Use the information below to help answer Questions 9-10: Bond Portfolios A-F are identical except for the weight of each US Government bond held Current Term Structure for US Government Bonds 2Y 3Y SY 7Y Yield 2.00% 2.25% 2.50% 2.75% 2.50% Coupon 1.50% 1.50% 2.25% 2.50% 2.50% Current Price 99.02 97.84 98.831 98.42 100.00 Hlective Duration 1.96 2.914 .70 6.38 8.82 Current Allocation for Portfolios A-F - 3Y SY 7Y TOY Portfolio A 35.0% 15.0% 0.0% 15.0% 35.0% Portfobo B 30.0% 15.0% 10.0% 15.0% 30.0% Portfolio C 25.0% 20.0% 10.0% 20.0% 25.0% Portfolio D 20.0% 20.0% 20.0% 20.0% 20.0% Portfolio E 0.0% 20.0% 60.0% 20.0% Portfolio F 0.0% 10.0% 80.0% 10.0% 0.0% (Fixed Income) Today (T=0), an investor chooses to purchase the 7 year US Government Bond at $98.42; 6 months later, assume the yield curve has made a parallel shift down of 50bps (100bps=1.00%). The investor sells the bond immediately after received the first coupon payment (T=0.5). The investor's total return on their investment of $98.42 is closest to HINT: Don't forget about the coupon. a) b) c) d) e) 1.27% 1.35% 4.40% 4.51% 5.67% 10. (Fixed Income) The yield curve makes an instantaneous non-parallel shift up where only the yield on the 5 year US government bond shifts up by 25bps. This type of bond risk in this problem is best described as will underperform comparable bullet portfolios. a) Interest Rate Risk b) Interest Rate Risk c) Yield Curve Risk d) Yield Curve Risk e) Yield Curve Risk Portfolio A Portfolio E Portfolio E Portfolio F Portfolio D