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Most investors will make their fixed income (bond) investments through a bond fund. This snapshot of...

Most investors will make their fixed income (bond) investments through a bond fund. This snapshot of a popular bond index fund will help you understand how a bond fund works. Use this very popular fund, the Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) to answer the questions below. *All answers stem from the Overview tab.

  1. What is the level of risk with this investment?
  1. What types of bonds does this fund hold?
  1. How many bonds are held in this fund?
  1. What is the minimum investment for this fund?
  1. What is the expense ratio of this bond fund?
  1. What is the current price of a share?
  1. What is the current net value of this bond fund?
  1. What is the lowest quality rating of bond held in the fund?
  1. What was the fund's return in 2014? *Hint: Look at the the Average Annual Performance for the past year.

BONUS!

Here are a few more questions if you’re looking for a challenge:

  1. If interest rates increased by 2%, by what percent would you expect this fund’s price to fall? *Hint: Look at average duration.
  1. If the average effective maturity for this fund increased to 10 years, what would be the impact on share price if interest rates changed?
  1. The Spliced Barclays USAgg Float Adj Ix is the complete bond index against which this fund can be judged. What’s one reason the Vanguard fund might consistently lag in comparison to the index?

Solutions

Expert Solution

Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)

What is the level of risk with this investment?

The risk of this investment is below average. It has a standard deviation of 3.05% (10 years), an effective duration of 6.22, a beta of 1.03 and a Sharpe ratio of 0.91

What types of bonds does this fund hold?

The fund invests about 30% in corporate bonds and 70% in U.S. government bonds of all maturities (short-, intermediate-, and long-term issues).

What is the minimum investment for this fund?

The fund is closed for new investments

What is the expense ratio of this bond fund?

The expense ratio is 0.15%

What is the current price of a share?

The price of a share is $11.37

What is the current net value of this bond fund?

The current net value of this fund is $259.34 billion

What is the lowest quality rating of bond held in the fund?

The lowest quality rating bond held is BBB

What was the fund's return in 2014?

The fund's total return in 2014 was 5.76%

jeff jeffy answered 1 year ago
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