Question

Assume that you manage an actively managed bond fund. If you expect the economy to weaken unexpectedly over the next year, then you should _________ duration and ________ credit quality in your portfolio.

• A. increase; increase

• B. increase; decrease

• C. decrease; decrease

• D. decrease; increase

Answer 1

a. increase , increase

It is because as economy is going to be weak so your fund should wait till it improve again so you must increase the bond duration or in other words inflation will be low and your bond value will be higher also you must take into account the quality product because in weak economy many firms may go to burst or insolvent. So it is necessary that there must be quality in them.

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