20. Analytical Methods

Question 1

Bond Duration vs Price Volatility

Answer 1

-Duration increases = volatility increases
-Coupon increases = volatility decreases

Question 2

Alpha

Answer 2

the difference in the expected return of the portfolio, given the portfolio’s beta, and the actual return the portfolio achieved

higher the alpha, the better the portfolio has done in achieving excess or abnormal returns

α = Rp - [Rf + β*Rm) - Rf)]