Investment style for a bond portfolio is best characterized by
A) beta and credit quality.
B) credit quality and duration.
C) interest rate risk and yield to maturity.
D) yield to maturity and beta.
E) beta and duration.

Question

Quizplus · Accepted Answer

Credit quality and duration are the two most important factors that determine the investment style for a bond portfolio. Credit quality refers to the risk of default, and duration refers to the sensitivity of the bond's price to interest rate changes. An investor can choose to invest in bonds with a high credit quality, such as government bonds, or in lower credit quality bonds, such as corporate bonds or junk bonds. Similarly, an investor can choose to invest in bonds with a short duration, which are less sensitive to interest rate changes, or in longer duration bonds, which are more sensitive to interest rate changes. By combining credit quality and duration, investors can create bond portfolios that match their risk tolerance and investment objectives.

Investment Style for a Bond Portfolio Is Best Characterized by