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Anticipating a rise in rates a bond portfolio manager would want to: buy long term, low...

Anticipating a rise in rates a bond portfolio manager would want to:

buy long term, low coupon bonds

buy short term, low coupon bonds

buy short term, high coupon bonds

buy long term, high coupon bonds

buy long term, zero coupon bonds
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Answer #1

Price is inversely proportional to interest rate. So for rise in rate a bond portfolio manager should buy bonds which is less volatile.

price volatility is directly proportional to the duration of the bond. So, portfolio manager should choose bonds with short term.

Price volatility is inversely proportional to the coupon rate of the bond for the same maturity period. So, portfolio manager should choose bonds with higher coupon rate so has to minimize the price fluctuation.

So, the Portfolio manager should buy Short term, High coupon bonds.

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