Fixed INC

CFA Level III Fixed Income
#1

Statement from topic test 3 for FI.

Market value risk should be similar for the portfolio and the benchmark. The longer the duration, the greater the total return potential because rates are low now and the yield curve is so steep.

The above choice was incorrect. Since the first sentence is correct, I’m assuming it’s the second line that is incorrect. Is it because return potential is lower because a long portfolio will fall more in price than a short one?

Thanks,

#2

the longer the duration the more impacted it is by movement in rates. The key part for me is as follows: “because rates are LOW now”…return will be greater when rates drop, but the statement implies that due to rates already being low they will increase, which means a greater loss and not a greater return.

#3

Yes. Perfect. Much appreciated.