The total expected return over the 1-year investment horizon for the Buy-and-Hold and Yield Curve Rolldown portfolios
Question:
The total expected return over the 1-year investment horizon for the Buy-and-Hold and Yield Curve Rolldown portfolios are closest to:
A. 2.515% for the Buy-and-Hold portfolio and 4.555% for the Yield Curve rolldown portfolio, respectively.
B. 2.42% for the Buy-and-Hold portfolio and 4.51% for the Yield Curve Rolldown portfolio, respectively.
C. 2.491% for the Buy-and-Hold portfolio and 3.59% for the Yield Curve Rolldown portfolio, respectively.
A US-based fixed-income portfolio manager is examining unhedged investments in Thai baht (THB) zero-coupon government bonds issued in Thailand and is considering two investment strategies:
1. Buy-and-hold: Purchase a 1-year, THB zero-coupon bond with a current yield-tomaturity of 1.00%.
2. Roll down the THB yield curve: Purchase a 2-year zero-coupon note with a current yield-to-maturity of 2.00% and sell it in a year.
THB proceeds under each strategy will be converted into USD at the end of the 1-year investment horizon. The manager expects a stable THB yield curve and that THB will appreciate by 1.5% relative to USD. The following information is used to analyze these two investment strategies:
Step by Step Answer:
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