Which the portfolio will

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An analyst predicts that the yield curve will twist at the 10 year maturity, such that the 1-year zero-coupon government bond's ytm will increase by 1% while the 20-year zero-coupon government bond ytm will decrease by 1%.

  • Government fixed Income securities available in the market have a maximum maturity of 20 years and a minimum maturity of 1 year, and are only available as zero coupon bonds.

Problem 1: An investor has created a portfolio that is a barbell plus a bullet, where the investment is 40% in a 1 year bond, 20% in a 10 year bond and 40% in a 20 year bond. Based on the analyst's forecast, the portfolio will:

Group of answer choices

Option 1: Not enough information regarding the changes in the yield curve is provided to calculate the change in value of the portfolio

Option 2: provide a net positive capital gains

Option 3: Not enough information regarding the portfolio is provided to calculate the change in value of the portfolio

Option 4: not change in value

Option 5: provide a net negative capital gains (or capital loss)

Reference no: EM132976847

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