Answer the following question by using Excel and show the cells that you use to calculate the values. \ Consider following three bonds whose features are summarized in the following\ table:\ The face value of bonds is

$100

, YTM stands for yield to maturity, coupons are received\ annually. We structure a butterfly strategy (combination of bullet and barbell) in the\ following way:\ We sell 10000 5-year maturity bonds.\ We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds.\ a) Suppose that one month later the YTM curve has changed. A flattening movement has\ happened so that the curve rotates around the body. We consider the following\ movement "

+(50)/(0)/-50

" meaning that the short wing YTM increases by 50 bps, the body\ does not move and the long wing YTM decreases by 50 bps. Compute the total return of\ the butterfly.\ b) Same question with a steepening movement "

-(50)/(0)/+50

".

1. Consider following three bonds whose features are summarized in the following table: The face value of bonds is $100, YTM stands for yield to maturity, coupons are received annually. We structure a butterfly strategy (combination of bullet and barbell) in the following way: - We sell 100005 -year maturity bonds. - We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds. a) Suppose that one month later the YTM curve has changed. A flattening movement has happened so that the curve rotates around the body. We consider the following movement " +50/0/50 " meaning that the short wing YTM increases by 50 bps, the body does not move and the long wing YTM decreases by 50 bps. Compute the total return of the butterfly. b) Same question with a steepening movement "-50/0/+50