NO.PZ202209060200004203
问题如下：
Central County History Center (CCHC) is a not-for-profit history museum that recently completed fundraising for a new permanent gallery. CCHC plans to contribute a portion of the funds raised to an endowment whose income will support the permanent gallery.
Bill Ronane (CCHC’s president) and Amy McDown (CCHC’s vice president of finance) are meeting with Elizabeth Larent (chief investment officer of Snavely Capital Management). The purpose of the meeting is to discuss the creation of a corporate bond portfolio that is suitable for the endowment.
McDown asks Larent to describe the risk considerations for investment-grade bonds. Larent responds by stating that the primary component of credit risk is loss severity. Furthermore, she states that credit rating migration can cause spread risk to become realized. Larent then states that interest rate risk reflects the positive correlation between risk-free interest rates and credit spreads.
Ronane asks Larent to disclose her methodology for credit security selection. Larent explains that she uses various credit spread measures to ensure that the securities she is considering for purchase are fairly priced. Larent illustrates by providing data for three $100 par value A rated corporate bonds that mature in five years and whose benchmark yield to maturity is 4.00%.
Exhibit 1 Data on Corporate Bonds
McDown expresses concern about the timing of the credit cycle as it relates to constructing a corporate bond portfolio for CCHC. Larent explains that she uses a bottom-up approach to determine which corporate bonds offer the best relative value should the credit cycle deteriorate. Larent then provides the data in Exhibit 2 for three corporate bonds in which the holding period is assumed to be one year.
Exhibit 2 Data on Corporate Bonds
Larent explains that another approach to portfolio construction is top down. She says, “I believe that global economic conditions are going to improve. Credit portfolios that are overweight lower-quality bonds in industry sectors that are highly correlated with the economic cycle, such as industrial metals, will likely outperform a global benchmark. We can use effective duration to assess the impact of a likely steepening in the yield curve. Within credit rating categories, we can underweight longer-maturity bonds given my expectation that the relatively wide spread curve will flatten.”
Ronane asks Larent to discuss the factors that CCHC should consider before investing in the bonds of international companies. Larent replies that the international bond universe consists of companies that are located in both developed markets and emerging markets. In term of factors to consider, Larent states that a company’s credit ratings are independent from the sovereign rating of its domicile and that bankruptcy laws apply equally to all investors of any particular company’s bond issuances. Larent adds that being able to accurately predict credit cycles is important because of regional differences across the global credit universe.
McDown asks whether structured financial instruments should be considered for CCHC’s portfolio. Larent replies yes and states, “The credit cycle is expected to improve. For purposes of diversification, both collateralized debt obligations (CDOs) and their underlying corporate bonds should be included in the portfolio. AA rated CDOs currently offer significant relative value for long-term investors as the yield spread reflects a BB default rate expectation for the underlying collateral. Moreover, the value of the senior tranches should increase by more than the value of the mezzanine tranches since default correlations are expected to increase.”
QuestionThe bond in Exhibit 2 with the best relative value is most likely:
选项：
A.Bond D. B.Bond E. C.Bond F.解释：
SolutionA is correct. Bond D has the best relative value; its expected excess return (EXR) has the smallest loss given the expectation that credit spreads are going to widen by 25 bps (the change in the Z-spread). The expected excess return calculation is as follows:EXR = (s × t) – (∆s × SD) – (t × p × L)where
s = Z-spread
t = Holding period
SD = Spread duration
p = Probability of default
L = Loss severity
Calculations are as follows:
B is incorrect because Bond D has the best expected excess return.
C is incorrect because Bond D has the best expected excess return.
BondF
1.25%-0.25%x4-40%x0.75%=-0.0005
但是答案却是
Bond D EXR=-0.1%
Bond E EXR=-0.125%
Bond F EXR=-0.2%
我哪里算错了呢？
