FIXED INCOME FINAL EXAM
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Institutional Investors - ANS Pension funds, endowments, family offices, or financial firms
that manage large pools of capital.
Individual Investors - ANS Personal taxable accounts, trusts, and defined contribution plans
such as 401Ks, 403bs, and IRA.
Liability-driven Investors - ANS Pension funds and insurance companies that hold long-term,
predictable obligations.
Credit Risk Tolerance - ANS Endowments, family offices, and some mutual funds may tolerate
more credit risk for higher returns.
Immunization - ANS A strategy that sets the portfolio's duration equal to the investment
horizon to offset price and reinvestment risk.
Cash Matching - ANS A strategy that buys bonds whose maturities match each future liability
date.
Maturity Matching - ANS A strategy that matches the maturity of assets to the maturity of
liabilities, reducing price risk.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Active Duration - ANS An interest rate forecasting strategy where the manager adjusts the
portfolio's duration based on rate movements.
Passive Management - ANS Strategies like buy and hold, indexing, and matching strategies
that involve minimal trading.
Buy and Hold - ANS Purchase bonds and keep them until maturity with minimal trading.
Indexing - ANS Replicate a bond index to match its performance.
Duration Matching - ANS Set the portfolio's duration equal to the investment horizon to
eliminate interest rate risk.
Horizon Matching - ANS Combine cash matching for near-term liabilities with duration
matching for longer-term liabilities.
Active Strategies - ANS Interest rate forecasting, spread analysis, valuation analysis, and
credit analysis aimed at enhancing portfolio income.
Interest Rate Risk - ANS The uncertainty in a bond investor's total return caused by
fluctuations in market interest rates.
Price Risk - ANS The risk of loss due to a decrease in the market price of a bond.
Reinvestment Risk - ANS The risk that cash flows from a bond will be reinvested at lower
interest rates.
Spread Analysis - ANS Trading to profit from expected changes in yield spreads between
sectors, maturities, or credit qualities.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS GRADED A+
2025/2026
Institutional Investors - ANS Pension funds, endowments, family offices, or financial firms
that manage large pools of capital.
Individual Investors - ANS Personal taxable accounts, trusts, and defined contribution plans
such as 401Ks, 403bs, and IRA.
Liability-driven Investors - ANS Pension funds and insurance companies that hold long-term,
predictable obligations.
Credit Risk Tolerance - ANS Endowments, family offices, and some mutual funds may tolerate
more credit risk for higher returns.
Immunization - ANS A strategy that sets the portfolio's duration equal to the investment
horizon to offset price and reinvestment risk.
Cash Matching - ANS A strategy that buys bonds whose maturities match each future liability
date.
Maturity Matching - ANS A strategy that matches the maturity of assets to the maturity of
liabilities, reducing price risk.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Active Duration - ANS An interest rate forecasting strategy where the manager adjusts the
portfolio's duration based on rate movements.
Passive Management - ANS Strategies like buy and hold, indexing, and matching strategies
that involve minimal trading.
Buy and Hold - ANS Purchase bonds and keep them until maturity with minimal trading.
Indexing - ANS Replicate a bond index to match its performance.
Duration Matching - ANS Set the portfolio's duration equal to the investment horizon to
eliminate interest rate risk.
Horizon Matching - ANS Combine cash matching for near-term liabilities with duration
matching for longer-term liabilities.
Active Strategies - ANS Interest rate forecasting, spread analysis, valuation analysis, and
credit analysis aimed at enhancing portfolio income.
Interest Rate Risk - ANS The uncertainty in a bond investor's total return caused by
fluctuations in market interest rates.
Price Risk - ANS The risk of loss due to a decrease in the market price of a bond.
Reinvestment Risk - ANS The risk that cash flows from a bond will be reinvested at lower
interest rates.
Spread Analysis - ANS Trading to profit from expected changes in yield spreads between
sectors, maturities, or credit qualities.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
