Chartered Investment Manager (CIM) Practice Exam · Question
A portfolio manager is considering using 'ladders' as part of a fixed-income strategy. What is the primary benefit of a bond ladder?
A bond ladder involves staggering bond maturities over time, which helps to mitigate interest rate risk (as bonds mature at different points) and reinvestment r
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Question: A portfolio manager is considering using 'ladders' as part of a fixed-income strategy. What is the primary benefit of a bond ladder?
Answer options:
- It focuses investment entirely on short-term bonds to maximize liquidity.
- It aims to maximize capital gains by actively trading bonds. ✅ It helps to manage interest rate risk and reinvestment risk.
- It concentrates all investments in long-term bonds for higher yield.
Correct answer: It helps to manage interest rate risk and reinvestment risk.
Explanation: A bond ladder involves staggering bond maturities over time, which helps to mitigate interest rate risk (as bonds mature at different points) and reinvestment risk (as proceeds are reinvested at prevailing rates).
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