Consider the following two portfolios associated with the yield curve strategy: bullet portfolio: 100% bond C...
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Consider the following two portfolios associated with the yield curve strategy: bullet portfolio: 100% bond C and Barbell portfolio: 50% bond A and 50% bond B. answer the Convexity following questions. Bond A B C Coupon Rate (%) 8.50 9.50 9.25 Price 100 100 100 Yield to maturity 4.50 5.50 5.25 Duration 4 8 6 20 120 60 1) Calculate yields, dollar durations, and dollar convexity for the two portfolios. 2) Which portfolio is more expensive to construct? Explain the concept of "the cost of convexity". 3) Assume you expect yield curve won't change much in the following year. Which strategy among barbell and bullet would you pick? Consider the following two portfolios associated with the yield curve strategy: bullet portfolio: 100% bond C and Barbell portfolio: 50% bond A and 50% bond B. answer the Convexity following questions. Bond A B C Coupon Rate (%) 8.50 9.50 9.25 Price 100 100 100 Yield to maturity 4.50 5.50 5.25 Duration 4 8 6 20 120 60 1) Calculate yields, dollar durations, and dollar convexity for the two portfolios. 2) Which portfolio is more expensive to construct? Explain the concept of "the cost of convexity". 3) Assume you expect yield curve won't change much in the following year. Which strategy among barbell and bullet would you pick?
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To answer your questions Ill use the given information about the bond characteristics 1 Calculation of Yields Dollar Durations and Dollar Convexity a ... View the full answer
Related Book For
Managerial Economics
ISBN: 978-0133020267
7th edition
Authors: Paul Keat, Philip K Young, Steve Erfle
Posted Date:
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