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CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt

A pension fund holds a portfolio of floating-rate senior secured direct loans. Relative to a portfolio of fixed-rate long-term corporate bonds, the loan portfolio's value is most likely:

The floating-rate loan portfolio is less sensitive to interest rate duration risk. Coupons reset with the benchmark rate, so the value stays close to par when rates move, whereas long fixed-rate bonds lose value when rates rise. Credit risk remains the main exposure.

  1. Amore sensitive to changes in benchmark interest rates
  2. Bless sensitive to interest rate duration riskCorrect
  3. Cmore sensitive to changes in the issuer's equity prices

Explanation

Floating-rate coupons reset with the reference rate, so price sensitivity to rate changes (duration) is low. Fixed-rate long bonds have high duration. The loans remain exposed to credit risk, but that does not make them more rate sensitive.

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