For this question, use the initial bond yields and prices for the 5-year and 10-year T-notes futures in Exhibit 1 and 2 of Case 2 (below). Continue to assume that the dollar value of a 1-bp change (DV01) in the yield of the 5-year and 10-year maturity futures contracts are $47.97 and $77.91, respectively. Case 2: Yield

Curve Shifts Create Trading Opportunities Strategy Paper, CME Group, 2013

https://www.cmegroup.com/trading/interest-rates/files/Yield_Curve_Strategy_Paper.pdf (can be copied and pasted and will work; a short study)

EXHIBIT 1 (Falling Yields, Steeper Slope)	Initial Yield (%)	Change in Yield (bps)	Final Yield (%)
on-the-run 5-year note	1.99	-20	1.79
on-the-run 10-year note	2.96	-10	2.86
slope	0.97		1.07

EXHIBIT 2 (Rising Yields, Flatter Slope)	Initial Yield (%)	Change in Yield (bps)	Final Yield (%)
on-the-run 5-year note	1.99	+20	2.19
on-the-run 10-year note	2.96	+10	3.06
Slope	0.97		0.87

A trader believes that, over the next month, the 10-year yield will increase by 10 bp (basis points) and the 5-year yield will increase by 30 bp. The trader wishes to pursue a yield curve strategy which is affected only by the change in the shape of the yield curve and is insensitive to parallel shifts in the curve. She takes a position of 100 contracts in the 5-year T-notes futures.

a) [5 points] What position in the 10-year T-note futures should be taken? How many contracts?

b) [5 points] Estimate the expected profit of the yield curve trading strategy.