You are a portfolio manager for Vandelay Capital Management’s Investment Grade Bond Fund….

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Part 1.) You are a portfolio manager for Vandelay Capital Management’s Investment Grade Bond Fund. You’ve been pondering the Investment Clock for a few days, and you now believe that the “time” is 8:30. The Investment Clock is posted on Blackboard. a.) Change the Quality Spread Matrix in Case #2 to reflect your views. Explain why you changed the spread matrix the way you did. The key parts of this problem involve Cases #3 and #4. You want to change your porfolio to reflect your views that quality spreads will soon change. Remember: No guts, no glory. b.) Change your asset allocation by adjusting Case #3. You can do this in two ways. The first is: adjust the par amounts, i.e., change the equal par weighting. The second way is: choose the portfolio duration and portfolio convexity you want. Then use Solver to find the asset weights that attain your portfolio objectives. Explain why you changed the portfolio as you did. c.) Then take the weights from Case #3 and enter them into Case #4. Then change the quality spread matrix for Case #4, just as you did in Case #2. d.) Compare portfolio duration and portfolio convexity for Cases #1 and #3. Then compare portfolio duration and portfolio convexity for Cases #2 and #4. How much did your aggressive portfolio reallocation make for your clients? Part 2.) Bonds A through L are non-Treasury fixed income securities, but, other than that information, they are not defined. Suppose that bonds A, B, E, F, I, and J are callable Corporate bonds, and the call price for each bond is par. And suppose that bonds C, D, G, H, K, and L are Agency Residential MBS. a.) What are the issues here that you, as the portfolio manager, must deal with to position your fund to take advantage of your insight that the time is 8:30? Provide some detail for your answer to this question. No calculations are required for Part 2. One final point about the entire project: Remember, what I am always interested in is thoughtfulness. Just getting a correct numerical answer is not your only objective. Write a project that shows me you have thought about these questions and the issues surrounding solving them. Good Luck. All your answers must be typed and double spaced. The project is due April 29, 2020.

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