A person running a hedge fund and are long a portfolio of Mortgage-Backed securities with a market value of $100 million and an average effective duration of 3 and short a portfolio of treasury bonds with the same market value and effective duration. Under which interest rate scenario (lower rates, stable rates, higher rates) would you be most profitable?

Answer rating: 100% (QA)

To determine the interest rate scenario under which the hedge fund would be most profitable we need to analyze the impact of changing interest rates on the value of the portfolio MortgageBacked Securi... View the full answer