Fixed Income: How to minimize income fluctuations in a fixed-income portfolio

CFA Level III Fixed Income
#1

Does anyone know which the answer of the question below is?

I am confused because the answer should be (a) if the definition of “income” fluctuations means “coupon return” when think about a reinvestment risk.
But I think that the answer will be (b) if it includes “return from price changes”.

Q: Rachel Benchim is concerned about the effects of fluctuating interest rates on a fixed-income portfolio.To minimize income fluctuations, Rachel should construct a portfolio with:
(a) long duration
(b) short duration
(c) high quality issues

I got this question from a website but cannot see the answer…

#2

If what your presented is the be all then your answer is b. Because you cannot assume anything. Often CFAI presents qs. that warrant simple thinking without applying any complicated motion. Unless the day suggest any more angle a simple conclusion of short duration to mitigate interest rate fluctuation is the answer. Do not assume anything.

1 Like
#3

Thank you, HerbsDelite. I’ll try to think as simple as possible.