GARP Exam 2016-FRR Topic 2 Question 6 Discussion

Actual exam question for GARP's 2016-FRR exam

Question #: 6
Topic #: 2

[All 2016-FRR Questions]

Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?

ATake positions to reduce the duration

BTake positions to increase the duration

CTake positions to make the convexity zero

DSince the portfolio is duration hedged Sam does not need to take additional positions.

Show Suggested Answer

Suggested Answer: C

by Gail at May 05, 2025, 09:18 PM

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Nadine

6 days ago

You know, I once heard a joke about a bond trader who tried to hedge against yield curve shifts by building a wall around his portfolio. Didn't work out too well for him. Anyway, I'm going with option B too.

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Rickie

8 days ago

I think D is the correct answer, since the portfolio is already duration hedged.

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Verlene

9 days ago

Haha, I bet Sam wishes he could just make the convexity zero and call it a day! But that's not how it works, is it? Gotta go with option B to increase the duration.

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Vicente

14 days ago

I think Sam should take positions to make the convexity zero.

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Doug

18 days ago

Option D sounds right to me. If the portfolio is already duration hedged, Sam doesn't need to do anything else. No need to overcomplicate things.

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Michell

1 months ago

I think Sam should take positions to increase the duration. Larger shifts in the yield curve can have a bigger impact on the portfolio, so increasing the duration will help offset that.

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