Reference no: EM132215913
Question - Consider the following Treasury yield curve:
|
Maturity
|
YTM
|
Price
|
2-year
|
10/31/2020
|
2.00%
|
100-00
|
5-year
|
10/31/2023
|
3.50%
|
100-00
|
10-year
|
10/15/2028
|
4.75%
|
100-00
|
There are 2 portfolios, each with $100MM market value.
Portfolio I: 5-year bullet.
Portfolio II: 2-year/10-year barbell.
1) Today, you invest the $100MM in each portfolio, so that the portfolios have the same duration. The trades settle tomorrow.
a) How much is invested in the 2-year and in the 10-year?
2) Suppose you believe that 9 months from today the 2-year yield will be 50 basis points higher and the 10-year yield will be 25 basis points lower.
a) Which strategy outperforms on a total rate of return basis?
3) Discuss the issues/complexities involved with solving these questions.
All your answers must be typed.
Attachment:- Assignment File.rar