You are a bond analyst working for a hedge fund. A bond you follow has face...

 

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You are a bond analyst working for a hedge fund. A bond you follow has face value 100, has a coupon rate of 5% (paid once a year) and matures in 5 years. You are trying to find if there is any profitable trading strategy. You've done extensive research and have formed your opinions on future economic conditions. As a result, you expect that there will soon be a major shift in the yield curve. The current and the expected yield curve is shown below: Year 1 2 3 4 5 Current 1% 1.50% 2.00% 3.00% 5.00% Expected 3.00% 2.50% 3.50% 4.00% 5.00% Question 1/3 0/1 point (graded) Calculate the price of the bond based on the current yield curve? (use 2 decimal digits) Question 2/3 0.0/1.0 point (graded) Calculate the price of the bond based on the expected yield curve $. Submit You have used 0 of 3 attempts Question 3/3 0.0/1.0 point (graded) Buy the bond You are 100% sure about your expectation of the movement of the yield curve in the near future. And you want to set up a trading position before the market price in the future shift of yield curve. What should you do? Sell the bond Do nothing Submit You have used 0 of 2 attempts < Previous (keep two decimal points) Next > Save Save You are a bond analyst working for a hedge fund. A bond you follow has face value 100, has a coupon rate of 5% (paid once a year) and matures in 5 years. You are trying to find if there is any profitable trading strategy. You've done extensive research and have formed your opinions on future economic conditions. As a result, you expect that there will soon be a major shift in the yield curve. The current and the expected yield curve is shown below: Year 1 2 3 4 5 Current 1% 1.50% 2.00% 3.00% 5.00% Expected 3.00% 2.50% 3.50% 4.00% 5.00% Question 1/3 0/1 point (graded) Calculate the price of the bond based on the current yield curve? (use 2 decimal digits) Question 2/3 0.0/1.0 point (graded) Calculate the price of the bond based on the expected yield curve $. Submit You have used 0 of 3 attempts Question 3/3 0.0/1.0 point (graded) Buy the bond You are 100% sure about your expectation of the movement of the yield curve in the near future. And you want to set up a trading position before the market price in the future shift of yield curve. What should you do? Sell the bond Do nothing Submit You have used 0 of 2 attempts < Previous (keep two decimal points) Next > Save Save

Answer rating: 100% (QA)

Question 1 Price of the bond based on current yield curve To calculate the price of the bond based on the current yield curve we can use the bond valu... View the full answer