Question: TWO Year rate zero is currently trading at 3.5% yield and TEN year zero trading at 4% rate. Q2a. What is the duration 2y and

TWO Year rate zero is currently trading at 3.5% yield and TEN year zero trading at 4% rate. Q2a. What is the duration 2y and 10y bond respectively (5 points)? Q2b. If you long 100 million of 10Y bond, how many dollars of short position do you need to take in the 2Y in order to offset the dollar duration risk? (5 points) Page 5 Q2c. Yield curve steepened: 2Y yld went up by 15 bps and 10Y yld went up by 20 bps. What is your profit or loss (PnL) for the above position based on duration? (5 points) Q2d. Yield curve flattened. 2Y yld went down by 10 bps and 10Y yld went down by 15 bps. What is your PnL based on duration?

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Q2a To calculate the duration of a bond we can use the following formula Duration 1 yield yield For the 2year bond with a yield of 35 0035 the duratio... View full answer

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