NO.PZ2022123002000038
问题如下:
A $30 million investment
account of a bank trust fund is allocated one-third to stocks and two-thirds to
bonds. The portfolio manager wants to change the overall allocation to 50%
stock and 50% bonds and the allocation within the stock fund from 70% domestic
stock and 30% foreign stock to 60% domestic and 40% foreign. The bond
allocation will remain entirely invested in domestic corporate issues.
Explain
how swaps can be used to implement this adjustment. The market reference rate
is assumed to be flat for all swaps, and you do not need to refer to specific
stock and bond indexes.
解释:
Correct Answer:
Currently the
allocation is $10 million in stocks and $20 million in bonds. Within the stock category,
the current allocation is $7 million domestic and $3 million foreign. The
desired allocation is $15 million in stocks and $15 million in bonds. Thus, the
allocation must change by moving $5 million into stocks and out of bonds. The
desired stock allocation is $9 million domestic and $6 million foreign. The
desired bond allocation is $15 million, all domestic corporate.
To make the changes
with swaps, the manager must enter into swaps against the market reference
rate, which is assumed to be flat for all swaps in this example. Using the
swaps, the bank trust fund portfolio manager needs to (1) receive the returns
on $2 million based on a domestic equity index and on $3 million based on a
foreign equity index and (2) pay the return on $5 million based on a domestic
corporate bond index. The market reference rate outflows from the swaps in (1)
and the inflows from the swap in (2) will cancel out through summation.
Current allocation: 10M stocks ( 7M in domestic & 3M in foreign) and 20M bonds
Goal allocation:15M stocks ( 9M in domestic & 6M in foreign) and 15M bonds
we should add 5M stocks ( 2M in domestic & 3M in foreign) and reduce 5M bonds using swaps against MRR.
- pay the return of 5M bonds and receive MRR of 5M notional principal.
- receive the return of 2M domestic stocks / 3M foreign stocks, and pay MRR of 2M/3M notional principal
the cash flow of MRR will offset between 1 and 2.