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Questions (21-22) You are a bond strategies: and portfolio manager and deciding between three hedging...

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Questions (21-22) You are a bond strategies: and portfolio manager and deciding between three hedging 1) a duration plus convexity hedge 2) a strategy to hedge against both level and slope risks using two zero coupon bonds (one long dated and one short dated). 3 a strategy to hedge against both level, slope and curvature risks using 3 zero coupon bonds (one long dated, one medium dated and one short dated). 21. Which hedging strategy would have resulted in the smallest change in the value of their portfolio given a LARGE parallel shift in interest rates? Why a. Strategy1 b. Strategy 2 c. Strategy 3 d. Strategies 2 and 3 e. All of the above 22. Which strategy would have resulted in the smallest change in the value of their portfolio given a shift that moved long yields and short yields but left medium maturity yields intact? Why? a. Strategy 1 b. Strategy 2 c. Strategy 3 d. Strategies 1 and 3 e. All of the above

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