Explanation:
A Front-end Load Maturity Policy concentrates all investments in short-term securities. This strategy is the most appropriate for a portfolio whose primary goal is liquidity (and capital preservation) rather than income maximization, because short-term investments are highly liquid and carry minimal interest rate risk.
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20.5.3. The Acme Investment Firm wants to re-position one of its bond portfolios. Based on its in-house expertise, for the portfolio, it can select from among the following maturity strategies: Ladder Policy, Front-end Load Maturity Policy, Back-end Load Maturity Policy, Barbell Strategy, or Rate Expectations Approach. The firm’s goal for the portfolio is NEITHER to maximize income NOR to seek to maximize the upside potential for earnings. Instead, the goal is to use the portfolio primarily as a source of liquidity. Given that goal, which strategy is BEST?
A
Ladder Policy
B
Front-end Load Maturity Policy
C
Back-end Load Maturity Policy
D
Rate Expectations Approach
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