Intensive Strategy. Answer: Interest rate forecasting.
◉ Least Labor-Intensive Strategy. Answer: Credit analysis.
ANALYSIS EXAM PRACTICE SOLUTION 2026
TESTED QUESTIONS WITH FULL ANSWERS
◉ Individual Investors. Answer: Personal taxable accounts, trusts,
and defined contribution plans such as 401Ks, 403bs, and IRA.
◉ Liability-driven Investors. Answer: Pension funds and insurance
companies that hold long-term, predictable obligations.
◉ Credit Risk Tolerance. Answer: Endowments, family offices, and
some mutual funds may tolerate more credit risk for higher returns.
◉ Immunization. Answer: A strategy that sets the portfolio's
duration equal to the investment horizon to offset price and
reinvestment risk.
◉ Cash Matching. Answer: A strategy that buys bonds whose
maturities match each future liability date.
◉ Maturity Matching. Answer: A strategy that matches the maturity
of assets to the maturity of liabilities, reducing price risk.
,◉ Active Duration. Answer: An interest rate forecasting strategy
where the manager adjusts the portfolio's duration based on rate
movements.
◉ Passive Management. Answer: Strategies like buy and hold,
indexing, and matching strategies that involve minimal trading.
◉ Buy and Hold. Answer: Purchase bonds and keep them until
maturity with minimal trading.
◉ Indexing. Answer: Replicate a bond index to match its
performance.
◉ Duration Matching. Answer: Set the portfolio's duration equal to
the investment horizon to eliminate interest rate risk.
◉ Horizon Matching. Answer: Combine cash matching for near-term
liabilities with duration matching for longer-term liabilities.
◉ Active Strategies. Answer: Interest rate forecasting, spread
analysis, valuation analysis, and credit analysis aimed at enhancing
portfolio income.
, ◉ Interest Rate Risk. Answer: The uncertainty in a bond investor's
total return caused by fluctuations in market interest rates.
◉ Price Risk. Answer: The risk of loss due to a decrease in the
market price of a bond.
◉ Reinvestment Risk. Answer: The risk that cash flows from a bond
will be reinvested at lower interest rates.
◉ Spread Analysis. Answer: Trading to profit from expected changes
in yield spreads between sectors, maturities, or credit qualities.
◉ Credit Analysis. Answer: A strategy focusing on predicting credit
rating changes to profit from price changes.
◉ Valuation Analysis. Answer: Comparing a bond's actual yield to its
estimated fair yield based on characteristics.
◉ Most Labor-Intensive Strategy. Answer: Interest rate forecasting.
◉ Least Labor-Intensive Strategy. Answer: Credit analysis.
