HC Investments Productivity Client Fixed Income Security Report

Prepare a report to the client from the Client Bond Portfolio Role Play attached on a proposed fixed-income portfolio. Please add a US government bond to the portfolio in the attachment.

You may include corporate bonds, asset-backed securities, U.S. Treasury securities, non-sovereign U.S. government bonds (e.g., city or state bonds), or quasi-government bonds. You may apportion the bonds any way you want; however, no single bond can be less than 5% of the portfolio and no single bond can be more than 50% of the portfolio.

In your report,

• Define at least three investment objectives for the fixed-income portfolio.
• Produce a table identifying the chosen bonds, the primary characteristics of the bonds (including the rating), and the weights of the bonds in the portfolio.
• Using the spot rates you used in your Yield Curve and Forecast Report from Week 2, provide an analysis to the client on the arbitrage-free valuation of two bonds in the portfolio (use only non-convertible corporate bonds from the portfolio).
  • This should be presented as the sum of the present values of expected future values using the benchmark spot rates.
  • Compare the arbitrage-free valuation to the current market value of the two chosen bonds.
• State your conclusion as to whether an arbitrage-free opportunity exists for these two bonds.
• Calculate the duration of the portfolio.
• Explain any changes to the bond portfolio that occurred in Week 4 or Week 6.
• Identify one bond index to use as a benchmark for this portfolio. Be sure to explain how the bond index compares in terms of market value risk and income risk.
• Identify characteristics of the bond index that will cause the bond index performance to vary from the client bond portfolio.
• Calculate the tracking risk of this bond portfolio versus the chosen index, based on five years of returns for the bonds and the indexes through the current date.
• Identify one to three bond index funds that would be appropriate for the client, based on their defined investment objectives.
• Recommend one of the following options to the client:
  • Implement the bond portfolio.
  • Implement the bond index fund portfolio.