Question: Given a zero coupon bond maturing in 8 years and yield of 3% Form a duration neutral portfolio and a positive convexity Suppose you pay

Given a zero coupon bond maturing in 8 years and yield of 3%

Form a duration neutral portfolio and a positive convexity

Suppose you pay an interest of 3% on any short or loan youre taking. Assume the yield of the bond moves by 1% down in parallel

Calculate the performance of the portfolio using direct calculation ignoring the interest component

Calculate the performance of the portfolio using duration and convexity calculation

Assume that the 1% move down took place in 3 months. Calculate the interest expense you will pay on a loan in this period

Given of what you see will you recommend implementing this strategy to your trader?

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