Monica is certain that yields are going to fall dramatically in the coming weeks and would like
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Question:
Monica is certain that yields are going to fall dramatically in the coming weeks and would like to put on a trade to profit from this view. She is limited by her $100 of capital and would like to make the most money by investing in one security. Her (risky) asset menu looks like the following:
(a) A 10-year, 8% annual, coupon bond with a price of $100
(b) A 5-year, 10% annual, coupon bond with a price of $100
(c) A 30-year zero-coupon with a price of $100
Rank these three securities by their sensitivity to yield changes. (No need for mathematical justification)
Related Book For
Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye
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