ou have been assigned to managed a portfolio of Indonesian bonds (consist of 20% short term; < I year and 80% long term; mostly 5-15 years). The board has asked you to update the performance in tomorrow meeting. You should prepare the answers to following questions (20%): Describe duration and convexity! What are they mainly used for? If it happens that your calculated duration and convexity are -4 and 12 respectively; how much does a 300 bps change in interest rate would affect your portfolio? If last month inflation rate has increased 150% due to unexpected rise in price of food and fuel. Describe the risk from this macroeconomic event to your portfolio!
ou have been assigned to managed a portfolio of Indonesian bonds (consist of 20% short term; < I year and 80% long term; mostly 5-15 years). The board has asked you to update the performance in tomorrow meeting. You should prepare the answers to following questions (20%):
-
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Describe duration and convexity! What are they mainly used for?
-
If it happens that your calculated duration and convexity are -4 and 12 respectively;
how much does a 300 bps change in interest rate would affect your portfolio?
-
If last month inflation rate has increased 150% due to unexpected rise in price of food
and fuel. Describe the risk from this
macroeconomic event to your portfolio! -
What policy hedge would you recommend to mitigate the risk in point c?
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