HIGHER THAN HIGHER THAN

2.

higher than

Page 8 Level III

Answer Question 1-D on This Page

Determine whether

the foundation’s

target spending for

the coming year will

be lower, the same,

Justify your response.

or higher using the

new spending rule

instead of the old

spending rate.

(circle one)

lower

the same

higher

THIS PAGE INTENTIONALLY LEFT BLANK

MARKS MADE ON THIS PAGE ARE

NOT GRADED

Page 10 Level III

QUESTION 2 HAS FIVE PARTS (A, B, C, D, E) FOR A TOTAL OF 22 MINUTES.

William MacDougal, a portfolio manager for Ethereal Capital, manages fixed income

investments for institutional clients in the country of Scorponia. He manages a portfolio that

invests in both domestic government bonds and domestic corporate bonds.

MacDougal manages the portion of the portfolio invested in government bonds to match the

duration of the 10-year Scorponia government bond. He is concerned about an upward shift in

interest rates and is seeking ways to increase the fund’s return. He assesses the effect of adding

foreign sovereign debt from Tauravia and adjusting the current portfolio’s duration. Bond

market data and MacDougal’s exchange rate forecast appear in Exhibit 1.

Exhibit 1

Bond Market Data and Exchange Rate Forecast

Scorponia Tauravia

Currency SCF TRF