- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 3. Yield Curve Movement, Forward Curve and Rolling Down the Yield Curve
CFA Practice Question
Consider a yield curve that is upward sloping. Assume you have a 2-year investment horizon and the yield curve won't change. Which strategy will have the lowest return?
B. buy a 5-year bond and sell it after 2 years.
C. buy a 10-year bond and sell it after 2 years.
A. buy a 2-year bond and hold it to maturity.
B. buy a 5-year bond and sell it after 2 years.
C. buy a 10-year bond and sell it after 2 years.
Correct Answer: A
As long as the yield curve remains unchanged, the strategy of rolling down the yield curve can always boost returns over buying a shorter term bond and holding to maturity.
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