Chartered Investment Manager (CIM) Practice Exam · Question
A Canadian bond portfolio manager expects interest rates to decline in the near future. Which fixed-income portfolio strategy would likely benefit most from this expectation?
When interest rates are expected to decline, bonds with longer durations will experience a greater price increase, thereby benefiting the portfolio.
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Question: A Canadian bond portfolio manager expects interest rates to decline in the near future. Which fixed-income portfolio strategy would likely benefit most from this expectation?
Answer options: ✅ Increasing the portfolio's duration.
- Decreasing the portfolio's duration.
- Shifting investment to short-term money market instruments.
- Increasing the allocation to floating-rate bonds.
Correct answer: Increasing the portfolio's duration.
Explanation: When interest rates are expected to decline, bonds with longer durations will experience a greater price increase, thereby benefiting the portfolio.
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